As filed with the Securities and Exchange Commission on
November 22, 2000February 10, 2017Registration No.
333-47078 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------333-UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------- AMENDMENT NO. 1 TOFORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------- Goodrich Petroleum Corporation (NameGOODRICH PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
---------------- Delaware 1311 76-0466193 (State or other (Primary Standard (I.R.S. Employer jurisdiction Industrial Identification No.) of incorporation or Classification Code organization) Number) 815 Walker,
Delaware 1311 76-0466193 (State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(IRS Employer
Identification Number)
801 Louisiana St., Suite
1040700Houston, Texas 77002
(713) 780-9494
(Address, including zip code,(Address, Including Zip Code, and
telephone number, including area code,Telephone Number, Including Area Code, ofregistrant's principal executive offices) ---------------- Robert C. Turnham, Jr.Registrant’s Principal Executive Offices)Michael J. Killelea
Executive Vice President, General Counsel and
Chief Operating Officer 815 Walker,Corporate SecretaryGoodrich Petroleum Corporation
801 Louisiana St., Suite
1040700Houston, Texas 77002
(713) 780-9494
(Name, address, including zip code,(Name, Address, Including Zip Code, and
telephone number, including area code,Telephone Number, Including Area Code, ofagent for service) ----------------Agent For Service)Copies to:
JamesStephen M.
Prince Rod A. Guerra, Jr.GillMichael J. Blankenship
Vinson & Elkins L.L.P.
Skadden, Arps, Slate, Meagher &1001 Fannin St., Suite
2300 Flom LLP2500Houston, Texas
77002-6760 300 South Grand Avenue77002(713)
758-2222 Los Angeles, California 90071-3144 (213) 687-5000 ----------------758-4458Approximate date of commencement of proposed sale to the
public: As soon as practicablepublic: From time to time after this registration statement becomes effective.If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
[_]☒If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
[_]☐If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
[_]☐If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
[_] If delivery☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
prospectus is expected to be made pursuant to Rule 434, please check the following box. [_]Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
Amount
to be
RegisteredProposed
Maximum
Aggregate
Offering Priceper Security
Proposed
Maximum
Aggregate
Offering PriceAmount of
Registration Fee(1)
Warrants to purchase Common Stock
2,499,999(2) — — (2) Common Stock, $0.01 par value per share, issuable upon exercise of the Warrants
2,499,999(3) $14.28(4) $35,699,986 $4,137.63 13.50% Convertible Second Lien Senior Secured Notes due 2019
$40,000,000(5) 100% $40,000,000 $4,636.00 Guarantees of 13.50% Convertible Second Lien Senior Secured Notes due 2019
— — — (6) Common Stock, $0.01 par value per share, issuable upon conversion of the 13.50% Convertible Second Lien Senior Secured Notes due 2019
1,874,999(7) — — (7) 13.50% Second Lien Senior Secured Notes due 2019
$23,153,272(8) 100% $23,153,272 $2,683.46 Guarantees of 13.50% Second Lien Senior Secured Notes due 2019
— — — (6) Total
— — — $11,457.09
(1) The registration fee has been calculated pursuant to Rule 457 under the Securities Act of 1933, as amended (the “Securities Act”).
(2) Represents the number of Warrants to purchase common stock that were issued pursuant to the Plan, as defined below. Pursuant to Rule 457(g), no separate registration fee is required for the Warrants.
(3) Represents the maximum number of shares of common stock that may be issued upon exercise of the Warrants to be registered hereunder. Pursuant to Rule 416 under the Securities Act, such number of shares of common stock registered hereby shall include an indeterminate number of shares of common stock that may be issued in connection with the anti-dilution provisions or stock splits, stock dividends, recapitalizations or similar events.
(4) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the registration fee. The proposed maximum aggregate offering price per security was calculated based upon the average of the bid and asked prices per share of Goodrich Petroleum Corporation’s common stock on February 8, 2017 as quoted on the OTC Market Group Inc.’s OTC QX.
(5) Represents the principal amount of 13.50% Convertible Second Lien Senior Secured Notes due 2019 that was issued pursuant to the Plan, as defined below.
(6) Pursuant to Rule 457(n), no additional registration fee is payable with respect to the guarantees.
(7) Represents the number of shares of common stock that may be issued upon conversion of the 13.50% Convertible Second Lien Senior Secured Notes due 2019 registered hereunder, which shares are not subject to an additional fee pursuant to Rule 457(i) of the Securities Act. Pursuant to Rule 416 of the Securities Act, such number of shares of common stock registered hereby shall include an indeterminate number of shares of common stock that may be issued in connection with the anti-dilution provisions or stock splits, stock dividends, recapitalizations or similar events.
(8) Represents the maximum principal amount at maturity of 13.50% Second Lien Senior Secured Notes due 2019 that may be issued upon the payment of interest in kind on the 13.50% Convertible Second Lien Senior Secured Notes due 2019. The
registrantRegistrant hereby amends thisregistration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until theregistrantRegistrant shall file a further amendment which specifically states that thisregistration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until theregistration statementRegistration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.- -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +TheTABLE OF ADDITIONAL REGISTRANT GUARANTORS
Exact Name of Registrant Guarantors(1) State or Other
Jurisdiction of
Incorporation or
FormationIRS Employer
Identification
NumberGoodrich Petroleum Company, L.L.C.
Louisiana 76-0117273
(1) The address for the Registrant Guarantor is 801 Louisiana, Suite 700, Houston, Texas 77002, and the telephone number for the Registrant Guarantor is (713) 780-9494. The Primary Industrial Classification Code for the Registrant Guarantor is 1311. EXPLANATORY NOTE
On April 15, 2016, Goodrich Petroleum Corporation (the “Company”) and its subsidiary Goodrich Petroleum Company, L.L.C. (the “Subsidiary,” and together with the Company, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions” and, the cases commenced thereby, the “Chapter 11 Cases”) seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”), to pursue a Chapter 11 plan of reorganization. The Company filed a motion with the Bankruptcy Court seeking joint administration of the Chapter 11 Cases under the caption In re Goodrich Petroleum Corporation, et al. (Case No. 16-31975). On August 12, 2016, the Debtors filed the proposed First Amended Joint Chapter 11 Plan of Reorganization (as amended, modified or supplemented from time to time, the “Plan”).
On August 18, 2016, the Bankruptcy Court entered an order (i) conditionally approving the Debtors’ disclosure statement, (ii) approving solicitation and notice procedures for the Plan, (iii) approving the forms of ballots and notices in connection therewith, (iv) scheduling certain dates with respect thereto, and (v) granting related relief.
On September 28, 2016, the Bankruptcy Court entered the Findings of Fact, Conclusions of Law and Order Approving the Disclosure Statement and Confirming the Debtors’ First Amended Joint Chapter 11 Plan of Reorganization (the “Confirmation Order”), which approved and confirmed the Plan, as modified by the Confirmation Order. Copies of the Confirmation Order and the Plan were included as exhibits to the Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on October 3, 2016.
On October 12, 2016 (the “Effective Date”), the Company satisfied the conditions to effectiveness set forth in the Confirmation Order and in the Plan, the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 cases.
In connection with the Company’s emergence from bankruptcy and pursuant to the Plan, all existing shares of old common stock of the Company were cancelled, and the Company issued, among other securities, (i) 5,757,500 shares of the Company’s new common stock, par value $0.01 (“common stock”), pro rata, to the Company’s former second lien noteholders, (ii) 117,500 shares of common stock, pro rata, to the Company’s former unsecured noteholders and former holders of general unsecured claims, (iii) 1,250,000 warrants (the “UCC Warrants”), pro rata, to the Company’s former unsecured noteholders and holders of general unsecured claims and (iv) 2,499,999 warrants (the “Warrants”), pro rata, to the purchasers of the Company’s $40.0 million in aggregate principal amount of 13.50% Convertible Second Lien Senior Secured Notes due 2019 issued pursuant to the Plan (the “Convertible Notes”). The Indenture governing the Convertible Notes (the “Indenture”), dated as of the Effective Date, among the Company, as issuer, the Subsidiary, as subsidiary guarantor, and Wilmington Trust, National Association, as trustee and collateral agent (the “Trustee”) also permits and, in certain cases, requires the Company to issue additional 13.50% Second Lien Senior Secured Notes due 2019 in the future as payment in kind interest on the outstanding Convertible Notes (the “PIK Notes” and, together with the Convertible Notes, the “Notes”). The PIK Notes are not convertible into shares of common stock.
The Confirmation Order and Plan provide for the exemption of the offer and sale of the shares of common stock of the Company and the warrants (including shares of common stock issuable upon the exercise thereof) from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 1145(a)(1) of the Bankruptcy Code. Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under the Plan from registration under Section 5 of the Securities Act and state laws if certain requirements are satisfied. Additionally, the Notes were issued and sold to the Purchasers (defined below) pursuant to the Section 4(a)(2) exemption from the registration requirements of the Securities Act.
On the Effective Date, the Company entered into a registration rights agreement (relating to the Warrants) (the “Warrant Registration Rights Agreement”), pursuant to which the Company agreed to file with the SEC within 120 days following the Effective Date, a shelf registration statement for the offer and resale of the
common stock and warrants held by certain holders that duly request inclusion in such registration statement within 45 days of the Effective Date. The holders have customary demand, underwritten offering and piggyback registration rights, subject to the limitations set forth in the Warrant Registration Rights Agreement. Under their underwritten offering registration rights, the holders may request to sell all or any portion of their warrants, including the shares of common stock issuable upon exercise of the warrants, in an underwritten offering that is registered, subject to certain restrictions. The Warrant Registration Rights Agreement contains other customary terms and conditions, including, without limitation, provisions with respect to blackout periods and indemnification.
Additionally, on the Effective Date, the Company entered into a registration rights agreement (relating to the Notes) (the “Notes Registration Rights Agreement”) with the Purchasers, pursuant to which the Company agreed to file with the Commission within 120 days following the Effective Date, a shelf registration statement for the offer and resale of the Notes held by certain holders that duly request inclusion in such registration statement within 45 days of the Effective Date. The holders have customary demand, underwritten offering and piggyback registration rights, subject to the limitations set forth in the Notes Registration Rights Agreement. Under their underwritten offering registration rights, the holders may request to sell all or any portion of their Notes, including the shares of common stock issuable upon conversion of the Convertible Notes, in an underwritten offering that is registered, subject to certain restrictions. The Notes Registration Rights Agreement contains other customary terms and conditions, including, without limitation, provisions with respect to blackout periods and indemnification.
The consolidated financial statements and related notes incorporated by reference herein do not give effect to the Plan, including the impact of the adoption of fresh-start accounting, which was adopted upon our emergence from bankruptcy. Such adjustments will be reflected beginning October 12, 2016 in our consolidated financial statements that will be included in our Annual Report on Form 10-K for the year ending December 31, 2016.
The information in this prospectus is not complete and may be changed.
WeThese securities may+ +not sell these securitiesnot be sold until the registration statement filed with the+ +SecuritiesSecurities and Exchange Commission is effective. This prospectus is not an+ +offeroffer to sell these securities andit iswe are not solicitingan offeroffers to buy these+ +securitiessecurities in anystatejurisdiction where the offer or sale is not permitted.+ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++Subject to
completion,Completion, dated February 10, 2017PROSPECTUS
GOODRICH PETROLEUM CORPORATION
2,499,999 WARRANTS
2,499,999 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF THE WARRANTS
13.50% CONVERTIBLE SECOND LIEN SENIOR SECURED NOTES DUE 2019
1,874,999 SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION OF THE
13.50% CONVERTIBLE SECOND LIEN SENIOR SECURED NOTES DUE 2019
13.50% SECOND LIEN SENIOR SECURED NOTES DUE 2019
This prospectus relates to the offer and sale by the selling security holders identified in this prospectus of (i) 2,499,999 Warrants, (ii) $40.0 million in aggregate principal amount of 13.50% Convertible Second Lien Senior Secured Notes due 2019 (together with the Warrants, the “Convertible Securities”),
2000 4,500,000 Shares [Goodrich Logo appears here] Common Stock -----------(iii) approximately $23.2 million in aggregate principal amount of 13.50% Second Lien Senior Secured Notes due 2019, (iv) up to 2,499,999 shares of common stock that may be issued upon exercise of the Warrants (the “Warrant Exercise Shares”) and (v) up to 1,874,999 shares of common stock issuable upon conversion of the 13.50% Convertible Second Lien Senior Secured Notes (the securities described in the foregoing clauses (i) through (v) collectively referred to as the “Securities”). We areofferingnot selling any Securities and we will not receive any proceeds from the sale of the Securities by the selling security holders. We have paid the fees and expenses incident to the registration of the Securities for sale4,500,000 sharesby the selling security holders.Our registration of
our common stock.the Securities covered by this prospectus does not mean that the selling security holders will offer or sell any of the Securities. The selling security holders may sell the Securities covered by this prospectus in a number of different ways and at varying prices. For information on the possible methods of sale that may be used by the selling security holders, you should refer to the section entitled “Plan of Distribution” beginning on page 123 of this prospectus.We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.
Our common stock is
listedquoted on theNew York Stock ExchangeOTCQX Market (“OTC Markets”) under thetradingsymbolGDP.“GDPP.” OnNovember , 2000,February 9, 2017, the last reportedsalessale price of our common stock was$$14.00 pershare.share, as reported on the OTC Markets.Investing in our common stock involves
risks. See "Risk Factors"a high degree of risk. Please see“Risk Factors” beginning on page8. -----------
Underwriting Price Discounts Proceeds to and to Public Commissions Goodrich ------- ------------ --------Per Share............................... $ $ $ Total................................... $ $ $----------- The underwriter has7 of this prospectus for a discussion of certain risks that you should consider in connection with anoption to purchase up to an additional 675,000 shares to cover over-allotments of shares.investment in the common stock.Neither the
Securities and Exchange CommissionSEC nor any state securities commission has approved or disapproved of these securities ordetermined ifpassed upon the accuracy or adequacy of thisprospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.We expect to deliver the common stock to purchasers on or about , 2000. ----------- Jefferies & Company, Inc. The date of thisThis prospectus is dated ,
2000Goodrich Petroleum Corporation South Louisiana Focus [Map2017Table of
our core operating area with detail on our near-term projects] iTABLE OF CONTENTSContents
Page ----Business and Properties.................................................... 33 Management................................................................. 46 Transactions with our Management and Securityholders....................... 53 Principal Stockholders..................................................... 54Insider Participation30 31 38 39 42 48 127 130 132 132 Where You Can Find More
Information........................................ 64 GlossaryInformation132 133 ----------------This prospectus is part of a registration statement that we have filed with the SEC pursuant to which the selling security holders named herein may, from time to time, offer and sell or otherwise dispose of the Securities covered by this prospectus. You should
rely only onnot assume that the information contained in this prospectus is accurate on any date subsequent to the date set forth on the front cover of this prospectus or that any information we have incorporated by reference is correct on any date subsequent to the date of the document incorporated by reference, even though this prospectus is delivered or Securities are sold or otherwise disposed of on a later date. It is important for you to read and consider all information contained in this prospectus, including the documents incorporated by reference therein, in making your investment decision. You should also read and consider the information in the documents to which we have referredyou.you under the caption “Where You Can Find More Information” in this prospectus.We have not authorized
anyoneany dealer, salesman or other person toprovide you withgive any information or to make any representation other than those contained or incorporated by reference in this prospectus. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any of our securities other than the Securities covered hereby, nor does this prospectus constitute an offer to sell or the solicitation of an offer to buy any Securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Unless the context otherwise requires, references in this prospectus to “the Company,” “we,” “our,” and “us” refer to Goodrich Petroleum Corporation, a Delaware corporation, and its subsidiary, Goodrich Petroleum Company, L.L.C., a Louisiana limited liability company. References in this prospectus to “Franklin” refer to Franklin Advisers, Inc., as investment adviser.
i
This summary highlights information contained elsewhere in this prospectus, is not complete, and does not contain all of the information that
is different. This prospectus may only be used where it is legal to sell these securities. ---------------- iiPROSPECTUS SUMMARYyou should consider before making your investment decision. You should carefully read the entire prospectus,especiallyincluding therisksdocuments incorporated by reference herein, which are described under “Incorporation by Reference ofinvesting inCertain Documents” and “Where You Can Find Additional Information.” You should also carefully consider, among other things, thecommon stock discussedinformation presented under"Risk Factors"the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and the consolidated financial statements and the notesthereto. In this prospectus, the terms "Goodrich," "we," "our" and "us" and other similar terms refer to Goodrich Petroleum Corporation, including our consolidated subsidiaries, members of our senior management and, where appropriate, our predecessor, Patrick Petroleum Corporation. The term "you" refers to a prospective investor. We have included definitions of technical terms important tothereto before making anunderstanding of our business under "Glossary of Technical Terms" on page 66. Unless otherwise indicated, all financial and quantitative information that we provide in this prospectus on a pro forma as adjusted basis gives effect, on the date and for the periods indicated, to the completion of this offering, the conversion of our subsidiaries' notes into shares of our common stock, our most recent private placement and the exchange of our Series B preferred stock for shares of our common stock. Goodrich Petroleum Corporationinvestment decision.Overview
We are an independent oil and natural gas company engaged in the exploration,
exploitation,development and production of oil and natural gas properties primarily in (i) Southwest Mississippi and Southeast Louisiana, which includes thetransition zone of southTuscaloosa Marine Shale Trend, (ii) Northwest Louisiana andin north Louisiana,East Texas, which includes theGulf Coast ofHaynesville Shale Trend, and (iii) South Texas,and East Texas.which includes the Eagle Ford Shale Trend.We
have been active in these regions since 1975 and have established extensive technical and operating expertise in all of our areas of geographic focus. At June 30, 2000 we had net proved reserves of 73.9 Bcfe with a PV-10 Value of $158 million. We have an inventory of over 100 development, exploitation and exploration projects that we believe provides us with an opportunity to substantially increase our production and reserves. Our Burrwood, West Delta and Lafitte fields account for approximately 80% of our 2001 capital budget of $20.0 million. Our production has already increased 67% to 2.0 Bcfe in the third quarter of 2000 from 1.2 Bcfe in the third quarter of 1999. Our Strategy Our principal strategy isseek to increaseproduction, cash flow and reserves through the acquisition and subsequent exploitation and development of mature properties, complimentedshareholder value byselect exploration activities, in our core areas. We focus on fields that have multiple productive reservoirs with an established production history and infrastructure in place. Other elements of our near-term strategy include: Aggressively Develop Our Burrwood, West Delta and Lafitte Fields. We plan to pursue 92 development and exploitation projects in our Burrwood, West Delta and Lafitte fields, 80% of which are scheduled for the next two years. This development and exploitation activity is already underway and will be accelerated with the liquidity we gain from this offering. In addition, we expect to complete a 41 square mile 3-D seismic survey over our Burrwood and West Delta fields by June 2001. Maintain Our Focus on South Louisiana. We will continue to concentrate our activities in our core areas, primarily the transition zone of south Louisiana. We have assembled a large inventory of technical data and expertise over the last 25 years, resulting in an approximate 70% drilling success rate and the achievement of production in over 70 fields in Louisiana. Over 78% of our proved reserves are in south Louisiana and more than 95% of our 2001 capital budget is dedicated to development and exploitation activities in the region. Maintain Significant Operatorship. We currently operate 65% of our properties, providing us with control over the planning, incurrence and timing of many capital and operating expenditures. As operator of the Burrwood and West Delta fields, we intend to use the liquidity that we gain from this offering to accelerate the development and exploitation projects within these fields. 1Repeat Our Recent Acquisition Success. We recently acquired our interests in the Burrwood, West Delta and Lafitte fields for an aggregate purchase price of $10.1 million. Based on independent reserve engineering estimates and factoring in the estimated capital expenditures to develop these reserves, we estimate an all-in finding and development cost of $0.71 per Mcfe for these properties. Since closing these acquisitions, we have increased production of oil and natural gas at Lafitte by 113% to approximately 9,600 gross Mcfe per day and at Burrwood and West Delta by 144% to approximately 11,000 gross Mcfe per day. These production increases, when coupled with additional production increases achieved in other fields, have allowed us to increase net daily production from approximately 12,800 Mcfe per day one year ago to approximately 23,000 Mcfe per day currently. We believe there will continue to be attractive opportunities to acquire properties in our core areas as major and large independent oil and natural gas companies continue to focus their resources away from mature properties in south Louisiana to the development of projects in the deep water Gulf of Mexico and in foreign countries. 2Recent and Pending Transactions We have consummated several significant financial and acquisition transactions this year and will close several additional financial transactions in connection with the completion of this offering: Amendment of Our Credit Agreement. Prior to the closing of this offering, we will amend our credit agreement with Compass Bank to increase the size of our credit facility to $50.0 million, with an initial borrowing base of $30.0 million. We expect to repay all of the amounts currently outstanding under our credit facility with the proceeds of this offering, resulting in initial availability of approximately $30.0 million under the amended facility. Private Placement of $5.0 Million of Common Stock. In October 2000, we completed the sale of 1,000,000 shares of our common stock for gross proceeds of $5.0 million. The placement of the common stock was arranged by Hambrecht & Quist Guaranty Finance L.L.C. Payment of Dividend Arrearages and Reinstatement of Dividends on Our Preferred Stock. In September 2000, we paid an aggregate of approximately $1.8 million of dividend arrearages and $296,000 of regular quarterly dividends on our Series A and Series B preferred stock. These payments brought us current on our dividend payments on both of our series of preferred stock. Exchange of Preferred Stock for Common Stock. We have reached agreement with all of the holders of our Series B preferred stock to exchange each share of Series B preferred stock for 1.8 shares of our common stock. The exchange offer is contingent upon and will close concurrently with this offering. We will issue 1,189,510 shares of our common stock as a result of the exchange. We believe that this transaction and the payment of dividend arrearages mentioned above will strengthen and simplify our balance sheet by eliminating both the ongoing dividend burden and approximately $7.6 million of liquidation preference and accrued dividends associated with the Series B preferred stock as of September 30, 2000. Conversion of Our Subsidiaries' Notes. In August 2000, we issued 3,295,647 shares of our common stock in connection with the conversion of convertible notes issued by two of our subsidiaries. The convertible notes had outstanding principal and accrued interest of $12.9 million at the time of conversion. Acquisition of Burrwood and West Delta Fields. In March 2000, we completed the acquisition of working interests in the Burrwood and West Delta fields for $1.2 million cash, the assumption of the plugging and abandonment obligations associated with these fields, which we have estimated to be $4.75 million, and the commitment to conduct a 3-D seismic survey by June 2001, which will cost us $2.4 million. These contiguous fields collectively comprise approximately 8,600 gross acres in Plaquemines Parish, Louisiana. At the time of the acquisition, the Burrwood and West Delta fields had cumulative production of 431 Bcfe, 16 productive reservoirs above 10,600 feet, significant existing infrastructure, immediate development opportunities and potential deep reservoirs that we believe may be identified with the use of 3-D seismic technology. The Burrwood and West Delta fields are near several fields that have yielded substantial production from wells drilled below 10,600 feet. Private Placement of $4.5 Million of Common Stock. In February 2000, we completed a private placement of 1,533,333 shares of our common stock to an investor group led by Hambrecht & Quist Guaranty Finance LLC. The $4.5 million in gross proceeds were used for the acquisition of our interests in and initial development of the Burrwood and West Delta fields and further development of the Lafitte field. 3The Offering
Common stock offered by us, excluding underwriters' over- allotment option................. 4,500,000 shares. Common stock outstanding after this offering.................... 19,005,032 shares. Use of proceeds................... We intend to use the proceeds from this offering to repay all of our borrowings under our bank credit facility. We intend to invest our operating cash flow and reborrow funds under our bank credit facility as we accelerate our capital expenditures for our development and exploitation activities in south Louisiana, with a particular focus on our Burrwood, West Delta and Lafitte fields. See "Use of Proceeds." NYSE symbol....................... GDP.The number of shares of common stock to be outstanding after this offering includes 1,189,510 shares to be issued in exchange for our Series B preferred stock but excludes 791,813 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $4.35 per share and 3,387,978 shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $1.05 per share as of November 15, 2000. 4Summary Consolidated Financial Data (in thousands, except per share data) The following table sets forth some of our historical and pro forma as adjusted consolidated financial data. You should read the following data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements included in this prospectus. The summary financial and other data as of, and for the years ended, December 31, 1997, 1998 and 1999 has been derived from our audited financial statements included in this prospectus. The summary financial and other data as of September 30, 2000 and for the nine months ended September 30, 1999 and 2000 has been derived from our unaudited financial statements included in this prospectus. The summary unaudited pro forma as adjusted statement of operations and other data illustrates the impact of this offering, the conversion of our subsidiaries' notes into shares of our common stock in August 2000, our most recent private placement and the exchange of our Series B preferred stock for common stock, as if these transactions were consummated as of January 1, 1999, while the summary unaudited pro forma as adjusted balance sheet data as of September 30, 2000 gives effect to such transactions as if they had occurred on such date unless such transactions actually occurred prior to such date. The summary unaudited pro forma as adjusted financial data is not necessarily indicative of the results that would have occurred had these transactions been consummated as of the beginning of the periods presented.
Nine Months Ended Year Ended December 31, September 30, -------------------------------------- ----------------------------- Pro Forma Pro Forma As Adjusted As Adjusted 1997 1998 1999 1999 1999 2000 2000 ------- ------- ------- ----------- ------- ------- -----------Statement of Operations Data: Revenues................ $12,901 $10,592 $14,020 $14,020 $ 9,403 $20,038 $20,038 Expenses: Lease operating expenses and production taxes...... 2,316 2,822 3,591 3,591 2,008 5,001 5,001 Depreciation, depletion and amortization.......... 4,863 4,094 4,744 4,744 3,550 4,227 4,227 Exploration............ 3,206 6,010 1,656 1,656 1,295 2,084 2,084 Impairment of oil and natural gas properties............ 550 1,076 465 465 -- -- -- Interest............... 1,416 1,910 2,811 2,308 1,678 3,696 2,065 General and administrative........ 2,627 2,399 1,990 1,990 1,617 1,712 1,712 Preferred dividend requirements of a subsidiary(1)......... -- -- 73 73 -- 38 38 ------- ------- ------- ------- ------- ------- ------- Total costs and expenses............ 14,978 18,311 15,330 14,827 10,148 16,758 15,127 ------- ------- ------- ------- ------- ------- ------- Gain (loss) on sale of assets................ 688 4 (519) (519) (519) 307 307 ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes........... (1,389) (7,715) (1,829) (1,326) (1,264) 3,587 5,218 Income tax benefit(2)............ -- -- -- -- -- (1,655) (1,655) ------- ------- ------- ------- ------- ------- ------- Net income (loss)....... $(1,389) $(7,715) $(1,829) $(1,326) $(1,264) $ 5,242 $ 6,873 Preferred stock dividends.............. 1,205 1,256 1,249 637 942 887 478 ------- ------- ------- ------- ------- ------- ------- Net income (loss) applicable to common stock.................. $(2,594) $(8,971) $(3,078) $(1,963) $(2,206) $ 4,355 $ 6,395 ======= ======= ======= ======= ======= ======= ======= Basic income (loss) per common share........... $ (0.50) $ (1.71) $ (0.58) $ (0.13) $ (0.42) $ 0.49 $ 0.35 ======= ======= ======= ======= ======= ======= ======= Diluted income (loss) per common share....... $ (0.50) $ (1.71) $ (0.58) $ (0.13) $ (0.42) $ 0.35 $ 0.29 ======= ======= ======= ======= ======= ======= ======= Average common shares outstanding--basic..... 5,229 5,243 5,288 15,273 5,262 8,873 18,329 ======= ======= ======= ======= ======= ======= ======= Average common shares outstanding--diluted... 5,229 5,243 5,288 15,273 5,262 15,050 21,740 ======= ======= ======= ======= ======= ======= ======= Other Data: Adjusted EBITDA(3)...... $ 7,958 $ 5,371 $ 8,366 $ 8,366 $ 5,778 $13,287 $13,287 Net cash provided by (used in) operating activities............. 6,633 4,517 1,065 N/A (1,075) 9,480 N/A Net cash provided by (used in) investing activities............. (6,007) (14,959) (6,407) N/A (5,341) (11,522) N/A Net cash provided by (used in) financing activities............. (177) 9,744 11,176 N/A 12,366 (1,856) N/A Capital expenditures(4)........ 9,941 15,008 6,657 N/A 5,581 11,982 N/A5
At September 30, 2000 ------------------- Pro Forma Actual As Adjusted ------- -----------Balance Sheet Data: Cash and cash equivalents(5).............................. $ 2,030 $ 30,226 Net property and equipment (successful efforts method) (6)...................................................... 52,162 52,162 Total assets.............................................. 63,259 91,455 Current portion of long-term debt(5)...................... 3,600 3,600 Long-term debt(5)......................................... 20,265 20,265 Total stockholders' equity................................ 27,697 55,893- -------- (1) In February 2000, all of the holders of the preferred units of our subsidiary converted their preferred units into 1,533,333 shares of our common stock. (2) We recorded a net deferred tax asset of $1.6 million in the nine months ended September 30, 2000 based on projections for generating sufficient taxable income prior to expiration of our net operating loss carryforwards. For the prior periods, we had no income tax provision due to the generation of net operating loss carryforwards or the use of available net operating loss carryforwards to offset taxable income. Valuation allowances were established for the net operating loss carryforwards based on the evidence considered in the assessment of the likelihood of utilizing the net operating loss carryforwards. (3) Adjusted EBITDA means earnings before interest, income taxes, depreciation, depletion and amortization, impairment of oil and natural gas properties, gains or losses on sales of assets and exploration expense. Adjusted EBITDA is not a calculation based on generally accepted accounting principles. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of our operating performance, or as an alternative to cash flow as a better measure of liquidity. Our adjusted EBITDA calculation may not be comparable to other similarly titled measures reported by other companies. We have presented Adjusted EBITDA because of its wide acceptance as a financial indicator and usefulness in assessing our funds available to finance our activities. (4) We include our acquisitions of oil and natural gas properties within this classification. (5) As described in "Use of Proceeds," we will use the proceeds from this offering to repay the full amount outstanding under our bank credit facility. Because we expect to reborrow under this facility to finance our 2001 capital expenditure program, we have not eliminated such borrowings in our pro forma as adjusted financial statements. We have, however, shown the near term effect of this offering on our indebtedness under "Capitalization." (6) Net of depreciation, depletion and amortization associated with such property and equipment. 6Summary Reserve Information The table below presents our summary reserve information as of June 30, 2000. Estimates of our net proved reserves are based on a reserve report prepared by Coutret & Associates, Inc., our independent reserve engineers. For additional information relating togrowing our oil and natural gas reserves,please read "Businessproduction revenues andProperties--Oil and Natural Gas Operations and Properties," "--Oil and Natural Gas Reserves" and note P of the notes tooperating cash flow. In ourconsolidated financial statements included in this prospectus.
June 30, 2000 -------------Estimated net proved reserves: Natural gas (MMcf)......................................... 30,743 Oil and condensate (MBbls)................................. 7,200 Total (MMcfe)............................................ 73,941 PV-10 Value(1) (in thousands).............................. $158,441 Standardized Measure(1) (in thousands)..................... $119,829 Proved developed reserves as percentage of total proved reserves.................................................. 70.9%- -------- (1) The present value of future net cash flows attributable to our proved reserves, determined, in the case of PV-10 Value,opinion, on apre-taxlong term basis,and,growth inthe case of Standardized Measure, on an after-tax basis, using pricesoil andcosts in effect at June 30, 2000 and discounted at 10% per annum, was calculated by using the weighted average June 30, 2000 prices received at the wellhead of $4.56 per Mcf ofnatural gas reserves and$29.80 per Bbl of oil. Summary Operating Data
Nine Months Ended Year Ended December 31, September 30, ------------------------- ------------- 1997 1998 1999 1999 2000 ------- ------- ------- ------ ------Production: Natural gas (MMcf).................. 2,449 2,783 2,931 2,240 2,453 Oil and condensate (MBbls).......... 282 317 394 287 436 Total (MMcfe)..................... 4,144 4,683 5,297 3,963 5,067 Average sales price per unit: Natural gas-- Revenues fromproduction(per Mcf)............................. $ 2.55 $ 2.18 $ 2.40 $ 2.25 $ 3.66 Effects of hedging activities (per Mcf)............................. -- -- 0.01 -- (0.09) ------- ------- ------- ------ ------ Average price (per Mcf)........... $ 2.55 $ 2.18 $ 2.41 $ 2.25 $ 3.57 ------- ------- ------- ------ ------ Oil and condensate-- Revenues from production (per Bbl)............................. $ 18.06 $ 11.88 $ 16.88 $14.47 $28.56 Effects of hedging activities (per Bbl)............................. -- -- -- -- (3.54) ------- ------- ------- ------ ------ Average price (per Bbl)........... $ 18.06 $ 11.88 $ 16.88 $14.47 $25.02 ------- ------- ------- ------ ------ Total revenues from production (per Mcfe).............................. $ 2.74 $ 2.10 $ 2.58 $ 2.32 $ 4.23 Effects of hedging activities (per Mcfe).............................. -- -- 0.01 -- (0.35) ------- ------- ------- ------ ------ Total average price (per Mcfe).... $ 2.74 $ 2.10 $ 2.59 $ 2.32 $ 3.88 ======= ======= ======= ====== ====== Expenses (per Mcfe): General and administrative.......... $ 0.63 $ 0.51 $ 0.38 $ 0.41 $ 0.34 Lease operating expenses (excluding production taxes).................. 0.40 0.48 0.51 0.37 0.67 Production taxes.................... 0.16 0.13 0.17 0.13 0.32 Depreciation, depletion and amortization-oil and natural gas properties......................... 1.17 0.87 0.89 0.90 0.83 Reserve life index (in years)(1).... 15.0x 10.0x 12.7x N/A N/A- -------- (1) Calculated by dividing period-end proved reserves by production for the prior fiscal year. Our 1999 reserves include the Burrwood and West Delta acquisitionson apro forma basis. 7RISK FACTORS An investment in our common stock involves risks. You should carefully considercost-effective basis are thefollowing risksmost important indicators of performance success for an independent oil andother information in this prospectus before decidingnatural gas company.We strive to
invest in our common stock. The trading price of our common stock could decline as a result of these risks, in which case you could lose all or part of your investment. Risks Related to Our Business We have a history of losses and may not be profitable in the future. We may not be profitable in the future. We have had losses from January 1, 1997 through March 31, 2000. As of September 30, 2000, the net losses applicable to common stock from January 1997 totaled approximately $10.3 million. Our ability in future years to achieve profitability will depend onincrease our oil and natural gas reserves, production and cash flow through exploration and development activities. We develop an annual capital expenditure budget which is reviewed and approved by our Board of Directors (the “Board”) on a quarterly basis and revised throughout thesuccess ofyear as circumstances warrant. We take into consideration ourprojects,projected operating cash flow, commodity pricesand expenses. However, no assurance can be made that we will be profitable in the future. The size of our balance sheet or volatility in our results may prevent us from raising the capital necessary to make acquisitions and drill wells. We may not be able to successfully pursue our business strategy if the size of our balance sheet, volatility in our results or general industry or market conditions prevents us from raising the capital requiredforoperations. We make, and will continue to make, substantial expenditures for the acquisition, exploration, exploitation, development and production ofoil and natural gasreserves. We have had to adjustand externally available sources of financing, such as bank debt, asset divestitures, issuance of debt and equity securities, and strategic joint ventures, when establishing our capitalspendingexpenditure budget.We place primary emphasis on our operating cash flow in managing our business. Management considers operating cash flow a more important indicator of our financial success than other traditional performance measures such as net income because operating cash flow considers only the
past to reflectcash expenses incurred during thelackperiod and excludes the non-cash impact of unrealized hedging gains (losses), non-cash general and administrative expenses and impairments.Our revenues and operating cash flow depend on the successful development of our inventory of capital projects with available capital,
particularly in 1999. If our revenues or cash flow from operations decrease as a result of lower oilthe volume andnatural gas prices, operating difficulties or other factors, many of which are beyond our control, or we are unable to raise additional debt or equity proceeds to fund such expenditures, then we may curtail our drilling, development and other activities or be forced or choose to sell sometiming of ourassets on an untimely or unfavorable basis, any of which may have a material adverse affect on our business, financial condition, results of operations or cash flows. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business and Properties-- Capital Expenditures." We expect to incur substantial debt. If we are unable to service this debt or if we are restricted by this debt from engaging in certain activities, our business may be materially adversely affected. Any inability on our part to service our debt will be materially adverse to our business. We have incurred substantial debt, and expect to incur additional debt in the future, in connection with our capital expenditures. Though we intend to use the proceeds of this offering to repay a substantial portion of our outstanding debt, we also expect to borrow additional funds in the future under our bank credit facility. Such additional borrowings may severely restrict our exploration and development activities. As our level of borrowings increases, such indebtedness may have several important effects on our operations, including: . a substantial portion of our cash flow from operations may be dedicated to the payment of interest and principal on our indebtedness and will not be available for other purposes; . the covenants contained in our bank credit facility limit our ability to borrow additional funds or to dispose of assets and may affect our flexibility in planning for, and reacting to, changes in business conditions; . our ability to obtain additional financing in the future for working capital, capital expenditures (including acquisitions), general corporate purposes or other purposes may be impaired; 8. our leveraged financial position may make us more vulnerable to economic downturns and may limit our ability to withstand sustained declines in oil and natural gas prices; . such borrowings will be subject to variable rates, which may make us vulnerable to increases in interest rates; and . our flexibility in planning for or reacting to changes in market conditions may be limited. Moreover, future acquisition or development activities may require us to alter our capitalization significantly. These changes in capitalization may significantly increase our leverage. Our ability to continue to meet our debt service obligations, to reduce total indebtedness and to meet our other obligations will be dependent upon our future performance, which will be subject to general economic conditions, including oil and natural gas prices, and to financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to meet these commitments, we may not be able to satisfy our capital requirements unless we are able to successfully adopt one or more alternatives on a timely basis and with satisfactory terms, such as refinancing or restructuring our indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. The terms of our indebtedness, including the bank credit facility, also may prohibit us from taking such actions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Bank Credit Facility." We could lose our listing on the New York Stock Exchange, which may have a materially adverse effect on the market price and marketability of our common stock. The price and marketability of our common stock could be materially adversely affected if we lose our NYSE listing. In July 1999, we were informed by the NYSE that we were not in compliance with its revised minimum financial criteria for continued listing on the exchange. We currently are not in compliance with the NYSE's requirement for a minimum of a $50.0 million book capitalization requirement. If this offering does not raise sufficient funds in order for us to meet the book equity requirement, then the NYSE may delist our stock, which would adversely affect the liquidity and market price of our common stock. If we are unable to resolve our dispute with the co-owner of the Lafitte field, our development of this property may be materially adversely affected. Our development of the Lafitte field will be hindered if we are unable to resolve our dispute with the co-owner. We jointly acquired our interest in the Lafitte field with Stone Energy Corporation. We have been in a dispute with Stone regarding our respective rights and obligations under the agreements associated with the joint acquisition. We believe that our agreements with Stone provide us with an opportunity to more fully evaluate the field than we are currently allowed to do. In February 2000, we filed two lawsuits against Stone alleging misconduct and violation of the agreements associated with the joint acquisition. Until this dispute is resolved, our ability to fully evaluate and develop our interests in new wells could be seriously hindered. Our hedging activities may reduce our revenues in a rising commodity price environment or result in losses. Our hedging arrangements may reduce the amount of revenues we receive from our oil and gas production. We have hedged approximately 54% of our current daily production for the fourth quarter of this year. We also have hedges in place for 2001 which equal approximately 43% of our current daily production. By replacing the right to receive the market price for our production with a right to receive the fixed or collared hedge price, hedging will prevent us from receiving the full advantage of increases in oil and natural gas prices above the fixed or collared amount specified in the hedge. In addition, significant reductions in our production at times when the market price exceeds the price fixed in the hedge agreements could require us to make payments under our hedge agreements even though such payments are not offset by sales of our production. We 9may also have margin calls if the market moves in opposite directions from our hedged positions. The occurrence of any such event could have a material adverse effect on our business, financial condition, results of operations or cash flows. For further discussion of our hedging arrangements, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quantitative and Qualitative Disclosures About Market Risk--Hedging Activity." Most of the outstanding shares of our common stock will be eligible for sale immediately after this offering. Substantial selling pressure could negatively impact the market price of our common stock. The price of our common stock may be adversely affected because of the significant number of shares eligible for sale in the future. We will have 19,005,032 shares outstanding after giving effect to this offering and the other transactions described in this prospectus. In addition, as of November 15, 2000, we had outstanding warrants to purchase 3,387,978 shares of common stock at a weighted average exercise price of $1.05 per share. In addition, we have outstanding options to purchase 791,813 shares of our common stock at a weighted average exercise price of $4.35 per share, of which 49,063 are currently vested. We, along with our officers and directors have agreed to not offer, sell, grant any option (except pursuant to stock option plans) to purchase or otherwise dispose of a total of 4,638,112 shares beneficially held by any of us during the 180 days following the sale of the shares in the offering without the prior consent of Jefferies & Company, Inc. Pursuant to SEC short-swing trading rules, H&Q Guaranty is restricted from selling its directly-owned shares of our common stock prior to February 2001. All of our other shares, including shares sold in this offering or pursuant to the exercise of our warrants, will be freely tradeable immediately after this offering. You will experience immediate dilution of $3.23 in net tangible book value per share from the price you pay in the offering in our book value per share. Immediately after this offering, the public offering price of our common stock will be substantially higher than the net tangible book value per share of our outstanding common stock. Net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares outstanding. If you purchase our common stock in this offering, you will incur immediate dilution of $3.23 in the net tangible book value per share of common stock from the price you pay for our common stock in this offering. The limited float in our common stock may adversely affect the value of your investment. Although our common stock is listed on the NYSE, the public market for our common stock has been relatively small. Stocks with small markets and limited liquidity may experience fluctuations in their prices due to imbalances between orders to buy and orders to sell the stock. The limited liquidity in our stock may reduce the market value of our shares compared to comparable companies with more float. Our success depends on our chief executive officer and other key executive officers, the loss of whom could disrupt our business operations. We depend to a large extent on the efforts and continued employment of our President and Chief Executive Officer, Walter G. Goodrich, and our other executive officers. We do not have employment agreements with these officers. If Mr. Goodrich or these other executive officers resigns or becomes unable to continue in his present role and if such person is not adequately replaced, our business operations could be materially adversely affected. We are subject to many environmental and safety regulations that may result in unanticipated costs or liabilities. Exploration for and development,production andsale of oil and natural gas in the U.S. are subject to extensive and complex federal, state and local laws and regulations, including environmental, health and safety 10laws and regulations. We may be required to make large expenditures to comply with current and future regulations. Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous substances, remediation and clean-up costs and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. We do not believe that full insurance coverage for all potential environmental damages is available at a reasonable cost, and we do not have such coverage. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our business, financial condition, results of operations or cash flows. In addition, the U.S. Environmental Protection Agency has identified us as a potentially responsible party for the cost of clean-up of hazardous substances at an oil field waste disposal site in Vermilion Parish, Louisiana. We estimate that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with our percentage of responsibility estimated by the EPA to be approximately 3.05%, which equates to an individual cost of about $107,000. However, if the actual clean-up costs are higher or if other potentially responsible parties fail to pay their allocation, then our costs for this site could be significantly higher than the amount presently estimated or accrued for this liability. In such an event, we may be required to reallocate our capital resources to these clean-up costs, adversely affecting our planned operations. Oil and natural gas prices are volatile. Low prices could have a material adverse effect on our business. Our revenues, profitability and future growth depend substantially on prevailingcommodity prices for oil and natural gas.Historically, prices for oilSuch pricing factors are largely beyond our control; however, we have historically employed commodity hedging techniques in an attempt to minimize the volatility of short term commodity price fluctuations on our earnings andnatural gas have been volatile and low prices have hurt our business. Amongoperating cash flow.Corporate Information
Our common stock is quoted on the
factors that can cause this fluctuation are: . level of consumer product demand; . weather conditions; . domestic and foreign governmental regulations; . price and availability of alternative fuels; . political conditions in oil and natural gas producing regions; . domestic and foreign supply of oil and natural gas; . price of foreign imports; and . overall economic conditions. Prices for oil and natural gas affectOTC Markets under theamount of cash flow available for capital expendituresticker symbol “GDPP.” Our principal executive offices are located at 801 Louisiana St., Suite 700 Houston, Texas 77002, and our telephone number is (713) 780-9494. Our website address iswww.goodrichpetroleum.com. Neither our website nor any information contained on our website is part of this prospectus.THE OFFERING
Issuer
Goodrich Petroleum Corporation, a Delaware corporation.
Warrants offered by the selling security holders
2,499,999 Warrants. See “Description of Warrants” for further discussion.
13.50% Convertible Second Lien Senior Secured Notes due 2019 and 13.50% Second Lien Senior Secured Notes due 2019 offered by the selling security holders
$40.0 million aggregate principal amount of 13.50% Convertible Second Lien Senior Secured Notes due 2019 and approximately $23.2 million aggregate principal amount of 13.50% Second Lien Senior Secured Notes due 2019 issuable as interest payments on the Convertible Notes. See “Description of Notes” for further discussion.
Common stock offered by the selling security holders
4,374,998 shares of common stock, including 2,499,999 shares of common stock issuable upon exercise of the Warrants and 1,874,999 shares of common stock issuable upon conversion of the Convertible Notes. See “Description of Capital Stock,” “Description of Notes,” and “Description of Warrants” for further discussion.
Common stock outstanding(1)
9,108,826 shares of common stock as of February 9, 2017.
Selling security holders
Certain investment advisory clients of Shenkman Capital Management, Inc., CVC Capital Partners (acting through such of its affiliates or managed funds as it deems appropriate) (“CVC”), J.P. Morgan Securities LLC (“JPMS”), Franklin, O’Connor Global Multi-Strategy Alpha Master Limited (“GLEA”) and Nineteen77 Global Multi-Strategy Alpha (Levered) Master Limited (“GLEA XL”). See “Selling Security Holders” for further discussion.
Use of proceeds
We will not receive any proceeds from the sale of shares of our common stock by the selling security holders in this offering. See “Use of Proceeds.”
Dividend policy
We do not anticipate that cash dividends or other distributions will be paid with respect to our common stock in the foreseeable future. In addition, restrictive covenants in certain debt instruments to which we are, or may be, a party, may limit our ability to pay dividends or for us to receive dividends from our operating companies, any of which may negatively impact the trading price of our common stock. See discussion concerning dividends and restrictions in payment of dividends below under “Dividend Policy.”
Risk factors
Investing in our common stock and the Notes involves risks. You should read carefully the “Risk Factors” section of this prospectus for
a discussion of factors that you should carefully consider before deciding to invest in shares of our common stock or the Notes.
OTC Markets ticker symbol
“GDPP”
(1) Includes 544,839 shares of our common stock issued under the Goodrich Petroleum Corporation Management Incentive Plan (the “Management Incentive Plan”) that are currently restricted. Terms of the Notes
The following summary contains basic information about the Notes and is not intended to
borrow and raise additional capital. The amount we can borrow under our bank credit facilitybe complete. It does not contain all information that may be important to you. For a more complete understanding of the Notes, please refer to the section entitled “Description of Notes” in this prospectus.
Notes Offered
$40.0 million aggregate principal amount of 13.50% Convertible Second Lien Senior Secured Notes due 2019 and approximately $23.2 million aggregate principal amount of 13.50% Second Lien Senior Secured Notes due 2019 issuable as interest payments on the Convertible Notes.
Maturity
The later of (i) August 30, 2019 and (ii) the date that is six months after the scheduled maturity date (including after giving effect to the exercise of the RBL Extension Option) of our First Lien Credit Agreement or any Permitted First Lien Replacement Facility (as such terms are defined in “Description of Notes—Certain Definitions”), but in any event no later than March 30, 2020.
Interest Payment Dates
Interest on the Notes will be paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing April 15, 2017. Interest on each note will accrue from the last interest payment date on which interest was paid on the old note tendered in exchange thereof.
Payment-in-kind
For any interest period, the Company may elect to pay all or any portion of interest in kind on the then outstanding principal amount of the Notes by increasing the principal amount of the outstanding Notes or by issuing additional PIK Notes. However, interest on the Notes must be paid in-kind during such time as our First Lien Credit Agreement (but not any refinancing or replacement thereof) is in effect.
Conversion
Each holder of Convertible Notes is entitled to convert, at such holder’s sole option, any portion of the outstanding and unpaid Conversion Amount (as defined in “Description of Notes—Certain Definitions”) into fully-paid and non-assessable shares of common stock, at the Conversion Rate (as defined in “Description of Notes—Certain Definitions”). If the holder elects to exercise his or her conversion rights, the Company may elect to: (i) deliver shares of common stock to the holder; (ii) pay the holder an amount in cash
equal to the market value of the shares calculated using the Closing Price of the common stock on the conversion date; or (iii) any combination thereof. The PIK Notes are not convertible.
Guarantees
The payment of the principal, premium and interest on the new Notes will be fully and unconditionally guaranteed on a senior secured basis by our only current subsidiary and by our future subsidiaries that guarantee any of our or a subsidiary guarantor’s indebtedness under a credit facility or that incurs any indebtedness under our senior credit facility. See “Description of Notes—Subsidiary Guarantees.”
Security………………………….
The Notes will be secured by second-priority liens on all of our and our subsidiary guarantor’s assets that secure our senior credit facility (the “collateral”) on a first-priority basis. The Notes and the guarantees will be effectively subordinated to the senior credit facility and any other existing or future first lien obligations we may incur to the extent of the value of such assets. See “Description of Notes—Security for the Notes.”
Intercreditor Agreement
The collateral agent for the Notes is party to an intercreditor agreement with us, the subsidiary guarantor and the first lien collateral agent, which governs the relationship of noteholders, the lenders under our senior credit facility and holders of other first lien obligations with respect to collateral and certain other matters (the “Intercreditor Agreement”). See “Description of Notes—The Intercreditor Agreement.”
Ranking
The Notes and the guarantee will be our and the guarantor’s senior secured obligations and will: be secured by second-priority liens on the second lien collateral, subject toperiodic redetermination basedpermitted liens and the terms of the Intercreditor Agreement and the guarantee and collateral agreement;rank senior inpart on changing expectationsright offuture prices. Lower prices may also reduce the amount of oil and natural gas that we can economically produce. Any substantial and extended decline in the price of oil or natural gas would have a material adverse effect on the carrying valuepayment to all of ourproved reserves, our borrowing capacity, our ability to obtain additional capacity,andour business, financial condition, resultsthe guarantor’s future subordinated indebtedness;rank equally in right ofoperations or cash flows. Our reserve estimates may prove to be inaccurate, which could materially affect the quantities and present valuepayment with all of ourestimated reserves. Our reserve estimates may overstate our actual reservesand the guarantor’s existing and future senior indebtedness;be effectively junior, pursuant to the terms of the Intercreditor Agreement to the extent of the value of the priority lien collateral, to our obligations and our subsidiary guarantor’s obligations under our first lien credit agreement and any other priority lien obligations, which will be secured on a first-priority basis by liens on the same collateral that secure the Notes and the guarantees;be effectively junior to any of our or our subsidiary guarantor’s existing and futureproduction. The processsecured indebtedness secured by assets not constituting second lien collateral for the Notes and the guarantees to the extent ofestimating oilthe value of the collateral securing such indebtedness;be effectively senior to all our andnatural gas reserves is a subjective processour subsidiary guarantor’s existing and future unsecured senior indebtedness to the extent ofestimating underground accumulationsthe value ofoilthe second lien collateral (after giving effect to any senior andnatural gas that cannotparity liens on the second lien collateral);bemeasuredstructurally subordinated inan exact manner. It requires interpretationsright ofavailable technical data and various assumptions, including assumptions relatingpayment toeconomicall indebtedness and otherfactors beyondliabilities of any of ourcontrol. Any significant inaccuraciesfuture subsidiaries that is not a guarantor of the Notes; andbe guaranteed on a senior secured basis by our subsidiary and by certain future subsidiaries.
As of January 14, 2017, our total indebtedness was approximately $58.0 million, which includes $16.7 million outstanding under our first lien term loan.
Optional Redemption
We may, at our option, redeem, in whole or in part, the Notes, at any time on or after October 12, 2018 at redemption prices set forth below, plus accrued and unpaid interest, if any, to the date of redemption:
October 12, 2018 to April 12, 2019
106.75 % April 12, 2019 and thereafter
100 %
Change of Control
If we experience certain kinds of changes of control, we must give the holders of the Notes the opportunity to sell us their Notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
Certain Covenants
The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: incur additional debt;make certain investments or pay dividends or distributions on our capital stock or purchase, redeem or retire capital stock or purchase, redeem or retire our unsecured indebtedness;sell assets, including capital stock of our restricted subsidiaries;restrict dividends or other payments by restricted subsidiaries;create liens that secure debt;enter into transactions with affiliates; andmerge or consolidate with another company.
These covenants are subject to a number of important limitations and exceptions. See “Description of Notes—Covenants.” However, most of the covenants will terminate if both of Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. assigns the Notes an investment grade rating and no event of default exists with respect to the Notes.
Transfer Restrictions; Absence of a Public Market for the Notes
The Notes generally will be freely transferable, but will also be new securities for which there will not initially be a market. There can be no assurance as to the development or liquidity of any market for the Notes. We do not intend to apply for a listing of the Notes on any securities exchange or any automated dealer quotation system. An investment in
these interpretations or assumptions could materially affectour securities involves a high degree of risk. In addition to theestimated quantities and present value of reserves shownother information included in thisprospectus. 11Actual future production, oilprospectus, you should carefully consider each of the risk factors set forth in our most recent Annual Report on Form 10-K andnatural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves most likely will vary from our estimates. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, availability of rigs and other equipment, prevailing oil and natural gas prices and other factors, many ofsubsequent Quarterly Reports on Form 10-Q on file with the SEC, which arebeyond our control. At June 30, 2000, 29.1%incorporated by reference into this prospectus. Before making an investment decision, you should carefully consider these risks as well as other information we include or incorporate by reference in this prospectus and any prospectus supplement. Any ofour proved reserves were proved undeveloped. Most of our reserves are calculated using volumetric analysis,these risks andthese estimates could be viewed as more subjective. Any such inaccuraciesuncertainties could have a material adverse effect on our business, financial condition, cash flowsorand results of operations.You should not assumeIf that occurs, thepresent valuetrading price offuture net cash flows fromourproved reserves referred tocommon stock could decline materially and you could lose all or part of your investment.The risks included in this prospectus
isand thecurrent market value of our reserves. In accordance with SEC requirements,documents webasehave incorporated by reference into this prospectus are not theestimated discounted future net cash flows from our proved reserves on pricesonly risks we face. We may experience additional risks andcosts on the date of the estimate. Actual future prices and costs may differ materially from those used in the present value estimate because of changes in commodity pricesuncertainties not currently known to us, orhedging transactions. Exploration is a high-risk activity. The 3-D seismic data and other advanced technologies we use cannot eliminate exploration risk and require experienced technical personnel whom we may be unable to attract or retain. Our future success will depend on the success of our drilling program. Exploitation and exploration activities involve numerous risks, including the risk that no commercially productive oil and natural gas reservoirs will be discovered. In addition, we often are uncertain as to the future cost or timing of drilling, completing and producing wells. Furthermore, our drilling operations may be curtailed, delayed or canceledas a result ofthe additional exploration, time and expenses associated with a variety of factors, including: . unexpected drilling conditions; . pressure or irregularities in formations; . equipment failures or accidents; . adverse weather conditions; . compliance with governmental requirements; and . shortages or delaysdevelopments occurring in theavailability of drilling rigsfuture. Conditions that we currently deem to be immaterial may also materially andthe delivery of equipment. Even when used and properly interpreted, 3-D seismic data and visualization techniques do not allow the interpreter to know conclusively if hydrocarbons are present or economically producible. We could incur losses as a result of these expenditures. Poor results from our exploitation and exploration activities could have a material adverse effect onadversely affect our business, financial condition, cash flowsorand results of operations.Risks Related to Our Common Stock and this Offering
The trading price of our common stock may decline, and you may not be able to resell shares of our common stock at prices equal to or greater than the price you paid or at all.
The trading price of our common stock may decline for many reasons, some of which are beyond our control. In the event of a drop in the market price of our common stock, you could lose a substantial part or all of your investment in our common stock.
Numerous factors, including those described or referred to in this “Risk Factors” section and in the other documents incorporated herein by reference as well as the following, among others, could affect our stock price:
our results of operations and financial condition;the number of identified drillingsuccesslocations and our reserves estimates;quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues, capital expenditures, production and unit costs;the public reaction to our press releases, our other public announcements and our filings with the SEC;changes in expectations as to our future results of operations and prospects, including financial estimates and projections by securities analysts and investors;results of operations that vary from those expected by securities analysts and investors;strategic actions by our competitors;strategic decisions by us, our clients or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;changes in applicable laws and regulations;changes in accounting principles;announcements of claims against us by third parties;future sales of our common stock by us, the selling security holders, significant stockholders or our directors or executive officers;the realization of any risks described under this “Risk Factors” section or those incorporated by reference;additions or departures of key management personnel;changes in general market and economic conditions, including fluctuations in commodity prices;volatile and unpredictable developments, including man-made, weather-related and other natural disasters, catastrophes or terrorist attacks in the geographic regions in which we operate; andincreased competition, or the performance, or the perceived or anticipated performance, of our competitors.In addition, the stock market in general, including recently, has experienced significant volatility that often has been unrelated to the operating performance of companies whose shares are traded. These market fluctuations could adversely affect the trading price of our common stock, regardless of our actual operating performance. As a result, the trading price of our common stock may decline, and you may not be able to sell your shares at or above the price you paid to purchase them, or at all. Further, we could be the subject of securities class action litigation due to any such stock price volatility, which could divert management’s attention and adversely affect our results of operations.
There has been a limited trading market for our common stock.
There is a limited trading market for our common stock on the OTC Markets for the foreseeable future. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to enter into transactions by using common stock as consideration.
You may have difficulty trading and obtaining quotations for our common stock.
Our common stock is not actively traded, and the bid and asked prices for our common stock on the OTC Markets may fluctuate widely. As a result, you may find it difficult to dispose of, or to obtain accurate quotations of the price of, our common stock. This severely limits the liquidity of our common stock, and will likely reduce the market price of our common stock and hamper our ability to raise additional capital.
Future sales of our common stock could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.
We may sell additional shares of common stock in subsequent public or private offerings. We may also issue additional shares of common stock or convertible securities. As of February 9, 2017, we had 9,108,826 outstanding shares of common stock, including 544,839 shares of our common stock issued under the Management Incentive Plan, which are currently restricted. Our outstanding shares of common stock do not include the 4,374,998 shares that the selling security holders are offering pursuant to this registration statement, which may be resold in the public market.
We cannot predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock.
Certain holders of our common stock may be restricted in their ability to transfer or sell their securities.
Our common stock issued under the Plan is exempt from registration under Section 1145(a)(1) and may be resold by the holders thereof without registration unless the holder is an “underwriter” with respect to such
securities. Resales by persons who received our common stock pursuant to the Plan that are deemed to be “underwriters” as defined in Section 1145(b) would not be exempted by Section 1145 from registration under the Securities Act, or other applicable law. Such persons would only be permitted to sell such securities without registration if they are able to comply with the provisions of Rule 144 under the Securities Act or another applicable exemption.
There is an increased potential for short sales of our common stock due to the sales of shares issued upon exercise of warrants or the conversion of the Convertible Notes, which could materially affect the market price of our common stock.
Downward pressure on the market price of our common stock that likely will result from sales of our common stock issued in connection with the exercise of warrants or the conversion of our Convertible Notes could encourage short sales of our common stock by market participants. Generally, short selling means selling a security, contract or commodity not owned by the seller. The seller is committed to eventually purchase the financial instrument previously sold. Short sales are used to capitalize on an expected decline in the security’s price. Such sales of our common stock could have a tendency to depress the price of the stock, which could increase the potential for short sales.
Our common stock is an equity interest and therefore subordinated to our indebtedness.
In the event of our liquidation, dissolution or winding up, our common stock would rank below all secured debt claims against us. As a result, holders of our common stock will not be entitled to receive any payment or other distribution of assets upon our liquidation, dissolution or winding up until after all of our obligations to our secured debt holders have been satisfied.
Because we currently have no plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We currently do not expect to pay any cash dividends on our common stock. Any future determination to pay cash dividends or other distributions on our common stock will be at the discretion of the Board and will be dependent on our earnings, financial condition, operation results, capital requirements, and contractual, regulatory and other restrictions, including restrictions contained in the senior secured credit facility or agreements governing any existing and future outstanding indebtedness we or our subsidiaries may incur, on the payment of dividends by us or by our subsidiaries to us, and other factors that our Board deems relevant. See “Dividend Policy.”
As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.
Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.
Our business and operations may consume resources faster than we anticipate, or we may require additional funds to pursue acquisition or expansion opportunities. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new secured debt securities, the secured debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any additional debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution. Our Board is authorized to issue preferred stock which could have rights and preferences senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict
or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock, diluting their interest or being subject to rights and preferences senior to their own.
If securities analysts do not publish research or reports about our business or if they downgrade or provide negative outlook on our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade or provide negative outlook on our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts cease coverage of our business or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
Certain provisions of our Second Amended and Restated Certificate of Incorporation, as amended (our “Certificate of Incorporation”) and our Second Amended and Restated Bylaws, as amended (our “Bylaws”), may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. These provisions provide for, among other things:
a classified board of directors with staggered three-year terms;the ability of our Board to issue, and determine the rights, powers and preferences of, one or more series of preferred stock;advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings; andcertain limitations on convening special stockholder meetings.Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our Company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
See “Description of Capital Stock.”
The ownership position of Franklin limits other stockholders’ ability to influence corporate matters and could affect the price of our common stock.
As of February 9, 2017, Franklin, on behalf of certain of its clients, had sole voting power and sole dispositive power over approximately 49% of our outstanding common stock (the “Franklin Stock”). As a result, it, or any entity to which Franklin sells the Franklin Stock, may be able to exercise significant control over matters requiring stockholder approval. Further, because of its large ownership position, if Franklin sells the Franklin Stock that its clients hold, it could depress our share price.
Risks Related to our Convertible Notes and our Warrants
As a holder of the Convertible Notes and/or Warrants, you will not be entitled to any rights with respect to our common stock, but you will be subject to all changes made with respect to our common stock.
If you hold any of our Convertible Notes or Warrants, you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions, if any, on our common stock), but you will be subject to all changes affecting our common stock. You will have rights with respect to our common stock only when we deliver shares of common stock to you upon conversion of your Convertible Notes, or upon exercise of your Warrants. For example, if an amendment is proposed to our restated articles of incorporation or amended and restated bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the delivery of common stock, if any, to you, you will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock.
Risks Related to our Notes
To service our indebtedness, including the Notes, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our ability to pay our expenses and make payments due on our indebtedness, including the Notes, depends on our future performance, which will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control. The Notes contain pay-in-kind interest provisions which reduce the cash needed to pay interest while increasing the principal amount of Notes that ultimately must be retired with a cash payment. Our business may not generate sufficient cash flow from operations in the future, which could result in our being unable to pay interest in cash or repay indebtedness, including the Notes, or to fund other liquidity needs. A range of economic, competitive, business and industry factors will affect our future financial performance, and many of these factors, such as oil, NGL and natural gas prices, economic and financial conditions in our industry and the global economy and initiatives of our competitors, are beyond our control. If we do not generate enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:
selling assets;pursuing joint ventures;reducing or delaying capital investments;seeking to raise additional capital; orrestructuring or refinancing all or a portion of our indebtedness, including the Notes, at or before maturity.We cannot assure you that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives. The failure to generate sufficient cash flow or to achieve any of these alternatives could materially adversely affect the value of the Notes and our ability to pay the amounts due under the Notes.
We may be able to incur substantially more debt. This could exacerbate the risks associated with our indebtedness.
We and our subsidiary may be able to incur substantial additional indebtedness in the future, including through a refinancing of our senior credit facility. The Indenture governing the Notes permits us to refinance our senior credit facility with a replacement senior credit facility in an aggregate principal amount of up to $50 million. Any borrowings under the senior credit facility or a replacement senior credit facility will be secured, and as a result, together with any future first lien secured indebtedness, will be effectively senior to the
Notes and the guarantee of the Notes by the guarantor, to the extent of the value of the collateral securing that indebtedness. In addition, the holders of any future debt we may incur that ranks equally with the Notes will be entitled to share ratably with the holders of the Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. This may have the effect of reducing the amount of proceeds paid to you. If new debt is added to our current debt levels, the related risks that we and our subsidiary now face could intensify.
The Indenture governing the Notes and our senior credit facility contain operating and financial restrictions that may restrict our business and financing activities.
The Indenture governing the Notes and our senior credit facility contain, and any future indebtedness we incur may contain, a number of restrictive covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to,
attractamong other things:sell assets, including equity interests in our subsidiary;pay distributions on, redeem or repurchase our common stock;make investments;incur or guarantee additional indebtedness or issue preferred stock;create or incur certain liens;make certain acquisitions andretain experienced explorationistsinvestments;redeem or prepay certain other debt;enter into agreements that restrict distributions or other payments from our restricted subsidiaries to us;consolidate, merge or transfer all or substantially all of our assets; andengage in transactions with affiliates.As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.
Our ability to comply with some of the covenants and restrictions contained in our senior credit facility, which contains financial maintenance covenants, may be affected by events beyond our control. If market or other
professional personnel. Competition for explorationists and engineers with experience is intense. If we cannot retain our current personnel or attract additional experienced personnel,economic conditions deteriorate, our ability tocompete couldcomply with these covenants may beadversely affected. Theimpaired. A failure toreplacecomply with the covenants, ratios or tests in ourreserves would adversely affectsenior credit facility or any future indebtedness could result in an event of default under ourproduction and cash flows. Our future oil and natural gas production depends on our success in findingsenior credit facility oracquiring additional reserves that are economically recoverable. We may not be successful in exploring for, developing or acquiring additional reserves. If we fail to replace reserves, which decline as they are produced, our level of production and cash flows will be adversely impacted. Our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves would be impaired to the extent cash flow from operations is reduced and external sources of capital become limited or unavailable. If we are not successful,our futureproduction and revenues will be materially adversely affected. 12The oil and natural gas business involves many operating risks that can cause substantial losses. Our operations are subject to risks inherent in the oil and natural gas business, including: . fires and explosions; . surface cratering; . uncontrollable flows of oil, underground natural gas and formation water; . natural disasters; . pipeindebtedness, which, if not cured orcement failures or collapses; . embedded or unremovable oil field drilling and service tools; . abnormally pressured formations; and . environmental hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic natural gases. If any of these events occur, we could incur substantial losses as a result of: . injury or loss of life; . severe damage to and destruction of property, natural resources and equipment; . fines and clean-up responsibilities for pollution and other environmental damage; and . suspension of our operations. In addition, we do not carry business interruption insurance. For other risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. Pollution and environmental risks generally are not fully insurable and we do not currently carry insurance that would cover the full amount of our liability if one of these risks were to occur. As a result, if a significant accident or other event occurs and is not fully covered by insurance, such losseswaived, could have a material adverseeffectaffect on our business, financial condition and results ofoperationsoperations. If an event of default under our senior credit facility occurs and remains uncured, the lenders thereunder:could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable; ormay have the ability to require us to apply all of our available cashflows.to repay these borrowings.A payment default or an acceleration under our senior credit facility could result in an event of default and an acceleration under the Indenture governing the Notes.If the indebtedness under the Notes were to be accelerated, there can be no assurance that we would have, or be able to obtain, sufficient funds to repay such indebtedness in full. In addition, our obligations under our senior credit facility are collateralized by perfected first priority liens and security interests on substantially all of our assets, and if we are unable to repay our indebtedness under the senior credit facility, the lenders could seek to foreclose on our assets. Please see “Description of Notes.”
We may not be able to
successfully compete with competitorsfund a change of control offer.In the event of a change of control (as defined in the Indenture governing the Notes), we will be required, subject to certain conditions, to offer to purchase all outstanding Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. If a change of control were to occur today, we would not have sufficient funds available to purchase all of the outstanding Notes were they to be tendered in response to an offer made as a result of a change of control. We cannot assure you that
are larger andwe will havegreater resources. We operatesufficient funds available or that we will be permitted by our other debt instruments to fulfill these obligations upon a change of control ina highly competitive environmentthe future. Furthermore, certain change of control events would constitute an event of default under our credit agreement. Please see “Description of Notes—Change of Control.”The term “change of control” is limited to certain specified transactions and may not include other events that might adversely affect our financial condition. Our obligation to repurchase the Notes upon a change of control would not necessarily afford holders of the Notes protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.
Many of the covenants contained in the Indenture governing the Notes will terminate if the Notes are rated investment grade by both Standard & Poor’s and Moody’s and no default has occurred and is continuing.
Many of the covenants in the Indenture governing the Notes will terminate if the Notes are rated investment grade by both Standard & Poor’s and Moody’s, provided at such time no default has occurred and is continuing. The covenants will restrict, among other things, our ability to pay dividends, incur debt and to enter into certain other transactions. There can be
successfulno assurance that the Notes will ever be rated investment grade. However, termination of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force, and the effects of any such transactions will be permitted to remain in place and the terminated covenants will not be reinstated even if the Notes are subsequently downgraded below investment grade. Please see “Description of Notes—Covenants—Covenant Termination.”The guarantee by our subsidiary guarantors of the Notes could be deemed a fraudulent conveyance under certain circumstances, and a court may try to subordinate or void that subsidiary guarantee.
Under U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee can be voided, or claims under a guarantee may be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
intended to hinder, delay or defraud any present or future creditor or received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee;was insolvent or rendered insolvent by reason of such incurrence;was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; orintended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.In addition, any payment by that guarantor under a guarantee could be voided and required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a subsidiary guarantor would be considered insolvent if:the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;the present saleable value of its assets was less than the amount that would be required to pay its probable liability, including contingent liabilities, on its existing debts as they become absolute and mature; orit could not pay its debts as they became due.The guarantee by our subsidiary contains a provision intended to limit the subsidiary guarantor’s liability to the maximum amount that it could incur without causing its guarantee to be a fraudulent transfer. However, this provision may automatically reduce the subsidiary guarantor’s obligations to an amount that effectively makes the guarantee worthless and, in any case, this provision may not be effective to protect a guarantee from being avoided under fraudulent transfer laws.
Risks Related to the Collateral
The lien on the collateral securing the Notes and the guarantees is junior and subordinate to the lien on the collateral securing the obligations under our senior credit facility.
The Notes and the guarantees is secured by second-priority liens in certain collateral granted by us, the subsidiary guarantor and any future subsidiary that becomes a subsidiary guarantor in accordance with the provisions of the Indenture governing the Notes, subject to certain permitted liens, exceptions and encumbrances described in the Indenture governing the Notes and the security documents relating to the Notes. All obligations arising under our senior credit facility are secured by first-priority liens on the same collateral that secure the Notes on a second-priority basis. The collateral agent has entered into an Intercreditor Agreement that provides, among other things, that if the collateral agent obtains possession of any collateral or realizes any proceeds or payment in respect of any collateral, pursuant to the exercise of remedies under any security document or by the exercise of any rights available to it under applicable law as a result of any distribution of or in respect of any collateral or proceeds in any of our or our subsidiary guarantors’ bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding or through any other exercise of remedies, at any time prior to the payment in full of the obligations under our senior credit facility and other priority debt, then it will hold such collateral, proceeds or payment in trust for the lenders under our senior credit facility and the other holders of priority lien obligations and transfer such collateral, proceeds or payment, as the case may be, to the priority lien collateral agent, for payment of the obligations under our senior credit facility and other priority debt. Holders of the Notes would then participate ratably in our remaining assets or the remaining assets of our subsidiary guarantors, as the case may be, with all holders of indebtedness that are deemed to rank equally with the Notes based upon the respective amount owed to each creditor. In addition, the Indenture governing the Notes permits us and our subsidiary guarantors to incur additional debt secured by liens senior in priority to the liens securing the Notes on the collateral under specified circumstances. Please read “Description of Notes—Certain Covenants—Limitation on Indebtedness and Preferred Stock.” See also “Description of Notes—Certain Definitions—Permitted Liens.” Any obligations secured by such liens may further limit the recovery from the realization of the collateral available to satisfy holders of the Notes.
In addition, if we default under our senior credit facility or any other senior secured indebtedness, the lenders under such senior secured indebtedness could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable and foreclose on the pledged assets. Furthermore, if those lenders foreclose and sell the pledged equity interests in any subsidiary guarantor, then that subsidiary guarantor may be released from its guarantee of the Notes automatically and immediately upon such sale.
The value of the collateral securing the Notes may not be sufficient to ensure repayment of the Notes because the lenders under our senior credit facility have a first-priority lien on the collateral securing the Notes and will be paid first from the proceeds of the collateral.
Our indebtedness and other obligations under our senior credit facility are secured by a first-priority lien on the collateral securing the Notes. The liens securing the Notes and the guarantees are contractually subordinated
to the liens securing obligations under our senior credit facility, so that proceeds of the collateral will be applied first to repay those obligations before we use any such proceeds to pay any amounts due on the Notes. Accordingly, if we default on the Notes, we cannot assure you that the trustee would receive enough money from the sale of the collateral to repay you.
The collateral has not been appraised in connection with this offering. The Indenture governing the Notes permits us to refinance our senior secured credit facility with a replacement senior credit facility in an aggregate principal amount of up to $50 million and permits us to incur additional debt secured by liens that have priority over the Notes in certain circumstances. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. The value of the assets pledged as collateral for the Notes could be impaired in the future as a result of changing economic conditions, commodity prices, competition or other future trends. Likewise, we cannot assure you that the pledged assets will be saleable or, if saleable, that there will not be substantial delays in their liquidation.
In addition, the collateral securing the Notes is subject to other liens permitted under the terms of the Indenture and the Intercreditor Agreement, whether arising on or after the date the Notes were issued. To the extent that third parties hold prior liens, such third parties may have rights and remedies with respect to the property subject to such liens that, if exercised, could adversely affect the value of the collateral securing the Notes. The Indenture governing the Notes does not require that we maintain the current level of collateral.
In the event of a foreclosure on the collateral under our senior credit facility (or a distribution in respect thereof in a bankruptcy or insolvency proceeding), the proceeds from the collateral may not be sufficient to satisfy the Notes because such proceeds would, under the Intercreditor Agreement, first be applied to satisfy our obligations under our senior credit facility or other priority lien debt. Only after all of our obligations under our senior credit facility and such other obligations have been satisfied will proceeds from the collateral under our senior credit facility be applied to satisfy our obligations under the Notes. In addition, in the event of a foreclosure on the collateral, the proceeds from such foreclosure may not be sufficient to satisfy our obligations under the Notes.
Pursuant to the terms of the Indenture governing the Notes, we and our restricted subsidiaries may sell assets so long as such sales comply with the “Limitation of Sales of Assets and Subsidiary Stock” covenant or any other applicable provision of the Indenture governing the Notes. Upon any such sale, all or a portion of the interest in any asset sold may no longer constitute collateral. Although we may seek to reinvest proceeds from any asset sales, any assets in which we reinvest may not constitute collateral or be as profitable to us as the assets sold.
The equity interest pledged as part of the collateral to secure the Notes may also have limited value at the time of any attempted realization. In particular, in any bankruptcy or similar proceeding, all obligations of the entity whose equity interest has been pledged must be satisfied before any value will be available to the owner of or the creditor secured by such equity interest. If any subsidiary whose equity interest has been pledged as part of the collateral has liabilities that exceed its assets, there may be no remaining value in such subsidiary’s equity interest.
The provisions of the Intercreditor Agreement relating to the collateral securing the Notes limit the rights of holders of the Notes with respect to that collateral, even during an event of default.
Under the Intercreditor Agreement between the trustee as second lien collateral agent, on behalf of the holders of the Notes, and the first lien collateral agent, on behalf of the holders of first lien debt, the lenders under our senior credit facility and other holders of first lien debt are generally entitled to receive and apply all proceeds of any collateral to the repayment in full of the obligations under our senior credit facility and under our first lien debt before any such proceeds will be available to repay obligations under the Notes.
Furthermore, because the lenders under our senior credit facility will control the disposition of the collateral securing such first lien obligations and the Notes, if there were an event of default under the Notes, the holders of the first lien obligations could decide, for a specified time period, not to proceed against the collateral, regardless of whether or not there is a default under such first lien obligations. During such time period, unless and until discharge of the first lien obligations, including our
competitors.senior credit facility, has occurred, the sole right of the holders of the Notes will be to hold a lien on the collateral.Pursuant to the Intercreditor Agreement, in the event of bankruptcy the collateral agent, on behalf of all noteholders, will be required to support and vote for certain plans of reorganization. This restriction may prevent the collateral agent from supporting plans of reorganization that propose more favorable recoveries with respect to second lien claims with respect to the Notes.
Pursuant to the Intercreditor Agreement, in the event of a bankruptcy filing, the collateral agent, on behalf of all noteholders, is required to support and vote for any plan of reorganization or disclosure statement of ours or any of the subsidiary guarantors that (a) is accepted by the class of lenders under our revolving credit facility in accordance with Section 1126(c) of the U.S. Bankruptcy Code, (b) provides for the payment in full in cash of all of our obligations under our senior credit facility (including all post-petition interest, fees and expenses) on the effective date of such plan of reorganization or (c) provides for the retention by the trustee of the liens on the collateral securing our obligations under our senior credit facility (and hedge counterparties, bank product providers and letter of credit issuers), and on all proceeds thereof, with the same relative priority with respect to the collateral or other property as provided in the Intercreditor Agreement with respect to the collateral.
Lien searches may not reveal all liens on the collateral.
We
competecannot guarantee that any lien searches on the collateral securing the Notes will reveal all existing liens on the collateral securing the Notes. Lien searches have not been conducted in many jurisdictions where the collateral is located, including searches in the real property records, nor has any independent title work withmajor and independentrespect to our oil andnaturalgascompanies forproperties been conducted. Any existing undiscovered liens could be significant, could be prior in ranking to the liens securing the Notes and could have an adverse effect on the ability to realize or foreclose upon the collateral securing the Notes. In addition, there can be no assurance that the mortgages securing the Notes are encumbering the correct properties.The rights of holders of Notes to the collateral securing the Notes may be adversely affected by the failure to record or perfect security interests in the collateral and other issues generally associated with the realization of security interests in collateral.
Applicable law requires that a security interest in certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party. The liens in the collateral securing the Notes may not be perfected with respect to the claims of the Notes if the collateral agent was not able to take the actions necessary to perfect any of these liens on or prior to the date of the issuance of the Notes or within a reasonable time thereafter. In addition, applicable law requires that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified and additional steps to perfect in such property and rights are taken. Furthermore, even though it may constitute an event of default under the Indenture governing the Notes, a third party creditor could gain priority over one or more liens on the collateral securing the Notes by recording an intervening lien or liens. The collateral agent has no obligation to monitor the acquisition of
desirableadditional property or rights that constitute collateral or the perfection of any security interest and there can be no assurance that we or any guarantor will inform the collateral agent of the future acquisition of property and rights that constitute collateral. As a result, the necessary action to properly perfect the security interest in such after acquired collateral may not be taken. Moreover, the Indenture governing the Notes does not require liens on certain assets to be perfected. In addition, the security interest of the collateral agent is subject to practical challenges generally associated with the realization of security interests in collateral. For example, the collateral agent may need toobtain the consent of third parties and make additional filings. If the collateral agent is unable to obtain these consents or make these filings, the security interests may be invalid and the holders of the Notes will not be entitled to the collateral or any recovery with respect thereto. We cannot assure you that the collateral agent will be able to obtain any such consent or make any such filing. We also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the collateral agent may not have the ability to foreclose upon those assets and the value of the collateral may significantly decrease.
Bankruptcy laws may limit the ability of the holders of the Notes to realize value from the collateral.
The right of the collateral agent to repossess and dispose of the pledged assets upon the occurrence of an event of default under the Indenture governing the Notes is likely to be significantly impaired by applicable bankruptcy law (separate and apart from the limitations set forth in the Intercreditor Agreement) if a bankruptcy case were to be commenced by or against us before the collateral agent repossessed and disposed of the pledged assets.
Under the U.S. Bankruptcy Code, a secured creditor is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, the U.S. Bankruptcy Code permits the debtor to continue to retain and to use collateral, including capital stock, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditor’s interest in the collateral. Adequate protection may include cash payments or the granting of additional security for any diminution in the value of the collateral, if and at such times as the court in its discretion determines, as a result of the stay of repossession, disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. Generally, adequate protection payments, in the form of interest or otherwise, are not required to be paid by a debtor to a secured creditor unless the bankruptcy court determines that the value of the secured creditor’s interest in the collateral is declining during the pendency of the bankruptcy case. However, pursuant to the terms of the Intercreditor Agreement, the holders of the Notes will agree not to seek or accept “adequate protection” in certain situations consisting of cash payments and not to object to the incurrence of additional indebtedness secured by liens that are senior to liens granted to the collateral agent for the Notes. In view of the lack of a precise definition of the term “adequate protection” and the broad discretionary powers of a bankruptcy court, it is impossible to predict (1) how long payments under the Notes could be delayed following commencement of a bankruptcy case, (2) whether or when the trustee could repossess or dispose of the pledged assets or (3) whether or to what extent holders of the Notes would be compensated for any delay in payment or loss of value of the pledged assets through the requirement of “adequate protection.”
In addition to the waiver with respect to adequate protection set forth above, under the terms of the Intercreditor Agreement, the holders of the Notes also waive certain other important rights that secured creditors may be entitled to in a bankruptcy proceeding, as described in “Description of Notes—The Intercreditor Agreement.” These waivers could adversely impact the ability of the holders of the Notes to recover amounts owed to them in a bankruptcy proceeding.
In addition, a bankruptcy court may decide to substantively consolidate us and some or all of our subsidiaries in the bankruptcy proceeding. If a bankruptcy court substantively consolidated us and some or all of our subsidiaries, the assets of each entity would become subject to the claims of creditors of all consolidated entities. This would expose holders of Notes not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Furthermore, a forced restructuring of the Notes could occur through the “cram-down” provisions of the U.S. Bankruptcy Code. Under these provisions, the Notes could be restructured over your objections as to their general terms, primary interest rate and maturity.
Any future pledge of collateral may be avoidable in bankruptcy.
Any future pledge of collateral in favor of the collateral agent, including pursuant to security documents delivered after the date of the Indenture governing the Notes (including the mortgages over the oil and gas properties), may also be avoidable by the pledgor (as debtor in possession) or by its trustee in bankruptcy as a preferential transfer under the U.S. Bankruptcy Code and certain state insolvency laws if certain events or circumstances exist or occur, including, among others, if:
the pledgor is insolvent at the time of the pledge;the pledge permits the holder of the Notes to receive a greater recovery than if the pledge had not been given; anda bankruptcy case or other similar insolvency proceeding is commenced in respect of the pledgor within 90 days following the pledge, or, in certain circumstances, a longer period.The value of the collateral securing the Notes may not be sufficient for a bankruptcy court to grant post-petition interest on the Notes in a bankruptcy case of the issuer or any of the guarantors. Should our obligations under the Notes, together with our obligations under our senior credit facility and any other debt secured by the collateral, equal or exceed the fair market value of the collateral securing the Notes, the holders of the Notes may be deemed to have an unsecured claim for the difference between the fair market value of the collateral, on the one hand, and the aggregate amount of the obligations under our senior credit facility and any other secured debt and the Notes, on the other hand.
In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding against us or the subsidiary guarantors, holders of the Notes will be entitled to post-petition interest under the U.S. Bankruptcy Code only if the value of their security interest in the collateral, taken in order of priority with other obligations secured by the collateral, is greater than the amount of their pre-bankruptcy claim. Holders of the Notes may be deemed to have an unsecured claim if our obligations under the Notes, together with our obligations under our senior credit facility and any other debt secured by the collateral, exceed the fair market value of the collateral securing the Notes. Holders of the Notes that have a security interest in the collateral with a value less than their pre-bankruptcy claim will not be entitled to post-petition interest under the U.S. Bankruptcy Code. The bankruptcy trustee, the debtor-in-possession or competing creditors could possibly assert that the fair market value of the collateral with respect to the Notes on the date of the bankruptcy filing (or on the date of confirmation of a chapter 11 plan) was less than the then-current principal amount of the Notes. Upon a finding by a bankruptcy court that the Notes are under-collateralized, the claims in the bankruptcy proceeding with respect to the Notes would be bifurcated between a secured claim equal to the value of the interest in the collateral and an unsecured claim, and the unsecured claim would not be entitled to the benefits of security in the collateral. Other consequences of a finding of under-collateralization would be, among other things, a lack of entitlement on the part of holders of the Notes to receive post-petition interest, fees or expenses and a lack of entitlement on the part of the unsecured portion of the Notes to receive other “adequate protection” under U.S. bankruptcy laws. In addition, if any payments of post-petition interest were made at the time of such a finding of under-collateralization, such payments could be re-characterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to Notes. No appraisal of the fair market value of the collateral securing the Notes has been prepared in connection with this offering of the Notes and, therefore, the value of the collateral agent’s interests in the collateral may not equal or exceed the principal amount of the Notes and other secured claims. We cannot assure you that there will be sufficient collateral to satisfy our and the subsidiary guarantors’ obligations under the Notes.
The collateral securing the Notes is subject to casualty risks.
We are obligated under the Indenture governing the Notes to maintain adequate insurance or otherwise insure against hazards as is customarily done by companies having assets of a similar nature in the same or similar localities. There are, however, certain losses that may be either uninsurable or not economically
insurable, in whole or in part. As a result, it is possible that the insurance proceeds will not compensate us fully for our losses. If there is a total or partial loss of any of the pledged collateral, we cannot assure you that any insurance proceeds received by us will be sufficient to satisfy all of our secured obligations, including the Notes. We may be required to apply the proceeds from any such loss to repay our obligations under the senior credit facility.
There are circumstances other than repayment or discharge of the Notes under which the collateral securing the Notes and the guarantees will be released automatically, without your consent or the consent of the trustee.
Under various circumstances, collateral securing the Notes and the guarantees will be released automatically, including:
a sale, transfer or other disposal or liquidation of such collateral in a transaction not prohibited under the Indenture governing the Notes;with respect to collateral held by a subsidiary guarantor, upon the release of such subsidiary guarantor from its guarantee in accordance with the Indenture governing the Notes;as otherwise required under the Intercreditor Agreement; andto the extent we have defeased or satisfied and discharged the Indenture governing the Notes.In addition, the guarantee of each subsidiary guarantor will be automatically released if such subsidiary ceases to guarantee any of our other indebtedness or indebtedness of a subsidiary guarantor under a credit facility and is not a borrower under our senior credit facility. The guarantee of a subsidiary guarantor will also be released in connection with a sale of such subsidiary guarantor in a transaction permitted under the Indenture governing the Notes. In addition, if we designate a guarantor as an unrestricted subsidiary for purposes of the Indenture governing the Notes or such subsidiary guarantor no longer meets the definition of a “restricted subsidiary,” all of the liens on any collateral owned by such subsidiary and any guarantees by such subsidiary will be automatically released under the Indenture governing the Notes. This will reduce the aggregate value of the collateral securing the Notes to the extent that liens on the assets of such person and its subsidiaries are released. In addition, the creditors of such person will have a senior claim on the assets of such person.
The collateral securing the Notes and related guarantees may be diluted under certain circumstances.
The Indenture governing the Notes and agreements governing our senior credit facility permit us to incur additional secured indebtedness, including other priority lien debt, subject to our compliance with the restrictive covenants in the Indenture governing the Notes and the agreements governing our senior credit facility at the time we incur such additional secured indebtedness.
In addition, the Indenture governing the Notes and our other security documents permit us and certain of our subsidiaries to incur additional priority lien debt up to respective maximum priority lien debt by a refinancing of our senior credit facility. Any additional priority lien debt secured by the collateral would dilute the value of the Note holders’ rights to the collateral.
Risks Related to Our Business and Industry
Please see “Item 1A—Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and “Item 1A—Risk Factors” contained in our subsequent Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016, which are incorporated by reference herein, for risk factors related to our business and industry.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents that we incorporate by reference in the prospectus contain statements that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), concerning our operations, economic performance and financial condition. These forward-looking statements include information concerning future production and reserves, schedules, plans, timing of development, contributions from oil and natural gas properties,
as well asmarketing and midstream activities and also include those statements accompanied by or that otherwise include the words “may,” “could,” “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “predicts,” “target,” “goal,” “plans,” “objective,” “potential,” “should,” or similar expressions or variations on such expressions that convey the uncertainty of future events or outcomes. For such statements, we claim the protection of the safe harbor forthe equipment and labor required to develop and operate such properties. Many of these competitors have financial, technical and other resources substantially greater than ours. The availability of a ready market for our oil and natural gas production will dependforward-looking statements contained inpart on the following factors, which are beyond our control: . cost and availability of alternative fuels; . level of consumer demand; . extent of domestic production of oil and natural gas; . extent of importation of foreign oil and natural gas; . cost of and proximity to pipelines and other transportation facilities; . regulations by state and federal authorities; and . cost of complying with applicable environmental regulations. 13FORWARD-LOOKING STATEMENTS This prospectus includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward- looking statements" underthe Private Securities Litigation Reform Act of 1995. Wecaution thathave based these forward-looking statements on our current expectations and assumptionsexpectations, projections, intentions and beliefsabout futureevents mayevents. These statements are based on certain assumptions andoften do vary from actual resultsanalyses made by us in light of our experience andthe differences can be material. All statements in this document that are not statementperception of historicalfact are forward looking statements. Forward looking statements include, but are not limited to, such matters as: . future production, operating or financial results; . statements about pending or recent acquisitions, business strategy,trends, current conditions and expectedcapital spending or operating expenses; .future developments as well as other factors we believe are appropriate under the circumstances. Although we believe that the expectations reflected in such forward-looking statementsabout drilling operations, including scheduled drilling dates and objectives; . beliefs or assumptions about the outlook for commodity prices; . expectations regarding the availability of acquisition opportunities; and . anticipated developments with respect to pending litigation. When used in this document the words "anticipate," "estimate," "project," "forecast," "plan," "potential," "will," "may," "should," and "expect" reflect forward-looking statements. Thereare reasonable, we canbegive no assurance thatactual resultssuch expectations willnot differ materially from those expressed or implied in such forward looking statements. There are many factors that could cause theseprove to be correct. These forward-looking statements speak only as of the date of this report, or if earlier, as of the date they were made; we undertake no obligation tobe incorrect, including the risks described under "Risk Factors"publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.These forward-looking statements involve risk and
"Management's Discussion and Analysis of Financial Condition and Results of Operations." Risks, uncertainties and assumptionsuncertainties. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, theexpectations reflected infollowing:theforward-looking statements include: . drilling of wells; . timing and amount of future productionmarket prices of oil and natural gas;. operating costsvolatility in the commodity-future markets;financial market conditions andother expenses; .availability of capital;future cashflowflows, credit availability andanticipated liquidity; . the risks associated with exploration; .borrowings;sources of funding for exploration and development;our financial condition;our ability tofind, acquire, market, develop and produce new properties; .repay our debt;the securities, capital or credit markets;planned capital expenditures;future drilling activity;uncertainties about the estimated quantities of our oil and natural gasprice volatility; .reserves;production;hedging arrangements;litigation matters;pursuit of potential future acquisition opportunities;general economic conditions, either nationally or in theoutcomejurisdictions in which we are doing business;legislative or regulatory changes, including retroactive royalty or production tax regimes, hydraulic-fracturing regulation, drilling and permitting regulations, derivatives reform, changes in state and federal corporate taxes, environmental regulation, environmental risks and liability under federal, state and foreign laws and local environmental laws and regulations;the creditworthiness of ourdispute with Stone regarding our Lafitte field interest; . uncertaintiesfinancial counterparties and operation partners; andother factors discussed below and elsewhere inthe estimation of proved reservesthis Registration Statement on Form S-1 and in our other public filings, press releases and discussions with our management.For additional information regarding known material factors that could cause our actual results to differ from projected results please read the
projectionrest offuture rates of productionthis report andtiming of development expenditures; . operating hazards attendant toPart I, “Item 1A—Risk Factors” in our Annual Report on Form 10-K for theoilyear ended December 31, 2015 andnatural gas business; . downhole drillingPart II, “Item 1A—Risk Factors” in our Quarterly Reports on Form 10-Q for the periods ending March 31, 2016, June 30, 2016 andcompletion risks that are generally not recoverable from third parties or insurance; . potential mechanical failure or under-performance of significant wells; . climatic conditions; . availability and cost of material and equipment; . delays in anticipated start-up dates; 14. actions or inactions of third-party operators of our properties; . our ability to find and retain skilled personnel; . availability of capital; . the strength and financial resources of our competitors; . regulatory developments; . environmental risks; and . general economic conditions. When you consider these forward-looking statements, you should keep in mind these risk factors and the other cautionary statements in this prospectus. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, we cannot assure you that these expectations will prove to have been correct. 15September 30, 2016. The selling security holders will receive all of the net proceeds from the sale of
allthe Securities. We will not receive any ofthe common stock offered in this offering to be approximately $23.5 million ($27.2 million if the underwriters' over-allotment option is exercised in full). We intend to usethe proceeds fromthis offering to repay all of our borrowings under our bank credit facility. At November 15, 2000, we had outstanding borrowings of $23.0 million underthefacility. These borrowings have a maturity date of November 2001 and bear interest at a variable rate which is currently 10.25%. Any proceeds above the amount of our borrowings, including any proceeds from the exercisesale of theunderwriters' over-allotment option, will be used inSecurities by the selling security holders.RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our
developmentratios of consolidated earnings to fixed charges andexploitation drilling program. We intend to invest cash flow from operations and reborrow funds under our bank credit facility as we accelerate our capital expenditurespreferred stock dividends fordevelopment and exploitation activities in south Louisiana, with a particular focus on our Burrwood, West Delta and Lafitte fields.the periods presented:
Nine Months
Ended
September 30,Year Ended December 31, 2016 2015 2014 2013 2012 2011 Ratio of earnings to fixed charges and preferred stock dividends
(a) (b) (c) (d) (e) (f)
(a) Earnings for the nine months ended September 30, 2016 were inadequate to cover fixed charges and preferred stock dividends. The coverage deficiency was $14.0 million.
(b) Earnings for the year ended December 31, 2015 were inadequate to cover fixed charges and preferred stock dividends. The coverage deficiency was $530.1 million.
(c) Earnings for the year ended December 31, 2014 were inadequate to cover fixed charges and preferred stock dividends. The coverage deficiency was $412.6 million.
(d) Earnings for the year ended December 31, 2013 were inadequate to cover fixed charges and preferred stock dividends. The coverage deficiency was $132.4 million.
(e) Earnings for the year ended December 31, 2012 were inadequate to cover fixed charges and preferred stock dividends. The coverage deficiency was $90.2 million.
(f) Earnings for the year ended December 31, 2011 were inadequate to cover fixed charges and preferred stock dividends. The coverage deficiency was $37.8 million. MARKET PRICE
RANGEOF OUR COMMON STOCKOur new common stock is
tradedquoted on theNew York Stock ExchangeOTC Markets under the symbolGDP. At November 15, 2000, there were 13,315,522 shares of“GDPP” and has been trading since December 8, 2016. No prior established public trading market existed for our new common stockoutstanding.prior to this date. The following table sets forth the per share range ofthehigh and lowclosing sale prices by quarter as reported during 1998, 1999 and 2000.
High Low ----- -----1998: First Quarter.................................................... $8.00 $5.06 Second Quarter................................................... 7.19 5.25 Third Quarter.................................................... 5.63 2.25 Fourth Quarter................................................... 3.00 1.13 1999: First Quarter.................................................... $1.50 $0.69 Second Quarter................................................... 1.88 0.94 Third Quarter.................................................... 2.69 0.94 Fourth Quarter................................................... 3.06 2.19 2000: First Quarter.................................................... $6.25 $2.63 Second Quarter................................................... 5.56 4.25 Third Quarter.................................................... 6.25 4.50 Fourth Quarter (through November 15, 2000)....................... 6.50 5.00The prices in the table above have been adjusted to give retroactive effect to our one-for-eight reverse stock split in March 1998. On November 15, 2000, the last reported sale pricebid information for our common stock as reported on theNYSEOTC Markets for the periods presented.
High Low Quarter Ended:
December 31, 2016
$ 15.00 $ 10.05 March 31, 2017 (through February 9, 2017)
$ 16.00 $ 12.50 On February 9, 2017, the last sale price of our common stock as reported on the OTC Markets was
$6.06$14.00 per share.At September 30, 2000, the numberSuch over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.As of February 9, 2017, we had approximately 6 holders of record of our common stock,
without determination of the number of individual participants in a security position was 1,239. 16based on information provided by our transfer agent. DIVIDEND POLICY
We have not paid a cash dividend on our common stock since our formation.We do not anticipate
payingthat cash dividends or other distributions will be paid with respect to our common stock in the foreseeable future. In addition, restrictive covenants in certain debt instruments to which we are, or may be, a party, may limit our ability to pay dividends or for us to receive dividends from our operating companies, anycashof which may negatively impact the trading price of our common stock.While we have no current plans to pay dividends on our common stock,
becauseweintendwill continue toretain ourevaluate the cashflow to finance the expansion ofgenerated by our business andfor general corporate purposes. Additionally,we may decide to pay a dividend in the future. Any future determinations relating to ourbank credit facility prohibits us from paying cashdividend policies and the declaration, amount and payment of any future dividends on our commonstock. See "Management's Discussionstock will be at the sole discretion of the Board and,Analysisif we elect to pay such dividends in the future, we may reduce or discontinue entirely the payment ofFinancial Conditionsuch dividends at any time. The Board may take into account general andResultseconomic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment ofOperations--Liquiditydividends by us to our stockholders or by our Subsidiary to us andCapital Resources--Bank Credit Facility" for a discussionsuch other factors as the Board may deem relevant.In addition, under Delaware law, we may declare and pay dividends on our capital stock either out of our
bank credit facility. In March 1999, we announced that we had suspended paymentsurplus, as defined in the relevant Delaware statutes, or if there is no such surplus, out of ourregular quarterly cashnet profits for the fiscal year in which the dividendon both classes ofis declared and/or the preceding fiscal year. If, however, ourconvertible preferred stock. This measure was precipitated by a dropcapital, computed incommodity prices and was taken to conserve cash for corporate and operating purposes. In September 2000, we announced our reinstatement of the cash dividends on both our Series A and Series B preferred stock and paid approximately $1.8 million of dividend arrearages and approximately $296,000 of regular quarterly dividends on these series of preferred stock. These payments brought us current on our dividend payments on each of these series. 17CAPITALIZATION The following table illustrates our actual and pro forma as adjusted cash position and capitalization as of September 30, 2000. The pro forma as adjusted presentation reflects this offering, our most recent private placement of common stock and the exchange of our Series B preferred stock, as if they had occurred on September 30, 2000. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and accompanying notes included in this prospectus.
September 30, 2000 ------------------------- Pro Forma Actual As Adjusted -------- ----------- (in thousands)Cash and cash equivalents............................ $ 2,030 $ 6,361 ======== ======== Long-term debt, including current maturities: Credit facility.................................... $ 23,865 -- -------- -------- Total long-term debt, including current maturities...................................... 23,865 -- Stockholders' equity: Preferred stock, $1.00 par value per share, 10,000,000 shares: Series A convertible preferred stock; issued and outstanding 796,318 shares (liquidation preference of $10.00 per share, aggregating to $7,963,180)... 796 $ 796 Series B convertible preferred stock; issued and outstanding 660,839 shares (liquidation preference $10.00 per share, aggregating to $6,608,390)...... 661 -- Common stock, $0.20 par value per share, 25,000,000 shares authorized, 12,315,522 actual shares outstanding, and 19,005,032 pro forma as adjusted shares outstanding (1)............................ 2,463 3,801 Additional paid-in capital......................... 34,894 62,413 Accumulated deficit................................ (11,117) (11,117) -------- -------- Total stockholders' equity....................... 27,697 55,893 -------- -------- Total capitalization........................... $ 51,562 $ 55,893 ======== ========- -------- (1) The number of shares of common stock to be outstanding after this offering includes the 4,500,000 shares being offered, 1,000,000 shares sold in a private placement in October 2000, and 1,189,510 shares to be issued in exchange for our Series B preferred stock simultaneouslyaccordance with theclosing of this offering but does not include: . 3,387,978 shares issuable uponrelevant Delaware statutes, has been diminished by depreciation in theexercise of outstanding warrants at a weighted average price of $1.05 per share; and . 791,813 shares that may be issued upon exercise of stock options outstanding as of September 30, 2000, at a weighted average exercise price of $4.35 per share. 18DILUTION The net tangible bookvalue of ourcommon stock as of September 30, 2000 was $24.3 millionproperty, orapproximately $1.68 per share. Net tangible book value per share representsby losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits any dividends upon any shares of ourstockholders' equity less intangible assets andcapital stock until theliquidation preferencedeficiency has been repaired.COMPENSATION DISCUSSION AND ANALYSIS
Summary of 2016 Executive Compensation
The Company filed for reorganization under Chapter 11 of the
Series A preferredBankruptcy Code on April 15, 2016, and emerged from bankruptcy on October 12, 2016 upon meeting the conditions of its First Amended Joint Chapter 11 Plan of Reorganization (the “Plan”). The bankruptcy proceeding had the following direct effects on our executive compensation program:base salaries were reduced 20% from March 1, 2016 through December 1, 2016;no payout under the Non-Equity Incentive Plan to our NEOs for 2016;equity awards granted prior to the Company’s emergence from bankruptcy were cancelled pursuant to the Plan; andgrants of stockdividedand time-vested restricted stock were made to our NEOs in October 2016, upon emergence from bankruptcy, and in December 2016, pursuant to a Management Incentive Plan (the “MIP”) approved pursuant to the Plan.Overview of Our Executive Compensation Program and Compensation Philosophy
We provide fair and competitive compensation for our executive officers by
14,505,032 shares of outstanding common stock (which includesstructuring ourmost recent private placementexecutive compensation program principally around three goals:
1) Maintaining compensation at competitive market levels, targeting the median of comparative pay of our peer group for similar positions;
2) Rewarding executive officers for executing performance goals designed to generate returns for our stockholders. As a result, we historically tied selected elements of our executive compensation program to company performance goals; and
3) Retaining and motivating our executives through a combination of grants of time-vested and performance-based awards of phantom stock, which vest over a three-year period commencing on the first anniversary after the grant date, or upon achievement of the event on which the award is based, In October 2016, the
exchangeCompensation Committee engaged Longnecker & Associates as compensation consultants to provide a market analysis of ourSeries B preferred stock which we expect will occur concurrently withexecutive compensation program. Throughout thisoffering). Net tangible book value dilution per share to new investors representsfiling, thedifference betweenindividuals who served as our CEO and our Interim Chief Financial Officer during theamount per share paid by purchasers of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after completion of this offering. Following: . our sale of 4,500,000 shares of common stock in this offering at a public offering price of $5.75 per share, and after deducting: . the estimated underwriting discounts and commissions; . the estimated offering expenses; and . the application of the estimated net proceeds from this offering, our pro forma net tangible book value as of September 30, 2000 would have been $47.9 million, or $2.52 per share. This represents an immediate increase in net tangible book value of $0.84 per share to existing stockholders and an immediate dilution in net tangible book value of $3.23 per share to purchasers of common stock in this offering. The following table illustrates the per share dilution:
Assumed public offering price per share............................... $5.75 Net tangible book value per share as of September 30, 2000.... $1.68 Increase per share attributable to new investors.............. .84 ----- Net tangible book value per share after this offering................. 2.52 ----- Dilution per share to new investors................................... $3.23 =====The following table illustrates on a pro forma basis as of September 30, 2000 the difference between the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid by existing stockholders and by the new investors purchasing shares of common stock in this offering, before deduction of estimated discounts and commissions and estimated offering expenses payable by us:
Shares Purchased Total Consideration ------------------ ------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ----------- ------- -------------Existing stockholders...... 14,505,032 76% $24,314,100 48% $1.68 New stockholders........... 4,500,000 24 25,875,000 52 5.75 ---------- --- ----------- --- Total.................... 19,005,032 100% $50,189,100 100% ========== === =========== ===The foregoing table excludes: . warrants to purchase 3,387,798 shares of common stock at a weighted average exercise price of $1.05 per share; if all outstanding warrants were exercised dilution to new investors would equal $3.46 per share; and . options to purchase 791,813 shares of common stock granted through September 30, 2000 at a weighted average exercise price of $4.35 per share; if all outstanding options were exercised, dilution to new investors would equal $3.16 per share. 19SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) The consolidated financial data set forth below for the five yearsfiscal year ended December 31,1995, 1996, 1997, 19982016, as well as the other individuals included in the “Summary Compensation Table,” are referred to as “Named Executive Officers” or “NEOs.”Elements of Executive Compensation
The elements of overall compensation for executive management include (1) base salary levels that are generally near the median of our peer group, (2) an annual bonus plan with payouts (if any) based on achievement of objectives approved by the Board and
1999 are derived(3) a combination of long-term equity based incentives in the form of time-vested and performance-based awards of phantom stock. The Compensation Committee targeted overall compensation to reflect the approximate median for similar positions as determined through comparison to peer group proxies and independent compensation surveys. After researching and analyzing a listof potential peer companies, L&A identified the following companies for inclusion to Goodrich’s 2017 peer group consideration:
Approach Resources, Inc. Bill Barrett Corp. Bonanza Creek Energy, Inc. Callon Petroleum Company Carrizo Oil & Gas, Inc. Clayton Williams Energy, Inc. Comstock Resources, Inc. Contango Oil & Gas Company Eclipse Resources Corporation EXCO Resources, Inc. Gastar Exploraiton, Inc. Jones Energy, Inc. Matador Resources Company Resolute Energy Corporation Rex Energy Corporation Sanchez Energy Corporation SandRidge Energy, Inc. Stone Energy Corp. Triangle Petroleum Corporation Base Salaries. The Company provides its executive officers with assured cash compensation in the form of a base salary that is generally near the median for similar positions as determined through comparison to peer group proxies and independent compensation surveys. However, as a result of the bankruptcy filing, the Company reduced base salaries by 20% from
our financial statements, which have been auditedMarch 1, 2016 through December 1, 2016. On December 1, 2016, the salaries for Mr. Goodrich and Mr. Turnham were partially reinstated byKPMG LLP,the Compensation Committee, and thefinancial statementssalaries for Mr. Ferchau and Mr. Killelea were fully reinstated. The base salaries paid to top executive officers during 2016 are shown in thenine months ended September 30, 1999Summary Compensation Table under the “Salary” column. The Compensation Committee expects to continue to review executive base salaries annually and2000to approve changes as appropriate.
Salaries as of January 1, Named Executive Officers
Position 2015 2016(1) 2017 ($) ($) ($) Walter G. Goodrich
Vice Chairman and CEO 515,000 515,000 462,500 Robert C. Turnham, Jr.
President and COO 486,000 486,000 462,500 Mark E. Ferchau
Executive Vice President 380,000 380,000 380,000 Michael J. Killelea
Executive Vice President, General
Counsel & Corporate Secretary307,000 307,000 307,000 Robert T. Barker(2)
Vice President, Controller and
Interim CFO180,000 180,000 200,000 Joseph T. Leary(3)
Interim CFO 250,000
(1) Effective March 1, 2016, salaries for Mr. Goodrich, Mr. Turnham, Mr. Ferchau and Mr. Killelea were reduced by 20%. On December 1, 2016, the salaries of Mr. Goodrich and Mr. Turnham were increased by approximately 10% of their pre-reduction base salary amount and each became eligible for a one-time bonus of $140,625 payable in 2017 in the event the Company raises certain new capital in 2017. On December 1, 2016, the salaries for Mr. Ferchau and Mr. Killelea were fully reinstated.
(2) Mr. Barker was appointed interim Chief Financial Officer in April 2016.
(3) Mr. Leary resigned as interim Chief Financial Officer in March 2016. Incentive Bonus. Incentive bonuses, considered for payment annually as cash compensation, ensure that the executive officers focus on the achievement of near-term goals that are approved by the Board. Bonuses may be earned if the Company achieves its objectives in key performance metrics and executes on strategic achievements. Bonus targets as a percentage of base salary have historically been
derived from our unaudited financial statements. These unaudited financial statements have been prepared on substantiallyset near thesame bases asmedian for similar positions. No incentive bonuses were awarded in 2016. Mr. Goodrich and Mr. Turnham are each eligible for a potential one-time special cash bonus in 2017 associated with certain new capital and balance sheet objectives set by theaudited financial statements. You should read the following data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements included in this prospectus. Information in this prospectus reflects our one-for-eight reverse stock split that became effective in March 1998.
Nine Months Ended Year Ended December 31, September 30, --------------------------------------------- ---------------- 1995 1996 1997 1998 1999 1999 2000 -------- ------- ------- -------- ------- ------- -------Statement of Operations Data: Revenues................ $ 6,174 $ 9,769 $12,901 $ 10,592 $14,020 $ 9,403 $20,038 Expenses: Lease operating expenses and production taxes...... 1,030 1,615 2,316 2,822 3,591 2,008 5,001 Depreciation, depletion and amortization.......... 1,786 3,788 4,863 4,094 4,744 3,550 4,227 Exploration............ 193 1,149 3,206 6,010 1,656 1,295 2,084 Impairment of oil and natural gas properties............ 157 -- 550 1,076 465 -- -- Interest............... 1,132 828 1,416 1,910 2,811 1,678 3,696 General and administrative........ 739 2,095 2,627 2,399 1,990 1,617 1,712 Preferred dividend requirements of a subsidiary(1)......... -- -- -- -- 73 -- 38 -------- ------- ------- -------- ------- ------- ------- Total costs and expenses............ 5,037 9,475 14,978 18,311 15,330 10,148 16,758 -------- ------- ------- -------- ------- ------- ------- Gain (loss) on sale of assets................ -- 88 688 4 (519) (519) 307 -------- ------- ------- -------- ------- ------- ------- Income (loss) before income taxes........... 1,137 382 (1,389) (7,715) (1,829) (1,264) 3,587 Income tax provision (2)................... -- -- -- -- -- -- (1,655) Extraordinary item-- early extinguishment of debt............... 483 -- -- -- -- -- -- -------- ------- ------- -------- ------- ------- ------- Net income (loss)....... $ 654 $ 382 $(1,389) $ (7,715) $(1,829) (1,264) 5,242 Preferred stock dividends.............. 255 645 1,205 1,256 1,249 942 887 -------- ------- ------- -------- ------- ------- ------- Net income (loss) applicable to common stock.................. $ 399 $ (263) $(2,594) $ (8,971) $(3,078) $(2,206) $ 4,355 ======== ======= ======= ======== ======= ======= ======= Basic income (loss) per common share(3)........ -- $ (0.05) $ (0.50) $ (1.71) $ (0.58) $ (0.42) $ 0.49 ======== ======= ======= ======== ======= ======= ======= Diluted income (loss) per common share(3).... -- $ (0.05) $ (0.50) $ (1.71) $ (0.58) $ (0.42) $ 0.35 ======== ======= ======= ======== ======= ======= ======= Average common shares outstanding--basic(3).. 3,465 5,226 5,229 5,243 5,288 5,262 8,873 ======== ======= ======= ======== ======= ======= ======= Average common shares outstanding-- diluted(3)............. 3,465 5,226 5,229 5,243 5,288 5,262 15,050 ======== ======= ======= ======== ======= ======= ======= Other Data: Adjusted EBITDA(4)...... $ 4,405 $ 6,058 $ 7,958 $ 5,371 $ 8,366 $ 5,778 $13,287 Net cash provided by (used in) operating activities............. 3,579 4,373 6,633 4,517 1,065 (1,075) 9,480 Net cash provided by (used in) investing activities............. 8,877 (4,163) (6,007) (14,959) (6,407) (5,341) (11,522) Net cash provided by (used in) financing activities............. (12,553) (479) (177) 9,744 11,176 12,366 (1,856) Capital expenditures(5)........ 650 4,226 9,941 15,008 6,657 5,581 11,98220
At December 31, At --------------------------------------- September 30, 1995 1996 1997 1998 1999 2000 ------- ------- ------- ------- ------- -------------Balance Sheet Data: Cash and cash equivalents............ $ 613 $ 345 $ 793 $ 96 $ 5,929 $2,030 Net property and equipment (successful efforts method)(6)..... 14,146 14,318 32,466 39,796 46,048 52,162 Total assets............ 22,383 22,399 37,538 44,037 56,259 63,259 Current portion of long- term debt.............. -- -- -- 29,500 3,600 3,600 Long-term debt(7)....... 9,750 10,000 18,500 -- 33,353 20,265 Total stockholder's equity................. 9,663 9,135 14,333 4,959 6,411 27,697- -------- (1) In February 2000, all of the holders of the preferred unitsCompensation Committee.Long-Term Equity-Based Incentives.The specific objectives of our
subsidiary converted their preferred units into 1,533,333 shareslong-term equity-based compensation plan are to attract, motivate, and retain the services of key employees and enhance a sense of ownership, as well as to encourage those persons to assist in our development, growth and financial success. To align thecompensation of our
common stock. (2)executive officers with the attainment of our business goals and an increase in stockholder value, we have historically awarded time-vested and performance-based grants of phantom stock as part of our total compensation package.We
recorded a net deferred tax assetbelieve that providing grants of$1.6 millionphantom stock focuses the named executives on delivering long-term value to our stockholders, while providing value to the executives in thenine months ended September 30, 2000 based on projections for generating sufficient taxable income priorform of equity awards. A grant of phantom stock offers executives the opportunity tothe expiration of net operating loss carryforwards. We did not reflect any provision for income taxes in the 1996 to 1999 periods due to the generation of net operating loss carryforwards or the use of available net operating loss carryforwards to offset taxable income. Valuation allowances were established for the net operating loss carryforwards based on the evidence considered in the assessment of the likelihood of utilizing the net operating loss carryforwards. (3) We did not include a provision for income taxes in the consolidated statements of operations for the period from January 1, 1995 through August 14, 1995 for the operations of La/Cal Energy Partners, one of our predecessor companies, due to La/Cal being a partnership and income taxes were the responsibility of the individual partners of La/Cal. Certain unaudited pro forma information relating to the Company's results of operations in 1995 had La/Cal been a corporation, follows:
1995 ------Pro forma information (unaudited): Income before extraordinary item and income taxes................. $1,137 Pro forma income taxes............................................ 403 ------ 734 Extraordinary item--early extinguishment of debt.................. (483) ------ Pro forma net income.............................................. 251 Preferred stock dividends......................................... (255) ------ Pro forma earnings available to common stock...................... $ (4) ====== Pro forma income before extraordinary item per average common share............................................................. $ 0.14 ====== Pro forma extraordinary item per average common share.............. $(0.14) ====== Pro forma basic and diluted earnings (loss) per average common share............................................................. -- Pro forma average common shares outstanding........................ 3,465 ======(4) Adjusted EBITDA means earnings before interest, income taxes, depreciation, depletion and amortization, impairment of oil and natural gas properties, gains or losses on sales of assets, preferred dividend requirements of a subsidiary and exploration expense. Adjusted EBITDA is not a calculation based on generally accepted accounting principles. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of our operating performance, or as an alternative to cash flow as a better measure of liquidity. Our adjusted EBITDA calculation may not be comparable to other similarly titled measures reported by other companies. We have presented Adjusted EBITDA because of its wide acceptance as a financial indicator and usefulness in assessing our funds available to finance our activities. (5) We include our acquisitions of oil and natural gas properties within this classification. (6) Net of depreciation, depletion and amortization associated with such property and equipment. (7) We restructured the debt under our bank credit facility during 1999 to allow reclassification from current to long-term. This item also includes $12,000,000 of convertible notes issued by two of our subsidiaries during 1999. These notes were converted intoreceive shares of our common stockin August 2000. 21PRO FORMA AS ADJUSTED FINANCIAL DATA (in thousands, except per share data) The following unaudited condensed pro formaon the date the forfeiture restriction lapses. In this regard, phantom stock serves both to reward and retain executives, asadjusted financial information consiststhe value ofour unaudited condensed pro forma as adjusted consolidated statement of operations fortheyear ended December 31, 1999 andphantom stock is linked to thenine months ended September 30, 2000, and our unaudited condensed pro forma as adjusted consolidated balance sheet as of September 30, 2000. You should read the following data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements included elsewhere in this prospectus. The pro forma information gives effect to our most recent private placement of common stock in October 2000 and the conversion of our subsidiaries' notes into sharesprice of our common stock on the date the forfeiture restrictions lapses. Our non-performance based phantom stock awards vest inAugust 2000. The unaudited pro forma as adjusted information additionally illustratesthree equal annual installments beginning one year after theimpact of this offeringgrant date. We believe that these vesting schedules aid us in retaining executives and motivating long-term performance. Annual long-term equity-based incentives were awarded in December 2016 pursuant to the MIP.Severance Benefits
We have severance agreements with Messrs. Goodrich, Turnham, and Ferchau. Mr. Killelea and Mr. Barker are covered by the Goodrich Petroleum Officer Severance Plan. We believe that the severance payments and other benefits provided under these agreements and the
exchange of our Series B preferred stock, which isseverance plan are appropriate and that change in control protection allows management tooccur simultaneously with the offering, for shares of our common stock. These adjustments are reflected as if these transactions were consummated as of January 1, 1999 for purposes of the statement of operations datafocus their attention andas of September 30, 2000 for purposes of the balance sheet data, unless such transactions actually occurred prior to such date. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the transactions been consummated as of the beginning of the periods presented. Unaudited Condensed Pro Forma As Adjusted Consolidated Statement of Operations
Year Ended December 31, 1999 -------------------------------------------------------- Pro Forma Pro Pro Forma Historical Adjustments Forma Adjustments As Adjusted ---------- ----------- ------- ----------- -----------Revenues......... $14,020 $14,020 $14,020 Expenses: Lease operating expenses and production taxes.......... 3,591 3,591 3,591 Depreciation, depletion and amortization... 4,744 4,744 4,744 Exploration..... 1,656 1,656 1,656 Impairment of oil and natural gas properties..... 465 465 465 Interest expense........ 2,811 $(503)(2) 2,308 2,308 General and administrative.. 1,990 1,990 1,990 Preferred dividend requirements of a subsidiary... 73 73 73 ------- ------- ------- Total costs and expenses....... 15,330 14,827 14,827 ------- ------- ------- Gain/(Loss) on sale of assets......... (519) (519) (519) ------- ------- ------- Income (loss) before income taxes........... (1,829) (1,326) (1,326) Income tax provision...... -- -- -- ------- ------- ------- Net income (loss).......... $(1,829) $(1,326) $(1,326) ------- ------- ------- Preferred stock dividends (1999 amounts in arrears)........ 1,249 1,249 612 (3) 637 ------- ------- ------- Net income (loss) applicable to common stock.... $(3,078) $(2,575) $(1,963) ======= ======= ======= Basic income (loss) per common share.... $ (0.58) $ (0.13) ======= ======= Diluted income (loss) per common share.... $ (0.58) $ (0.13) ======= ======= Average common shares outstanding-- basic (1)....... 5,288 15,273 ======= ======= Average common shares outstanding-- diluted (1)..... 5,288 15,273 ======= =======Nine Months Ended September 30, 2000 (unaudited) --------------------------------------------------------- Pro Forma Pro Pro Forma Historical Adjustments Forma Adjustments As Adjusted ---------- ------------- -------- ----------- -----------Revenues......... $20,038 $20,038 $20,038 Expenses: Lease operating expenses and production taxes.......... 5,001 5,001 5,001 Depreciation, depletion and amortization... 4,227 4,227 4,227 Exploration..... 2,084 2,084 2,084 Impairment of oil and natural gas properties..... -- -- -- Interest expense........ 3,696 $(1,631)(2) 2,065 2,065 General and administrative.. 1,712 1,712 1,712 Preferred dividend requirements of a subsidiary... 38 38 38 ---------- -------- ----------- Total costs and expenses....... 16,758 15,127 15,127 ---------- -------- ----------- Gain/(Loss) on sale of assets......... 307 307 307 ---------- -------- ----------- Income (loss) before income taxes........... 3,587 5,218 5,218 Income tax provision...... (1,655) (1,655) (1,655) ---------- -------- ----------- Net income (loss).......... $ 5,242 $ 6,873 $ 6,873 ---------- -------- ----------- Preferred stock dividends (1999 amounts in arrears)........ 887 887 409(3) 478 ---------- -------- ----------- Net income (loss) applicable to common stock.... $ 4,355 $ 5,986 $ 6,395 ========== ======== =========== Basic income (loss) per common share.... $ 0.49 $ 0.35 ========== =========== Diluted income (loss) per common share.... $ 0.35 $ 0.29 ========== =========== Average common shares outstanding-- basic (1)....... 8,873 18,329 ========== =========== Average common shares outstanding-- diluted (1)..... 15,050 21,740 ========== ===========22Unaudited Condensed Pro Forma As Adjusted Consolidated Balance Sheet
As of September 30, 2000 ------------------------------------------------------------ Pro Forma Pro Forma Pro As Adjusted Pro Forma Historical Adjustments Forma Adjustments As Adjusted ---------- ----------- -------- ----------- ----------- ASSETSCurrent assets Cash and cash equivalents(4)........... $ 2,030 $4,650 (5) $ 6,680 $23,546 (6) $ 30,226 Accounts receivable Trade and other......... 1,108 1,108 1,108 Accrued oil and gas revenue................ 4,797 4,797 4,797 Prepaid insurance and other.................... 148 148 148 -------- -------- -------- Total current assets........ 8,083 12,733 36,279 Net property and equipment.. 52,162 52,162 52,162 Restricted cash............. 1,030 1,030 1,030 Deferred Taxes Benefit(1)... 1,655 1,655 1,655 Other investments and deferred charges........... 329 329 329 -------- -------- -------- Total assets............ $ 63,259 $ 67,909 $ 91,455 ======== ======== ========LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities Current portion of long- term debt(4)............. $ 3,600 $ 3,600 $ 3,600 Accounts payable.......... 5,064 5,064 5,064 Accrued liabilities....... 1,242 1,242 1,242 Current portion other noncurrent liabilities... 1,240 1,240 1,240 -------- -------- -------- Total current liabilities............ 11,146 11,146 11,146 Long-term debt(4)........... 20,265 20,265 20,265 Other non-current liabilities................ 4,151 4,151 4,151 Stockholders' equity: Preferred stock Series A.. 796 796 796 Preferred stock Series B.. 661 661 (661)(3) -- Common stock.............. 2,463 200 (5) 2,663 900 (6) 3,801 238 (3) Additional paid-in capital.................. 34,894 4,450 (5) 39,344 22,646 (6) 62,413 423 (3) Accumulated deficit....... (11,117) (11,117) (11,117) -------- -------- -------- Total stockholders' equity................... 27,697 32,347 55,893 -------- -------- -------- Total liabilities and stockholders' equity... $ 63,259 $ 67,909 $ 91,455 ======== ======== ========- -------- (1) We computed pro forma basic net income (loss) per common share by dividing pro forma income applicable to common stock by the pro forma weighted average shares of common stock outstanding of 15,273,168 for the year ended December 31, 1999 and 18,329,088 for the nine months ended September 30, 2000. We did not include outstanding warrants and options considered common stock equivalents in the 1999 calculation because their effect would be antidilutive. The following table reconciles the weighted-average shares outstanding used for the computations used in the 1999 and 2000 periods:
Nine months Year ended ended December 31, September 30, 1999 2000 ------------ -------------Historical basic method........................... 5,288,011 8,873,159 Private placement of 1,000,000 shares............. 1,000,000 1,000,000 Exchange of Series B preferred stock.............. 1,189,510 1,189,510 Conversion of our subsidiaries' notes............. 3,295,647 2,766,419 Offering.......................................... 4,500,000 4,500,000 ---------- ---------- Pro forma basic method............................ 15,273,168 18,329,088 Dilutive stock warrants........................... -- 2,757,535 Dilutive stock options............................ -- 653,787 ---------- ---------- Diluted method.................................... 15,273,168 21,740,410 ========== ==========23(2) Our subsidiaries' notes were converted into 3,295,647 shares of common stock in August 2000, which includes 60,000 shares issued as an underwriting fee. The interest adjustmentenergy on thestatement of operations representsbusiness transaction at hand without any distractions regarding theelimination of amortization of deferred financing costs of $109,088 and $300,292, interest expense of $251,154 and $973,631, based on the aggregate principal amounts of the notes of $12.0 million at an annual interest rate of 8.0%, and amortization of discount on the notes of $142,500 and $357,016, for the 1999 and 2000 periods respectively. (3) The balance sheet adjustment represents the conversion of the Series B preferred stock into 1,189,510 shares of common stock based on a conversion factor of 1.8 shares of common stock for each share of Series B preferred stock. The adjustment to the statement of operations represents the elimination of dividends associated with the Series B preferred stock. The conversion premium in excess of the terms per the original preferred stock issuance is valued at $2,602,880. We have not made an adjustment in the pro forma statement of operations for this one-time charge; however, we will reflect it as preferred stock dividends at the date of conversion to arrive at net income applicable to common stock. (4) As described in "Use of Proceeds," we will use the proceeds from this offering to repay the full amount outstanding under our bank credit facility. Because we expect to reborrow under this facility to finance our 2001 capital expenditure program, we have not eliminated such borrowings in the pro forma as adjusted financial information. (5) This adjustment reflects our most recent private placement of 1,000,000 shares of common stock at $5.00 per share, including payment of underwriters' fee totaling $350,000. (6) This adjustment represents proceeds of this offering, based on a price of $5.75 per share on 4,500,000 shares, and after payment of underwriters' fee and other expenses totaling $2,329,000. 24MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are an independent oil and natural gas company engaged in the exploration, exploitation, development and production of oil and natural gas properties in the transition zone of south Louisiana and in north Louisiana, the Gulf Coast of Texas and East Texas. We were created by the combination of Patrick Petroleum Company ("Patrick") and La/Cal Energy Partners, a partnership in which we had a controlling interest ("La/Cal"), in August 1995. The combination was a reverse merger in which our current management gained control of the combined company, renamed it Goodrich Petroleum Corporation and assumed Patrick's New York Stock Exchange listing. We use the successful efforts method of accounting for exploration and development expenses. Costs of exploratory drilling are initially capitalized, but if proved reserves are not found, the costs are subsequently expensed. All other exploratory costs are charged to expense as incurred. Development and leasehold costs are capitalized, including the costs of unsuccessful development wells. When proved reserves are found on an undeveloped property, leasehold cost is reclassified from undeveloped leases to proved oil and natural gas properties. Significant undeveloped leases are reviewed periodically and a valuation allowance is provided for any estimated decline in value. Cost of all other undeveloped leases is amortized over the estimated average holding period of the leases. We have adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed Of, in which an impairment is determined to have occurred and a loss is recognized when the difference between future cash inflows expected to be generated by an identifiable long-lived asset and cash outflows expected to be required to obtain those cash inflows is less than the carrying value of the asset. Depletion and depreciation of producing oil and natural gas properties is calculated using the unit-of-production method. Proved developed reserves are used to compute unit rates for unamortized tangible and intangible development costs, and proved reserves are used for unamortized leasehold costs. Estimated dismantlement, abandonment and site restoration costs, net of salvage value, are considered in determining depreciation and depletion provisions. Results of Operations Nine months ended September 30, 2000 versus nine months ended September 30, 1999 Total revenues for the nine months ended September 30, 2000 were $20,038,000 compared with $9,403,000 for the nine months ended September 30, 1999 due to an increase in commodity prices and higher oil and natural gas production. Oil and natural gas sales were reduced by $1,763,000 in the nine months ended September 30, 2000 as a result of hedging activity. The following table reflects the production volumes and pricing information for the periods presented:
Nine Months Ended Nine Months Ended September 30, 1999 September 30, 2000 ------------------------ ------------------------ Production Average Price Production Average Price ---------- ------------- ---------- -------------Natural gas (Mcf).......... 2,239,634 $ 2.25 2,453,378 $ 3.57 Oil (Bbls)................. 287,159 $14.47 435,607 $25.02Lease operating expense and production taxes were $5,001,000 for the nine months ended September 30, 2000, versus $2,008,000 for the nine months ended September 30, 1999, due primarily to higher oil and natural gas sales and additional costs associated with the Lafitte, Burrwood and West Delta fields. Production taxes are calculated as a percentage of revenue from oil and gas sales. Higher commodity prices and sales resulted in an 25increase in our production taxes of approximately $1.0 million from period to period. Our increase in lease operating expense also reflects expenses from our Lafitte property of $653,000 in the first nine months of this year and expenses from our Burrwood/West Delta property of $725,000 in the first nine months of this year. The prior period does not include any expense relating to these properties. Depletion, depreciation and amortization was $4,227,000 for the nine months ended September 30, 2000, versus $3,550,000 for the nine months ended September 30, 1999, due to increased capitalized costs and higher production volumes. Exploration expense for the nine months ended September 30, 2000 was $2,084,000 versus $1,295,000 for the same period of 1999, due primarily to seismic costs of $796,000 in the current period compared to $51,000 in the prior period. Additionally, leasehold amortization and dry hole costs amounted to $763,000 and $158,000, respectively, for the nine months ended September 30, 2000 versus $841,000 and $68,000 for the same period in 1999. Interest expense was $3,696,000 in the nine months ended September 30, 2000 compared to $1,678,000 in the nine months ended September 30, 1999 due to higher average debt outstanding. The 2000 amount includes $845,000 of non cash expenses associated with the amortization of financing costs and warrants issued in connection with the September 1999 private placement and amortization of the discount associated with the production payment liability recorded in connection with the Lafitte field acquisition. We recorded a gain on the sale of certain non-core oil and natural gas properties of $307,000 for the nine months ended September 30, 2000. We incurred a loss on the sale of marketable equity securities of $519,000 for the nine months ended September 30, 1999. Year ended December 31, 1999 versus year ended December 31, 1998 Total revenues in 1999 amounted to $14,021,000 and were $3,429,000 higher than total revenues in 1998, due primarily to higher oil and natural gas revenues. Oil and natural gas sales were $3,898,000 higher due to higher oil and natural gas prices, higher oil and natural gas production volumes and additional oil volumes associated with the Lafitte field acquisition in September 1999.
Year Ended Year Ended December 31, 1998 December 31, 1999 ------------------------ ------------------------ Production Average Price Production Average Price ---------- ------------- ---------- -------------Natural gas (Mcf).......... 2,782,825 $ 2.18 2,930,655 $ 2.41 Oil (Bbls)................. 316,768 $11.88 394,442 $16.88Lease operating expense and production taxes were $3,592,000 for 1999 compared to $2,822,000 for 1998, or $770,000 higher substantially due to costs related to the Lafitte field properties. Depletion, depreciation and amortization was $4,744,000 in 1999 versus $4,094,000 in 1998, or $650,000 higher due to increased oil and natural gas production, including volumes associated with the Lafitte field properties. We incurred $1,656,000 of exploration expense in 1999 compared to $6,010,000 in 1998. Included in the 1999 exploration expense is $120,000 of costs related to dry holes during the period versus $3,684,000 of such costs related to dry holes in 1998. We recorded an impairment in the recorded value of certain oil and natural gas properties in 1999 in the amount of $465,000 due to the complete depletion of the reserves on three one-well non-core fields. This compares to an impairment of $1,076,000 recorded in 1998 as the result of two non-core fields depleting earlier than originally anticipated. Interest expense was $2,811,000 in 1999 compared to $1,910,000 (47% higher) in 1998 due to our having higher average debt outstanding as a result of the September 23, 1999 private placement and a higher effective 26interest rate in 1999 compared to 1998. The 1999 effective interest rate includes amortization of financing costs and non-cash expense due to the amortization of the discount on the 1999 private placement. General and administrative expenses amounted to $1,990,000 for 1999 versus $2,399,000 in 1998. During 1999, no preferred stock dividends were declared; however, dividends on both of our series of preferred stock did accumulate to an amount equal to $1,249,000 for 1999. We also accrued non-cash dividends on preferred units issued by a subsidiary of $73,000, which is reflected as preferred dividends of subsidiary in the statement of operations for 1999. Year ended December 31, 1998 versus year ended December 31, 1997 Total revenues in 1998 amounted to $10,592,000 and were $2,309,000 lower than total revenues in 1997 due to lower oil and natural gas revenues and the loss of revenues from a pipeline joint venture. Oil and natural gas sales were $1,515,000 lower due primarily to lower oil and natural gas prices, partially offset by higher production volumes. We had no revenues from the pipeline joint venture in 1998 compared to $1,078,000 in 1997 due to the sale of the asset in the fourth quarter of 1997. The following table reflects the production volumes and pricing information for the periods presented:
Year Ended Year Ended December 31, 1997 December 31, 1998 ------------------------ ------------------------ Production Average Price Production Average Price ---------- ------------- ---------- -------------Natural gas (Mcf).......... 2,449,320 $ 2.55 2,782,825 $ 2.18 Oil (Bbls)................. 282,380 $18.06 316,768 $11.88Lease operating expense and production taxes were $2,822,000 for 1998 compared to $2,316,000 for 1997, or $506,000 higher, due primarily to Goodrich not incurring, in the 1997 period, ad valorem taxes related to the La/Cal II properties that were the responsibility of the La/Cal II partners. Additionally, the 1998 period includes eight additional producing wells and twelve months of lease operating expense and production taxes for the La/Cal II properties, compared to eleven months for 1997, due to the effective date of the acquisition being January 31, 1997. Depletion, depreciation and amortization was $4,094,000 in 1998 versus $4,863,000 in 1997, or $769,000 lower, substantially due to no amortization of the pipeline joint venture in 1998 compared to $741,000 in 1997. We incurred $6,010,000 of exploration expense in 1998 compared to $3,206,000 in 1997. Included in the 1998 exploration expense is $3,684,000 of costs related to dry holes during the period versus $2,342,000 of such costs in 1997. We recorded an impairment in the recorded value of certain oil and natural gas properties in 1998 in the amount of $1,076,000 due to lower oil prices and higher than expected depletion rates. This compares to an impairment of $550,000 recorded in 1997. Interest expense was $1,910,000 in 1998 compared to $1,417,000 (35% higher) in 1997 due to our having higher average debt outstanding, slightly offset by a lower effective interest rate in 1998 compared to 1997. General and administrative expenses amounted to $2,399,000 for 1998 versus $2,628,000 in 1997. Our preferred stock dividends amounted to $1,256,000 for 1998 compared to $1,205,000 in 1997, or $51,000 higher, due to twelve months of dividends being paid on our Series B Preferred Stock in the current year versus eleven months in the prior year. Liquidity and Capital Resources Net cash provided by operating activities was $9,480,000 in the nine months ended September 30, 2000 compared to net cash used in operating activities of $1,075,000 in the nine months ended September 30, 1999. 27Net cash used in investing activities totaled $11,522,000 for the nine months ended September 30, 2000 compared to $5,341,000 in 1999. The nine months ended September 30, 2000 reflects capital expenditures totaling $10,783,000, cash paid in connection with the acquisition of oil and gas properties of $1,199,000 and proceeds from the sale of oil and gas properties of $460,000. The nine months ended September 30, 1999 reflects capital expenditures totaling $1,862,000, cash paid in connection with the acquisition of oil and gas properties of $3,719,000, and proceeds from the sales of marketable equity securities of $240,000. Net cash used in financing activities was $1,856,000 for the nine months ended September 30, 2000 as compared to net cash provided by financing activities of $12,366,000 in the prior year period. The 2000 amount includes proceeds from the issuance of common stock of $4,500,000, the exercise of stock purchase warrants and director options of $249,000 and the exercise of employee stock purchase warrants and options of $452,000. The 2000 amount was reduced for paydowns on the Company's credit line of $3,226,000, production payments of $453,000, debt issuance costs of $30,000 and changes in restricted cash of $1,030,000. The 1999 amount includes proceeds from the issuance of convertible notes of $12,000,000 and proceeds from the issuance of preferred stock of $3,000,000. The 1999 amount also includes debt financing costs of $1,134,000 and pay downs of $1,500,000 by the Company under its line of credit. Our current liabilities exceeded our current assets at September 30, 2000 by $3,063,000, which includes the current portion of long-term debt under our credit facility of $3,600,000. Current liabilities also include the estimated current portion of production payments to be netted from the Company's Lafitte field production. Based on operating cash flow and alternative sources for funding capital expenditures, including the October 2000 private placement of common stock, the Company expects to be able to meet its current obligations as they become due. Net cash provided by operating activities was $1,065,000 for the year ended December 31, 1999 compared to $4,517,000 for the same period in 1998 and $6,633,000 for the same period in 1997. Our net cash flow provided by operating activities decreased in 1999 due to the use of part of the proceeds from our private placement of securities in 1999 to pay down accounts payable by $5,052,000. Net cash used in investing activities amounted to $6,407,000 in 1999 compared to $14,959,000 in 1998 and $6,007,000 in 1997. The amount for the year ended December 31, 1999 is principally composed of cash paid in connection with the purchase of our Lafitte property for $4,100,000 and exploration and drilling capital expenditures of $2,557,000 primarily in the Lafitte and Second Bayou fields. Net cash used in investing activities for the year ended December 31, 1998 is principally composed of cash paid for exploration and drilling capital expenditures of $14,879,000. Net cash used in investing activities for the year ended December 31, 1997 reflects non-acquisition capital expenditures of $7,866,000 and cash paid in connection with the purchase of oil and natural gas properties of $2,075,000. These amounts were offset by proceeds from the sale of our interest in the pipeline joint venture $3,564,000 and the sale of certain oil and natural gas properties located in Montana. Net cash provided by financing activities was $11,176,000 in 1999 and $9,744,000 in 1998, compared to net cash used in financing activities of $177,000 in 1997. The 1999 amount includes proceeds from the issuance of convertible notes of $12,000,000 and proceeds from the issuance of preferred stock of $3,000,000. The amount also includes debt financing costs of $1,303,000 and paydowns of $2,409,000 of our bank credit facility. The 1999 period reflects no preferred dividends. The 1998 amount includes the borrowing of $11,500,000 by us under our line of credit offset by paydowns during the year of $500,000. Preferred stock dividends in 1998 amounted to $1,256,000. The 1997 amount includes the borrowing of $9,000,000 by us under our line of credit, which was used to pay off the debt assumed in our acquisition of La/Cal II, L.P. Acquisition and to pay the cash portion of the purchase price. The 1997 amount also includes other borrowings of $3,000,000 against our line of credit, offset by paydowns during the year of $3,500,000 and the payoff of La/Cal II debt of $7,464,000. Preferred stock dividends in 1997 amounted to $1,205,000. 28Bank Credit Facility Our credit facility with Compass Bank currently provides for a borrowing base of $27,100,000, subject to monthly reductions of $300,000. On September 30, 2000, the amount outstanding under our credit facility was $23,865,000. Subsequent payments have reduced the outstanding balance to $22,965,000. We expect to repay all amounts outstanding under our credit facility with the proceeds of this offering. The maturity date under our credit facility is November 1, 2001. Interest on our credit facility is at the Compass Bank Index Rate plus 5/8%, or approximately 10.25% at September 30, 2000. Prior to the closing of this offering, we will amend our credit facility with Compass Bank to increase its size to $50.0 million of aggregate borrowing capacity with an initial borrowing base of $30.0 million. The borrowing base will be subject to semi-annual redetermination based upon a review of our reserves. If our borrowing base is not re-determined by April 1, 2001, then it will be reduced monthly beginning May 1, 2001. Interest under our credit facility will accrue at a rate calculated at our option as either the Compass Bank prime rate, or LIBOR plus an applicable margin that increases as the amount outstanding under the facility increases. Substantially all of our assets will be pledged to secure our amended credit facility. The credit facility will mature on April 1, 2003. Prior to maturity, no payments of principal are required so long as the borrowing base exceeds the credit facility balance. Interest is payable monthly. Our credit facility restricts us from declaring or paying dividends on our common stock without our lender's consent. Recent Financing Transactions In October 2000, we completed the sale of 1,000,000 shares of our common stock for gross proceeds of $5.0 million. In September 2000, we paid an aggregate of approximately $1.8 million of dividend arrearages and $296,000 of regular quarterly dividends on our Series A and Series B preferred stock. These payments brought us current on our dividend payments on both of our series of preferred stock. We have reached agreement with all of the holders of our Series B preferred stock to exchange each share of Series B preferred stock for 1.8 shares of our common stock. The exchange offer is contingent upon and will close concurrently with this offering. We will issue 1,189,510 shares of our common stock as a result of the exchange. In August 2000, we issued 3,295,647 shares of our common stock in connection with the conversion of convertible notes issued by two of our subsidiaries. The convertible notes had outstanding principal and accrued interest of $12.9 million at the time of conversion. In February 2000, we completed a private placement of 1,533,333 shares of our common stock resulting in gross proceeds of $4.5 million. Commitments and Contingencies In connection with the Burrwood and West Delta acquisitions, we secured a performance bond and established an escrow account to be used for the payment of obligations associated with the plugging and abandonment of the wells, salvage and removal of platforms and related equipment, and the site restoration of the fields. Required escrowed outlays include an initial cash payment of $750,000 and monthly cash payments of $70,000 beginning June 1, 2000 and continuing until June 1, 2005. In addition, as part of the purchase agreement, we have agreed to shoot a 3-D seismic survey over the fields by June 30, 2001 or remit payment to the seller in the amount of $3.5 million. The cost of the seismic study is expected to be approximately $2.4 million and we have already paid $1.2 million of this amount. 29The U.S. Environmental Protection Agency has identified us as a potentially responsible party for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. We have estimated that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with our percentage of responsibility estimated by the EPA to be approximately 3.05%. As of September 30, 2000, we have paid approximately $321,000 in costs related to this matter, and $122,500 has been accrued for the remaining liability. These costs have not been discounted to their present value. The EPA and the potentially responsible parties will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and our percentage of responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all potentially responsible parties. Therefore, the ultimate cost of the clean up to us could be significantly higher than the amount presently estimated or accrued for this liability. Accounting Changes The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1997. This statement established accounting and reporting standards for derivative instruments and hedging activities. Effective January 1, 2001, we must recognize the fair value of all derivative instruments as either assets or liabilities in our consolidated balance sheet. A derivative instrument meeting certain conditions may be designated as a hedge of a specific exposure; accounting for changes in a derivative's fair value will depend on the intended use of the derivative and the resulting designation. Any transition adjustments resulting from adopting this statement will be reported in net income or other comprehensive income, as appropriate, as the cumulative effecteffects of a change inaccounting principle. Ascontrol. Under the agreements and the severance plan, each officer is eligible for severance payments and other benefits if the officer’s employment is terminated without cause or such officer resigns due to a “change in duties” (as defined in the applicable plan or agreement) following the occurrence of a change of control (each a “Triggering Event”) as described in further detail under “Potential Payments Upon Termination or Change in Control” below.
• Without Cause. Payments and other benefits are provided under the separation agreements and the plan if the officer is terminated without cause. The payments and other benefits provided upon this Triggering Event are intended to ease the consequences to the separated officer of an unexpected termination that under different circumstances would not have occurred and which is beyond the control of the officer.
• Change in Duties following Change of Control. Recognizing the importance of avoiding the distraction and loss of key management personnel that may occur in connection with rumored or actual fundamental corporate changes, we provide payments and other benefits under the separation agreements in certain instances in which an officer is terminated or resigns due to a “change in duties” following a change of control. We believe that use of this Triggering Event protects stockholder interests by enhancing employee focus during rumored or actual change of control activity by (1) providing incentives to our executive officers to remain employed by us despite uncertainties while a transaction is under consideration or pending and (2) assuring severance and benefits for involuntarily or constructively terminated officers. Other Benefits
In addition to base pay, annual cash incentive, long-term equity-based incentives and severance benefits, we provide the
heading "Quantitativefollowing forms of compensation:
• 401(k) Savings Plan. We have a defined contribution profit sharing 401(k) plan designed to assist our eligible officers and employees in providing for their retirement. We have a plan that allows us to match the contributions of our employees to the plan in cash, up to a maximum of 6% of eligible deferrals. When matching occurs, employees are immediately 100% vested in company contributions. Matching contributions were suspended effective April 1, 2016 and have not to date been reinstated.
• Health and Other Welfare Benefits. Our executive officers are eligible to participate in medical, dental, vision, disability insurance and life insurance to meet their health and welfare needs. These benefits are
provided so as to assure that we are able to maintain a competitive position in terms of attracting and retaining officers and other employees. This is a fixed component of compensation and the benefits are provided on a non-discriminatory basis to all employees.
• Perquisites. We do not provide perquisites to our executive officers. Other Matters
Policy on Recovery of Compensation and
Qualitative Disclosures About Market Risk" below, we make useClawbacksIn December 2014, the Board adopted a clawback policy under which the Board, or a committee of
derivative instrumentsthe Board, has the right tohedge specific market risks. We have not yet determinedcause theeffectsreimbursement by an executive officer of the Company of certain incentive compensation if the compensation was predicated upon the achievement of certain financial results thatSFAS No. 133 will have on our future consolidatedwere subsequently the subject of a required restatement of the Company’s financial statementsor the amount of the cumulative adjustment that will be made upon adopting this new standard. Quantitative and Qualitative Disclosures About Market Risk Debt and Debt-Related Derivatives We are exposed to interest rate risk on our long-term debt with variable interest rates. As of September 30, 2000 our average interest rate was 10.25%. Based on the overall interest rate exposure on our variable rate debt of $23.9 million at September 30, 2000, a hypothetical 2% increase in the interest rates would increase our interest expense by approximately $477,000 per year. Hedging Activity We enter into futures contracts or other hedging arrangements from time to time to manage the commodity price risk for a portion of our production. We consider these to be hedging activities and, as such, monthly settlements on these contracts are reflected in our oil and natural gas sales. Our strategy, which is reviewed periodically by our Board of Directors, has been to hedge from 30-60% of our production. Most of our hedging arrangements are in the form of costless collars whereby a floor and a ceiling are fixed. It is our belief that the benefits of the downside protection afforded by these costless collars outweigh the costs we incur by losing potential upside when commodity prices increase. The futures contract agreements provide for separate contracts tied to the New York Mercantile Exchange ("NYMEX") light sweet crude oil and natural gas futures contracts. We have contracts which contain specific price ranges or "collars" that are settled monthly based on the differences between the contract price or price rangesand theaverage NYMEX prices for each month applied toexecutive officer engaged in fraudulent or intentional illegal conduct that caused therelated contract volumes. To the extent the average NYMEX price exceeds the contract price, we pay the difference, and to the extent the contract price exceeds the average NYMEX price, we receive the difference. 30As of September 30, 2000, our crude oil hedging contracts were as follows: . 350 Bbls of oil per day with a no cost collar of $19.00 and $21.00 per barrel through December 2000; . 150 Bbls of oil per day with a no cost collar of $18.20 and $20.20 per barrel through December 2000; . 500 Bbls of oil per day with a no cost collar of $25.00 to $32.40 per day from October 2000 through December 2000; . 500 Bbls of oil per day with a no cost collar of $20.00 and $28.40 per barrel from January 2001 through December 2001; and . 300 Bbls of oil per day with a no cost collar of $23.00 and $29.55 per barrel from January 2001 through December 2001. The fair value of the crude oil hedging contracts in place at September 30, 2000 would result, if not accounted for as hedges, in a liability of $496,000. At September 30, 2000, our natural gas hedging contracts were as follows: . 5,000 Mcf per day with a floor price of $2.50 per Mcf through October 2000; the cost of the "floor" contract hedge is $0.23 per Mcf over the "floor" price; . 6,500 MMBtu per day with a no cost collar of $3.70 and $4.53 per MMBtu from October 2000 through December 2000; and . 5,000 MMBtu per day with a no cost collar of $3.05 and $4.45 per MMBtu from January 2001 through December 2001. The fair value of the natural gas hedging contracts in place at September 30, 2000 would result, if not accounted for as hedges, in a liability of $970,000. We have the option to terminate our outstanding oil and natural gas hedging contracts by paying the amount of the liability. We do not anticipate terminating any of our open contracts. For the fourth quarter of 1999, we had 305,000 Mcf (44%) of our gas hedged . We received $2.41 per Mcf of gas during this period versus an average NYMEX gas price of $2.40. For the first quarter of 2000 we had 72,800 barrels (66%) of our oil hedged and 455,000 Mcf (64%) of our gas hedged. We received $24.18 per barrel of oil and $2.58 per Mcf during this period versus an average NYMEX price of $30.21 per barrel of oil and $2.57 per Mcf. For the second quarter of 2000, we had 85,000 barrels (56%) of our oil hedged and 455,000 Mcf (59%) of our gas hedged. We received $24.12 per barrel of oil and $3.74 per Mcf during this period versus an average NYMEX price of $28.64 per barrel of oil and $3.88 per Mcf. For the third quarter of 2000, we had 92,000 barrels (53%) of our oil hedged and 460,000 Mcf (48%) of our gas hedged. We received $26.33 per barrel of oil and $4.17 per Mcf during this period versus an average NYMEX price of $31.46 per barrel of oil and $4.29 per Mcf. Price Fluctuations and the Volatile Nature of Markets Despite the measures we have taken to attempt to control price risk, we remain subject to price fluctuations for oil and natural gas sold in the spot market. Prices received for natural gas sold in the spot market are volatile due primarily to seasonality of demand and other factors beyond our control. Oil and natural gas prices can change dramatically primarily as a result of the balance between supply and demand. The trend since 1998 has been upward, with our average natural gas price receivedneed for thequarter ending September 30, 2000restatement.Tax Treatment of
$4.17 per Mcf, up from $2.41 per Mcf in 1999Executive CompensationCompensation payable to our CEO and
$2.18 per Mcf in 1998. Our average oil price received for the quarter ended September 30, 2000 was $26.33, up fromouraverage price received of $16.88 in 1999 and $11.88 in 1998. There can be no assurance that prices will not decline from current levels. Declines in domestic oil and natural gas prices could have a material adverse effect onthree other most highly compensated employees other than our chief financialposition, results of operations and quantities of reserves recoverable on an economic basis. 31BUSINESS AND PROPERTIES We are an independent oil and natural gas company engaged in the exploration, exploitation, development and production of oil and natural gas properties in the transition zone of south Louisiana and in north Louisiana, the Gulf Coast of Texas and East Texas. We have been active in these regions since 1975 and have established extensive technical and operating experience in these areas. As of June 30, 2000, we had estimated proved reserves of approximately 30.7 Bcf of natural gas and 7.2 MMBbls of oil, or an aggregate of approximately 73.9 Bcfe. Our proved reserves had a PV-10 Value of $158.4 million and Standardized Measure of $119.8 million at June 30, 2000, based on pricing of $29.80 per Bbl of oil and $4.56 per Mcf of natural gas. We have an inventory of over 100 development, exploitation and exploration projects that we believe provides us with an opportunity to substantially increase our production and reserves. Our Burrwood, West Delta and Lafitte fields account for approximately 80% of our 2001 capital budget of $20.0 million, whichofficer is subject tochanges due to then prevailing market conditions. Our 2001 budget includes plans to drill approximately 18 new wells and conduct 15 workovers and recompletions on existing wells. We expect significant production increases followingthesuccessful completion of this offering as a result of our expanded capital budget and exploitation of our project inventory. Our capital expenditures for the first nine months of 2000 totaled $12.0 million, of which $1.2 million represents the net purchase price for our interests in the Burrwood and West Delta fields. Our production has already increased 67% to 2.0 Bcfe in the third quarter of 2000 from 1.2 Bcfe in the third quarter of 1999. Goodrich resulted from a business combination on August 15, 1995 between La/Cal Energy Partners and Patrick Petroleum Company. La/Cal was a privately held independent oil and gas partnership formed in July 1993 and engaged in the development, production and acquisition of oil and natural gas properties, primarily in south Louisiana. Patrick was a NYSE listed independent oil and gas company engaged in the exploration, production, development and acquisition of oil and natural gas properties in the continental United States. On January 31, 1997, we acquired the oil and gas properties of La/Cal Energy Partners II and certain working interest owners for a purchase price of $16.5 million. The purchase price was comprised of $1.5 million in cash, the assumption of $7.5 million of long-term debt and the issuance of 750,000 shares of our Series B preferred stock with an aggregate liquidation value of $7.5 million. Our principal offices are located at 815 Walker, Suite 1040, Houston, Texas 77002. We currently have approximately 4,400 square feet leased through January, 2003 at an annual rate of $16.50 per square foot for 2000 escalating to $17.50 for 2001 and $18.50 for 2002. We also have offices in Shreveport, Louisiana. We have 16 employees. Our website is www.goodrichpetroleum.com. The information on our website is not part of this prospectus. Our Strategy Our principal strategy is to increase production, cash flow and reserves through the acquisition and subsequent exploitation and development of mature properties, complimented by select exploration activities, in our core areas. We focus on fields that have multiple productive reservoirs with an established production history and infrastructure in place. Due to depletion, these fields tend to no longer be the focus of the seller's technical staff. By conducting our own exhaustive field studies prior to making an offer to acquire any such properties, we strive to achieve a superior technical understanding of the target property. Upon completion of an acquisition, we are generally prepared to implement operations designed to increase production, cash flow and reserves by drilling new wells and conducting workovers and recompletions of existing wells. Other elements of our near-term strategy include: Aggressively develop our Burrwood, West Delta and Lafitte fields. We plan to pursue 92 development and exploitation projects in our Burrwood, West Delta and Lafitte fields, 80% of which are scheduled for the next 32two years. This development and exploitation activity is already underway and will be accelerated with the liquidity we gain from this offering. In addition, we expect to complete a 41 square mile 3-D seismic survey over our Burrwood and West Delta fields by June 2001. We believe that this data will both further define our proved and developmental projects and allow us to pursue additional projects and deep prospects that we have not yet identified. The following table contains information with respect to certain near-term projects we have identified:
Capital Actual/Estimated Burrwood, West Delta and Number Reserve Expenditures First Production Lafitte Fields of Projects Classification (in millions)(1)(2) Date(2) - ------------------------ ----------- ------------------ ------------------- ----------------Proved and 28 Proved Developed $ 4.7 July 2000 Developmental......... Non-Producing 14 Proved Undeveloped 7.9 September 2000 12 Developmental 11.3 August 2000 --- ----- Subtotal.............. 54 23.9 --- ----- Probable/Possible...... 25 Probable 16.6 November 2000 13 Possible 4.5 March 2001 --- ----- Subtotal.............. 38 21.1 --- ----- Total............... 92 $45.0 === =====- -------- (1) Capital expenditures have been increased from those used in the June 30, 2000 reserve report to reflect current estimated costs. (2) The dates and associated capital expenditures are based upon our present capital budget. Capital expenditures and commencement of any production from these projects will occur over an extended period commencing with the dates shown. Actual numbers of projects, amounts of capital expenditures and commencement of production will be dependent upon economic conditions affecting oil and gas prices and production costs as well as the results of drilling and development. Maintain our focus on south Louisiana. We will continue to concentrate our activities in our core areas, primarily the transition zone of south Louisiana. We have assembled a large inventory of technical data and expertise over the last 25 years, resulting in an approximate 70% drilling success rate and the achievement of production in over 70 fields in Louisiana. Over 78% of our proved reserves are in south Louisiana and over 96% of our 2001 preliminary capital budget is dedicated to development and exploitation activities in the region. South Louisiana is highly attractive to us due to the availability of mature oil and natural gas properties with an established operating infrastructure, resulting in multiple opportunities for significant reserve and production gains through acquisitions and additional development and exploitation activities. We believe that our region-specific geological, engineering and production experience provides us with a competitive advantage to identify and complete additional acquisitions, development projects and exploitation projects in south Louisiana. Maintain significant operatorship. We currently operate 65% of our properties, providing us with control over the incurrence and timing of many capital and operating expenditures. As operator of the Burrwood and West Delta fields, we intend to use the liquidity that we gain from this offering to accelerate the development and exploitation projects within these fields. Repeat our recent acquisition success. We recently acquired our interests in the Burrwood, West Delta and Lafitte fields for an aggregate purchase price of $10.1 million. Based on independent reserve engineering estimates and factoring in the estimated capital expenditures to develop these reserves, we expect an all-in finding cost of $0.71 per Mcfe for these properties. Since closing these acquisitions, we have increased field production of oil and natural gas at Lafitte by 113% to approximately 9,600 gross Mcfe per day and at Burrwood and West Delta by 144% to 11,000 gross Mcfe per day. These production increases, when coupled with additional production increases achieved in other fields, have allowed us to increase net daily production levels from approximately 12,800 Mcfe per day one year ago to approximately 23,000 Mcfe per day currently. We believe there will continue to be attractive opportunities to acquire properties in our core areas as major and large independent oil and natural gas companies continue to focus their resources away from mature 33properties in south Louisiana to the development of projects in the deep water Gulf of Mexico and in foreign countries. The acquisition opportunities that we pursue generally have the following characteristics: . located in our core areas, particularly in south Louisiana; . significant cumulative production histories and low current production levels; . multiple productive reservoirs with complex geology and significant 3-D seismic applicability; . numerous identified development projects; and, . significant controlling interests and operatorship. Oil and Natural Gas Operations and Properties The following table provides proved reserve information and PV-10 Values for our oil and natural gas properties as of June 30, 2000:
Net Proved % of Total Reserves PV-10 Value PV-10 Field (MMcfe) (in thousands) Value ----- ---------- -------------- ----------Louisiana: Lafitte............................... 18,554 $ 40,513 25.6% Burrwood and West Delta............... 20,671 38,165 24.1 Second Bayou.......................... 5,562 14,966 9.4 Pecan Lake............................ 4,499 12,274 7.7 Isle St. Jean Charles................. 2,821 8,337 5.3 Other................................. 10,626 22,933 14.5 ------ -------- ---- Total Louisiana..................... 62,733 137,188 86.6 ------ -------- ---- Texas: Mary Blevins.......................... 2,899 4,944 3.1 Sean Andrew........................... 1,621 4,437 2.8 Other................................. 6,326 11,398 7.2 ------ -------- ---- Total Texas......................... 10,846 20,779 13.1 ------ -------- ---- Other................................... 362 474 0.3 ------ -------- ---- Total............................... 73,941 $158,441 100% ====== ======== ====Louisiana The majority of our proved natural gas reserves are in the transition zone of the south Louisiana producing region. This region refers to the geographic area which covers the onshore and inland waters of south Louisiana, lying in the southern half of the state of Louisiana, one of the world's most prolific oil and natural gas producing sedimentary basins. The region generally contains sedimentary sandstones, which are of high qualities of porosity and permeabilities. There is a myriad of types of reservoir traps found in the region. These traps are generally formed by faulting, folding and subsurface salt movement or a combination of one or more of these. The formations found in the southern Louisiana producing region range in depth from 1,000 to 20,000 feet below the surface. These formations range from the Sparta and Frio formations in the northern part of the region to Miocene and Pleistocene formations in the southern part of the region. Our production comes predominately from Miocene and Frio age formations. Lafitte Field. The Lafitte field is located in Jefferson Parish, Louisiana and was discovered in 1935 by Texaco. The Lafitte field is a large, north-south elongated salt dome anticline feature. The productive sands are Miocene and Pliocene age sands ranging in depth from 3,000 feet to approximately 12,000 feet. There are 34currently 30 active producing wells in the field. Average daily production for September 2000 was 1,504 gross (570 net) barrels of oil and 627 gross (231 net) Mcf of gas. In September 1999, we acquired an approximate 49% interest in the Lafitte field with regards to the field's leases, surface facilities and equipment and an approximate 45% average interest in the 31 active producing wells. In November 1999, we acquired additional interests, resulting in an approximate field-wide interest of 49%. The field met all of our acquisition criteria, including being owned by a major oil and gas company who did not view the field as a core property. Additionally, the Lafitte Field had over 30 defined productive reservoirs, a large cumulative production history of 1,890 Bcfe, a large acreage position of over 8,000 acres and then current production of approximately 750 Boe per day. After a thorough evaluation of the field, we identified 45 projects that we believed would increase production. We have already drilled one new well and performed five workovers and recompletions, increasing our production from 750 Boe per day to approximately 1,800 Boe per day currently. We have identified approximately 40 projects remaining to exploit in the field. Stone Energy operates this field. See "Risk Factors--If we are unable to resolve our dispute with the co-owner of the Lafitte field, our ability to evaluate our participation in the development of this property could be materially adversely affected." Burrwood and West Delta Fields. The Burrwood and West Delta fields were discovered in 1955 by Chevron. The fields lie upthrown to a large down-to-the- southeast growth fault system with the structure striking northeast-southwest and dipping northwestward in a counter-regional direction. The productive sands are Miocene and Pliocene age sands ranging in depth from 6,300 feet to approximately 11,700 feet. There are currently 10 active producing wells in the fields. Average daily production for September 2000 was 5,148 gross (3,859 net) Mcf of gas and 608 gross (454 net) barrels of oil. In March 2000, we completed the acquisition of working interests in the Burrwood and West Delta fields, for $1.2 million cash, the assumption of the plugging and abandonment obligations associated with these fields, which we have estimated to be $4.75 million, and the commitment to conduct a 3-D seismic survey by June 2001, which will cost us $2.4 million. We acquired an approximate 95% working interest of all rights from the surface to approximately 10,600 feet and an approximate 47.5% working interest in the deep rights below 10,600 feet. These contiguous fields collectively comprise approximately 86,000 gross acres in Plaquemines Parish, Louisiana. At the time of our acquisition, the Burrwood and West Delta fields had cumulative production of 431 Bcfe, 16 productive reservoirs, significant infrastructure in place, immediate development opportunities and potential deep reservoirs that we believe may be identified with the use of 3-D seismic technology. The Burrwood and West Delta fields are adjacent to several fields that have yielded deep production from wells drilled below 10,600 feet. We are the operator of this field. Second Bayou Field. The Second Bayou field is located in Cameron Parish, Louisiana and was discovered in 1955 by the Sun Texas Company. We are the operator of nine producing wells, seven of which are completed in two separate zones within the same well bore. We have an average working interest of approximately 29% in 1,395 gross acres. To date, the field has produced over 423 Bcf of natural gas and 3 MMBbls of oil from multiple Miocene aged sands ranging in depth from 4,000 feet to 15,200 feet. Other major operators in the area are Fina, Texaco and Bellwether Exploration. Average daily production for September 2000 was 1,636 gross (372 net) barrels of oil and 3,802 gross (902 net) Mcf of gas. Pecan Lake Field. The Pecan Lake field was discovered in 1944 by the Superior Oil Company. Geologically, the field is comprised of a relatively low relief, four-way closure and multiple stacked pay sands. The Pecan Lake field comprises approximately 870 gross acres in Cameron Parish, Louisiana, approximately 42 miles southeast of Lake Charles, Louisiana. The field has produced from over 15 Miocene sands ranging in depths from 7,500 feet to 11,800 feet, which have been predominately natural gas and natural gas condensate reservoirs. These sand reservoirs are characterized by generally widespread development and strong waterdrive production mechanisms. The field has produced in excess of 350 Bcf of natural gas and 717 MBbls of condensate. All of the field production to date has come from normally pressured reservoirs. We are the operator of five producing wells, with working interests ranging from approximately 43% to 47%. Average 35daily production for September 2000 was 4,624 gross (1,543 net) Mcf of gas and 64 gross (22 net) barrels of oil. Isle St. Jean Charles Field. The Isle St. Jean Charles field is located in Terrebonne Parish, Louisiana. The field is a northwest extension of the Bayou Jean LaCroix field located in the southeastern area of the Parish. These fields are trapped on a four-way closure, downthrown on a major east-west, trending down to the south fault. Production is from multiple Miocene-aged sands, which are normally pressured and range in depth from 9,000 feet to 13,000 feet. The field was developed primarily in the 1950s by Exxon, and reservoirs have exhibited both depletion and water drive mechanisms. To date, these fields have produced in excess of 53 Bcf of natural gas and 6.6 MMBbls of oil and condensate. There are currently five active wells producing in these fields. We acquired our working interest in our leasehold of approximately 212 gross acres through both acreage acquisitions and a farmout from Fina. We are operator of the field and hold an approximate 34% working interest. Average daily production for September 2000 was 5,246 gross (1,380 net) Mcf of gas and 105 gross (27 net) barrels of oil. Other. We maintain ownership interests in acreage and wells in several additional fields in Louisiana, including the Lake Raccourci field, located in Lafourche Parish; the Kings Ridge field, located in Lafourche Parish; the Ada field, located in Bienville Parish; the Opelousas field, located in St. Landry Parish; the Sibley field, located in Webster Parish; the City of Lake Charles field, located in Calcasieu Parish; the Deep Lake field, located in Lafourche Parish; the Mosquito Bay field, located in Terrebonne Parish; the South Pecan Lake Field, located in Cameron Parish and the Charenton field, located in St. Mary Parish. Texas Mary Blevins Field. The Mary Blevins field is located in Smith County, Texas. It was a new discovery that is fault-separated from the Hitts Lake field, discovered in 1953 by Sun Oil. Currently there are four producing wells in the field with Goodrich, as operator, having an approximate 48% working interest in 782 gross acres. Average daily production for September 2000 was 124 gross (50 net) barrels of oil. Sean Andrew Field. The Sean Andrew field in West Texas produces from the pinnacle Pennsylvania Reef and was discovered by us in 1994, utilizing our 375 square mile 3-D seismic database. There are currently three wells producing approximately 250 barrels of oil per day, with our working interest averaging approximately 37%. Average daily production for September 2000 was 134 gross (36 net) barrels of oil and 60 gross (16 net) Mcf of gas. Other. We maintain ownership interests in acreage and wells in several additional fields in Texas including the Midway field, located in San Patricio County; the Ackerly field, located in Dawson and Howard Counties; the Mathers Ranch field, located in Hemphill County; the Marholl field, located in Dawson County; the Lamesa Farms field, located in Dawson County; the Carthage (Bethany) field, located in Panola County; the N.W. Ackerly field, located in Dawson County; the East Jacksonville field, located in Cherokee County and the Mott Slough field, located in Wharton County. Our primary exploration focus in West Texas is on the western flank of the Horseshoe Atoll area in Dawson and Gaines Counties. Other Properties We have an interest in two exploration permits in the Carnarvon Basin of Western Australia. EP-395. We acquired a 20% working interest in the 240 square kilometer exploration permit in 1995. Since 1995, we have reprocessed the original 2-D seismic data sets, shot a 38 kilometer 3-D seismic survey, and shot an additional 93 kilometer of high quality 2-D seismic. Interpretation of this data has confirmed two separate prospects: West Boyd and Lindsay. During 1999, we farmed out our working interest for a 6.9% carried interest through the drilling of the Boyd #1 well, which was a dry hole. 36EP-397. This permit is 160 square kilometers and we have a 33% working interest. We have 130 square kilometers of available seismic data which has been reprocessed and interpreted with several prospect leads. Oil and Natural Gas Reserves The table below presents our summary reserve information as of June 30, 2000. Estimates of our net proved reserves are based on a reserve report prepared by Coutret & Associates, Inc., our independent reserve engineers.
June 30, 2000 -------------Estimated net proved reserves: Natural gas (MMcf)........................................... 30,743 Oil and condensate (MBbls)................................... 7,200 Total (MMcfe).............................................. 73,941 PV-10 Value (in thousands)................................... $158,441 Standardized Measure (in thousands).......................... 119,829 Proved developed reserves as percentage of total proved reserves.................................................... 70.9%There are numerous uncertainties inherent in projecting future rates of production and timing of development expenditures, including many factors beyond our control. Reserve engineering is a subjective process of estimating underground accumulations of oil, condensate and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures and future oil and natural gas sales prices may all differ from those assumed in these estimates. Therefore, the present value of future net revenues amounts shown above should not be construed as the current market value of the estimated oil and natural gas reserves attributable to our properties. In accordance with the SEC's guidelines, the engineers' estimates of future net revenues from our properties and the present value of future net revenues thereof are made using oil and natural gas sales prices in effect as of the dates of such estimates and are held constant throughout the life of the properties, except where such guidelines permit alternate treatment, including the use of fixed and determinable contract prices. The prices as of June 30, 2000 used in such estimates averaged $4.56 per Mcf of natural gas and $29.80 per Bbl of oil and condensate. In 1998, proved natural gas reserves were revised downward primarily in three fields: Lake Raccourci, Pecan Lake and Kings Ridge. Reserves were revised downward in the Lake Raccourci and Pecan Lake fields due to premature depletion as a result of reservoir pressure decline and increased water production. In the Kings Ridge field, reserves were revised downward due to reduced producible volumes of gas as a result of 1998 additional development drilling. In 1999, proved natural gas reserves were revised downward in the Kings Ridge and Pecan Lake fields. In both fields, reserves were revised downward as a result of premature water production. Title to Properties We believe that we have satisfactory title to all of our producing properties in accordance with standards generally accepted in the oil and natural gas industry, subject to such exceptions as, in our opinion, are not so material as to detract substantially from the use or value of such properties. As is customary in the oil and gas industry, we perform only a preliminary title investigation before leasing undeveloped properties. Accordingly, working interest percentages and gross and net acreage amounts for undeveloped properties are preliminary. However, a title opinion is typically obtained before the commencement of drilling operations and any material defects in title are remedied prior to the time actual drilling of a well is commenced. We do not anticipate receiving title opinions on all of our properties, including the Lafitte field. If we or the operator of a property 37are unable to remedy or cure any title defect of a nature such that it would not be prudent to commence or continue operations on the property, we could suffer a loss of a portion of, or our entire investment in, the property. Our properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes, liens of vendors and lenders and other burdens, which we do not believe materially interfere with the use of or affect the value of our properties. We have mortgaged substantially all of our assets, including our properties, to secure our borrowings under our bank credit facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Bank Credit Facility" for further discussion. Productive Wells The following tables set forth the number of active well bores in which we maintain ownership interests as of December 31, 1999:
Oil Natural gas Total ------------ ------------ ------------- Gross Net(1) Gross Net(1) Gross Net(1) ----- ------ ----- ------ ------ ------California.......................... -- -- 4.00 2.09 4.00 2.09 Colorado............................ -- -- 1.00 0.30 1.00 0.30 Louisiana........................... 41.00 18.68 29.00 10.60 70.00 29.28 Michigan............................ 2.00 0.26 5.00 0.05 7.00 0.31 Mississippi......................... -- -- 1.00 0.05 1.00 0.05 New Mexico.......................... -- -- 1.00 0.03 1.00 0.03 Texas............................... 25.00 11.93 4.00 0.63 29.00 12.56 Wyoming............................. 1.00 0.17 -- -- 1.00 0.17 ----- ----- ----- ----- ------ ----- Total Productive Wells............ 69.00 31.04 45.00 13.75 114.00 44.79 ===== ===== ===== ===== ====== =====- -------- (1) Net working interest. As of September 30, 2000, we had 132 gross and 59.84 net productive wells. Productive wells consist of producing wells and wells capable of production, including natural gas wells awaiting pipeline connections. A gross well is a well in which we maintain an ownership interest, while a net well is deemed to exist when the sum of the fractional working interests owned by us equals one. Wells that are completed in more than one producing horizon are counted as one well. Of the gross wells reported in the table above, eight had multiple completions. Wells in which our interest is limited to a royalty or overriding royalty interest are excluded from the table. 38Acreage The following table summarizes our gross and net developed and undeveloped oil and natural gas acreage under lease as of December 31, 1999. Acreage in which our interest is limited to a royalty or overriding royalty interest is excluded from the table. As denoted in the following table, gross acreage refers to acres in which a working interest is owned, while a net acre is deemed to exist when the sum of the fractional ownership working interests in gross acres equals one.
Developed Undeveloped Acreage Acreage ------------ -------------- Gross Net Gross Net ------ ----- ------- ------California....................................... 1,280 568 -- -- Colorado......................................... 640 192 -- -- Louisiana........................................ 15,007 6,120 1,069 640 Michigan......................................... 1,920 19 640 50 Texas............................................ 5,358 1,912 2,160 987 Wyoming.......................................... 80 13 -- -- Other............................................ -- -- 98,841 17,306 ------ ----- ------- ------ Total.......................................... 24,285 8,824 102,710 18,983 ====== ===== ======= ======Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether or not such acreage contains proved reserves. As is customary in the industry, we can retain our interest in undeveloped acreage by drilling activity that establishes sufficient commercial production or by payment of delay rentals during the remaining primary term. The oil and natural gas leases in which we have an interest are for varying primary terms; however, most of our developed lease acreage is beyond the primary term and is held by producing wells. Drilling Activities The following table sets forth our drilling activity for the last three years. As denoted in the following table, gross wells refer to wells in which a working interest is owned, while a net well is deemed to exist when the sum of fractional ownership working interests in gross wells equals one.
Year Ended December 31, -------------------------------- 1997 1998 1999 ---------- ---------- ---------- Gross Net Gross Net Gross Net ----- ---- ----- ---- ----- ----Development Wells: Productive 6.00 2.55 6.00 2.77 1.00 0.49 Non-Productive............................ -- -- 2.00 1.47 -- -- ----- ---- ----- ---- ---- ---- Total................................... 6.00 2.55 8.00 4.24 1.00 0.49 ===== ==== ===== ==== ==== ==== Exploratory Wells: Productive................................ 12.00 2.94 7.00 1.49 -- -- Non-Productive............................ 7.00 1.72 8.00 2.87 1.00 0.12 ----- ---- ----- ---- ---- ---- Total................................... 19.00 4.66 15.00 4.36 1.00 0.12 ===== ==== ===== ==== ==== ==== Total Wells: Productive................................ 18.00 5.49 13.00 4.26 1.00 0.49 Non-Productive............................ 7.00 1.72 9.00 4.34 1.00 0.12 ----- ---- ----- ---- ---- ---- Total................................... 25.00 7.21 22.00 8.60 2.00 0.61 ===== ==== ===== ==== ==== ====From January 1, 2000 to September 30, 2000, we drilled seven gross (3.82 net) wells and successfully completed five gross (2.70 net) of those wells. 39Net Production, Unit Prices and Costs The following table presents certain information with respect to our oil, natural gas and condensate production and the revenue derived from the sale of such production, average sales prices received and average production costs for the periods presented:
Nine Months Ended Year Ended December 31, September 30, ----------------------- ----------------- 1997 1998 1999 1999 2000 ------- ------- ------- -------- --------Production: Natural gas (MMcf)................. 2,449 2,783 2,931 2,240 2,453 Oil and condensate (MBbls)......... 282 317 394 287 436 Total (MMcfe).................... 4,144 4,683 5,297 3,963 5,067 Average sales price per unit: Natural gas-- Revenues from production (per Mcf)............................ $ 2.55 $ 2.18 $ 2.40 $ 2.25 $ 3.66 Effects of hedging activities (per Mcf)....................... -- -- 0.01 -- (0.09) ------- ------- ------- -------- -------- Average price (per Mcf).......... $ 2.55 $ 2.18 $ 2.41 $ 2.25 $ 3.57 ------- ------- ------- -------- -------- Oil and condensate-- Revenues from production (per Bbl)............................ $ 18.06 $ 11.88 $ 16.88 $ 14.47 $ 28.56 Effects of hedging activities (per Bbl)....................... -- -- -- -- (3.54) ------- ------- ------- -------- -------- Average price (per Bbl).......... 18.06 11.88 16.88 14.47 25.02 ------- ------- ------- -------- -------- Total revenues from production (per Mcfe)............................. $ 2.74 $ 2.10 $ 2.58 $ 2.32 $ 4.23 Effects of hedging activities (per Mcfe)............................. -- -- 0.01 -- (0.35) ------- ------- ------- -------- -------- Total average price (per Mcfe)......................... $ 2.74 $ 2.10 $ 2.59 $ 2.32 $ 3.88 ======= ======= ======= ======== ======== Expenses (per Mcfe): General and administrative......... $ 0.63 $ 0.51 $ 0.38 $ 0.41 $ 0.34 Lease operating expenses (excluding production taxes)................. 0.40 0.48 0.51 0.37 0.67 Production taxes................... 0.16 0.13 0.17 0.13 0.32 Depreciation, depletion and amortization-oil and natural gas properties........................ 1.17 0.87 0.89 0.90 0.83 Reserve Life Index (in years)(1)... 15.0x 10.0x 12.7x N/A N/A- -------- (1) Calculated by dividing period-end proved reserves by production for the prior fiscal year. Our 1999 reserves include the Burrwood and West Delta acquisitions on a pro forma basis. Capital Expenditures The following table reflects certain data with respect to oil and natural gas property acquisitions, exploration and development activities:
Nine Months Year Ended December 31, Ended ----------------------------------- September 30, 1997 1998 1999 2000 ----------- ----------- ----------- -------------Property acquisition Proved...................... $17,308,540 $ 129,325 $10,136,298 $ 1,198,631 Unproved.................... 886,647 2,446,474 498,391 496,492 Exploration................... 5,535,783 8,718,682 1,634,299 1,554,520 Development................... 3,598,177 8,169,741 1,960,371 8,732,162 ----------- ----------- ----------- ----------- $27,329,147 $19,464,222 $14,229,359 $11,981,805 =========== =========== =========== ===========40Oil and Natural Gas Marketing and Major Customers Marketing Our natural gas production is sold under spot or market-sensitive contracts and to various natural gas purchasers under short-term contracts. Our natural gas condensate is sold under short-term rollover agreements based on current market prices. Our oil production is marketed to several purchasers based on short-term contracts. Customers Due to the nature of the industry, we sell our oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
Year Ended December 31, ---------------- 1999 1998 1997 ---- ---- ----Seaber Corporation of Louisiana............................... 37% 47% 44% Equiva Trading................................................ 27 12 11 Texla Energy Management....................................... 10 -- -- Navajo Refining Company....................................... 7 11 -- Mobil Oil Corporation......................................... -- -- 10 Mitchell Marketing Company.................................... -- -- 9Competition The oil and natural gas industry is highly competitive. Major and independent oil and natural gas companies, drilling and production acquisition programs and individual producers and operators are active bidders for desirable oil and natural gas properties, as well as the equipment and labor required to operate those properties. Many competitors have financial resources substantially greater than we do, and staffs and facilities substantially larger than ours. Regulations Our business can be affected by a number of regulatory policies, including the regulation of production, federal and state regulations governing environmental quality and pollution control, state limits on allowable rates of production by a well or proration unit, the availability of adequate pipeline and other transportation and processing facilities and incentives to promote alternative or competitive fuels. For example, a productive natural gas well may be "shut-in" because of an oversupply of natural gas or the lack of an available natural gas pipeline in the areas in which we may conduct operations. State and federal regulations generally are intended to prevent waste of oil and natural gas, protect rights to produce oil and natural gas between owners in a common reservoir, control the amount of oil and natural gas produced by assigning allowable rates of production and control contamination of the environment. Pipelines are subject to the jurisdiction of various federal, state and local agencies as well. Federal Regulation of Natural Gas. Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978, and the regulations promulgated thereunder by the Federal Energy Regulatory Commission. In the past, the federal government has regulated the prices at which natural gas could be sold. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act which removed all Natural Gas Act and Natural Gas Policy Act price and non- price controls affecting wellhead sales of natural gas effective January 1, 1993. Congress could, however, reenact price controls in the future. Our sales of natural gas are affected by the availability, terms and cost of pipeline transportation. The price and terms for access to pipeline transportation remain subject to extensive federal regulation. Commencing in 41April 1992, the Federal Energy Regulatory Commission issued Order No. 636 and a series of related orders, which required interstate pipelines to provide open- access transportation on a basis that is equal for all natural gas pipeline suppliers. The Federal Energy Regulatory Commission has stated that it intends for Order No. 636 and its future restructuring activities to foster increased competition within all phases of the natural gas industry. Although Order No. 636 does not directly regulate our production and marketing activities, it does affect how buyers and sellers gain access to the necessary transportation facilities and how we and our competitors sell natural gas in the marketplace. The courts have largely affirmed the significant features of Order No. 636 and the numerous related orders pertaining to individual pipelines, although some appeals remain pending and the Federal Energy Regulatory Commission continues to review and modify its regulations regarding the transportation of natural gas. For example, the Federal Energy Regulatory Commission recently issued Order Nos. 637, 637-A and 637-B, which, among other things (i) lift the cost-based cap on pipeline transportation rates in the capacity release market until September 30, 2002, for short-term releases of pipeline capacity of less than one year, (ii) permit pipelines to charge different maximum cost-based rates for peak and off-peak periods, (iii) encourage, but do not mandate, auctions for pipeline capacity, (iv) require pipelines to implement imbalance management services, (v) restrict the ability of pipelines to impose penalties for imbalances, overruns and non-compliance with operational flow orders, and (vi) implement a number of new pipeline reporting requirements. These orders also require the Federal Energy Regulatory Commission Staff to analyze whether the Federal Energy Regulatory Commission should implement additional fundamental policy changes, including, among other things, whether to pursue performance-based ratemaking or other non-cost based ratemaking techniques and whether the Federal Energy Regulatory Commission should mandate greater standardization in terms and conditions of service across the interstate pipeline grid. In addition, in February 2000, the Federal Energy Regulatory Commission implemented regulations governing the procedure for obtaining authorization to construct new pipeline facilities and has issued a policy statement, which it largely affirmed in a recent order on rehearing, establishing a presumption in favor of requiring owners of new pipeline facilities to charge rates based solely on the costs associated with such new pipeline facilities. We cannot predict what further action the Federal Energy Regulatory Commission will take on these matters, nor can we accurately predict whether the Federal Energy Regulatory Commission's actions will achieve the goal of increasing competition in markets in which our natural gas is sold. However, we do not believe that any action taken will affect us in a way that materially differs from the way it affects other natural gas producers and marketers. Commencing in May 1994, the Federal Energy Regulatory Commission issued a series of orders that, among other matters, slightly narrowed its statutory tests for establishing gathering status and reaffirmed that, except in situations in which the gatherer acts in concert with an interstate pipeline affiliate to frustrate the Federal Energy Regulatory Commission's transportation policies, it does not generally have jurisdiction over natural gas gathering facilities and services, and that such facilities and services located in state jurisdictions are properly regulated by state authorities. This Federal Energy Regulatory Commission action may further encourage regulatory scrutiny of natural gas gathering by state agencies. We do not believe that we will be affected by the Federal Energy Regulatory Commission's new gathering policy any differently than other producers and marketers. Additional proposals and proceedings that might affect the natural gas industry are pending before Congress, the Federal Energy Regulatory Commission and the courts. The natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less stringent regulatory approach recently pursued by the Federal Energy Regulatory Commission and Congress will continue. Oil Price Controls and Transportation Rates. Sales of crude oil, condensate and natural gas liquids by us are not currently regulated and are made at market prices. In a number of instances, however, the ability to transport and sell such products are dependent on pipelines whose rates, terms and conditions of service are subject to Federal Energy Regulatory Commission jurisdiction under the Interstate Commerce Act. Certain regulations implemented by the Federal Energy Regulatory Commission in recent years could result in an increase in the cost of transportation service on certain petroleum products pipelines. However, we do not believe that these regulations affect us any differently than other natural gas producers and marketers. 42State Regulation of Oil and Gas Production. State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. In addition, there are state statutes, rules and regulations governing conservation matters, including the unitization or pooling of oil and gas properties, establishment of maximum rates of production from oil and gas wells and the spacing, plugging and abandonment of such wells. Such statutes and regulations may restrict the rate at which oil and gas could be produced from our properties and may restrict the number of wells that may be drilled on a particular lease or in a particular field. Environmental Regulation Numerous and complex federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect our operations and costs as a result of their effect on oil and natural gas development, exploration and production operations. These laws and regulations can restrict or prohibit our activities that affect the environment in many ways, such as requiring that we acquire a permit before we begin to drill; restricting the way we can release wastes into the air, water, or soils; limiting or prohibiting our drilling activities in sensitive areas such as wetlands; and imposing substantial liabilities on us for pollution resulting from our operations. Failure to comply with these laws and regulations may result in the imposition of administrative, civil and criminal penalties, injunctions, and investigatory and remedial requirements. It is not anticipated that we will be required in the near future to expend amounts that are material in relation to our total capital expenditures program by reason of environmental laws and regulations but, inasmuch as such regulations are frequently changed by both federal and state entities, we are unable to predict the ultimate cost of continued compliance. State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. In addition, there are state statutes, rules and regulations governing conservation matters, including the unitization or pooling of oil and natural gas properties, establishment of maximum rates of production from oil and natural gas wells and the spacing, plugging and abandonment of such wells. Such statutes and regulations may limit the rate at which oil and natural gas could otherwise be produced from our properties and may restrict the number of wells that may be drilled on a particular lease or in a particular field. We could incur liability under the Comprehensive Environmental Response, Compensation and Liability, Act or CERCLA, also known as "Superfund," and comparable state laws, regardless of our fault, in connection with the disposal or other release of hazardous substances, including those arising out of historical operations of our predecessors. Under CERCLA, we could be subject to joint and several liability for the costs of cleaning up hazardous substances, for damages to natural resources, and for the costs of certain health studies. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other pollutants into the environment. Please see the "Legal and Regulatory Proceedings" section, which discusses our identification as a potentially responsible party at a Superfund site in Vermilion Parish, Louisiana. We currently own or lease properties where hydrocarbons are being or have been handled for many years. Although we have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by us or on or under other locations where these wastes have been taken for disposal. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes was not under our control. Under various state and federal environmental laws, we could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including contaminated surface or groundwater) or to perform remedial plugging operations to prevent future contamination. In addition, we could incur liability under the Oil Pollution Act with respect to any spills of oil into navigable waters of the United States. Responsible parties under the Oil Pollution Act may be subject to strict, joint and potentially unlimited liability for removal costs and certain other consequences of such an oil spill. In 43addition to the Oil Pollution Act, the Federal Water Pollution Control Act and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants into navigable waters, with substantial potential liabilities imposed for the costs of removal of pollutants and damages to the environment. Legal and Regulatory Proceedings The U.S. Environmental Protection Agency has identified us as a potentially responsible party for the cost of clean-up of hazardous substances at an oil field waste disposal site in Vermilion Parish, Louisiana. We estimate that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with our percentage of responsibility as estimated by the EPA, to be approximately 3.05%. As of September 30, 2000, we had paid $321,000 in costs related to this matter and accrued $122,500 for the remaining liability. These costs have not been discounted to their present value. The EPA and the potential responsible parties will continue to evaluate the site and may revise estimates for the long-term clean-up of the site. While we believe that our current level of involvement with this site will not have a material adverse effect on our operations, there can be no assurance that the cost of clean-up or our percentage responsibility will not be higher than currently estimated. In addition, under CERCLA, the liability costs for the clean-up of the site is joint and several among all potentially responsible parties. Therefore, the ultimate cost of the clean-up to us could be significantly higher than the amount presently estimated or accrued for this liability. In connection with our acquisition of an approximate 49% working interest in the Lafitte field, we became joint owners with Stone Energy Corporation, which acquired an approximate 51% working interest and is operator of the Lafitte field. On February 28, 2000, we commenced two suits against Stone Energy in state district courts in Harris County, Texas and Jefferson Parish, Louisiana, alleging certain items of misconduct and violations of the agreements associated with the joint acquisition and seeking specific performance and damages. We are party to additional lawsuits arising in the normal course of business. We intend to defend these actions vigorously and believe, based on currently available information, that adverse results or judgments from such actions, if any, will not be material to our financial position or results of operations. 44MANAGEMENT Officers and Directors Our executive officers and directors and their ages and positions as of September 15, 2000 are as follows:
Name Age Position ---- --- --------Walter G. "Gil" Goodrich.. 42 President, Chief Executive Officer and Director Robert C. Turnham, Jr..... 42 Executive Vice President and Chief Operating Officer Roland L. Frautschi....... 42 Senior Vice President, Chief Financial Officer and Treasurer Henry Goodrich............ 70 Chairman of the board of directors Sheldon Appel............. 66 Director Jeff H. Benhard........... 71 Director Donald M. Campbell........ 60 Director Patrick E. Malloy, III.... 58 Director Michael Y. McGovern....... 48 Director Arthur A. Seeligson....... 42 DirectorWalter G. "Gil" Goodrich has served as our President and Chief Executive Officer since August 1995. Mr. Goodrich was Goodrich Oil Company's Vice President of Exploration from 1985 to 1989 and its President from 1989 to August 1995. He joined Goodrich Oil Company as an exploration geologist in 1980. Gil Goodrich is the son of Henry Goodrich. He has served as one of our directors since August 15, 1995. Robert C. Turnham, Jr. has served as our Executive Vice President and Chief Operating Officer since August 1995. He has held various positions in the oil and natural gas business since 1981. From 1981 to 1984, Mr. Turnham served as a financial analyst for Pennzoil. In 1984, he formed Turnham Interests, Inc. to pursue oil and natural gas investment opportunities. From 1993 to August 1995, he was a partner in and served as President of Liberty Production Company, an oil and natural gas exploration and production company. Roland L. Frautschi has served as our Senior Vice President, Chief Financial Officer and Treasurer since August 1995. He was employed by Goodrich Oil Company from 1982 to August 1995. During that time, he served Goodrich Oil Company in a number of capacities, including internal auditor, controller, and from 1990 to August 1995, as Vice President of Finance. Henry Goodrich is the chairman of our board of directors. He is a petroleum geologist with over 45 years experience in the oil and natural gas industry. Mr. Goodrich served as an exploration geologist with the Union Producing Company and McCord Oil Company. From 1971 to 1975, Mr. Goodrich was President, Chief Executive Officer and a partner of McCord-Goodrich Oil Company. In 1975, Mr. Goodrich formed Goodrich Oil Company. He was elected to our board in August 1995, and elected as Chairman of our board in March 1996. Mr. Goodrich is also a director of Pan American Life Insurance Company. Henry Goodrich is the father of Gil Goodrich. Sheldon Appel has been involved in real estate development and finance since 1955 when he formed the Sheldon Appel Company. Mr. Appel is a private investor and a former director of American Consumer Products and Beverly Hills Savings and Loan, both of which are listed on the NYSE. He has been one of our directors since August 1995. Jeff H. Benhard has been the President and Chief Executive Officer since 1949 of a number of businesses owned by the Benhard family, including Benhard Grain, Inc., Peoples Moss Gin Co., Inc. and Louisiana Premium Seafoods, Inc. Mr. Benhard has been involved in the agriculture and aquaculture businesses since 1949. He has been a director of the Pan American Life Insurance Company since 1989 and was the President of the LSU Foundation from 1991 to 1992. Mr. Benhard became a director of Goodrich at its inception in August 1995. He resigned from the board of directors in December 1996 and was reelected to the board of directors in May 1997. 45Donald M. Campbell has been Chief Executive Officer of Hambrecht & Quist Guaranty Finance L.L.C., a subsidiary of the Chase Manhattan Corporation following its acquisition of Hambrecht & Quist, since 1995. He is also a director of the Moneda Chile Fund (listed on the Irish Stock Exchange) and Evergreen Forests Ltd. (listed on the New Zealand and Australian Stock Exchanges), and is the chairman of The New Zealand Investment Trust (listed on the London Stock Exchange). He has been a financial officer of two public corporations, and has been a principal in the formation of four private companies in the United States. He has served as one of our directors since November 1999, when he was elected by the holders of our subsidiaries' notes pursuant to our agreement with H&Q Guaranty as noteholder agent. Patrick E. Malloy, III has been President and Chief Executive Officer of Malloy Enterprises, Inc., a real estate and investment holding company, and Malloy Real Estate, Inc. since 1973. In addition, Mr. Malloy has served as a director of North Fork Bancorp (NYSE) since 1998 and was Chairman of the Board of New York Bancorp (NYSE) from 1991 to 1998. He joined our Board in May 2000. Michael Y. McGovern has been the Chief Executive Officer of Coho Energy Resources, Inc. since April 2000. Prior to that he was the Managing Director for Pembrook Capital Corporation, Inc. from 1998 to January 2000, which provided advisory services to parties involved with distressed energy companies. He has also been a director and founding investor of Greystar Corporation since 1995, which provides production management services to oil and natural gas companies. He has served as one of our directors since September 1999, when he was elected by the holders of our subsidiaries' notes pursuant to our agreement with H&Q Guaranty as noteholders agent. Arthur A. Seeligson is currently engaged in the management of his personal investments. From 1991 to 1993, Mr. Seeligson was a Vice President, Energy Corporate Finance at Schroder Wertheim & Company, Inc. From 1993 to 1995, Mr. Seeligson was a Principal, Corporate Finance, at Wasserstein, Perella & Co. He was primarily engaged in the management of his personal investments from 1995 through 1997. He was a managing director with the investment banking firm of Harris, Webb & Garrison from 1997 to June 2000. He has served as one of our directors since August 1995. Board of Directors and Executive Officers Our board of directors currently has eight members. The terms of the office of the board of directors are divided into three classes: Class I, the members of which are Messrs. Appel, Benhard and Campbell, whose terms will expire at the annual meeting of stockholders to be held in 2002; Class II, the members of which are Messrs. Henry Goodrich and Malloy, whose terms will expire at the annual meeting of stockholders to be held in 2003; and Class III, the members of which are Messrs. Gil Goodrich, Seeligson and McGovern, whose terms will expire at the annual meeting of the stockholders to be held in 2001. The classification of the board of directors may have the effect of delaying or preventing changes in our control or in our management. All of our officers serve at the discretion of the board of directors. Board Committees Our board of directors has three standing committees, the membership and functions of which are described below: Executive Committee. The members of the Executive Committee are Messrs. Gil Goodrich and Henry Goodrich. The Executive Committee is delegated the authority to approve any actions that the board of directors could approve, except to the extent restricted by law or by our Certificate of Incorporation or Bylaws. Audit Committee. The members of the Audit Committee are Messrs. Appel, Benhard and McGovern. Mr. Appel is chairman of the Audit Committee. The functions of the Audit Committee are to recommend to the board of directors the firm of independent public accountants to be engaged to audit our financial statements, meet with the auditors and our financial management to review with them our significant accounting policies 46and its internal controls, provide opportunities for the auditors to meet with the Audit Committee and our officers, discuss matters discussed at Audit Committee meetings with the full board of directors, investigate any matters brought to its attention within the scope of its duties, review and assess the adequacy of the Audit Committee charter on an annual basis, and have general responsibility in connection with related matters. Compensation Committee. Members of the Compensation Committee are Messrs. Appel, Campbell and Seeligson, with Mr. Appel serving as its chairman. The Compensation Committee's functions include the general review of our compensation and benefit plans to ensure that they meet corporate objectives. In addition, the Compensation Committee makes recommendations to the board of directors on compensation of all of our officers, granting of awards under and administering our stock option and other benefit plans, and adopting and changing our major compensation policies and practices. Director Compensation General For serving as a member of our board of directors, each director who is not an officer or consultant of our company or our subsidiaries has been paid $1,000 for each meeting attended. In addition, directors were reimbursed for their reasonable out-of-pocket expenses incurred in connection with travel to meetings of our board of directors or committees thereof and received periodic grants of options to purchase common stock. Directors did not receive compensation for serving on committees. Nonemployee Directors Compensation Plan The Goodrich Petroleum Corporation Directors Compensation Plan (the "Directors Compensation Plan") provides for both discretionary option and formula option grants and is administered by our board of directors, which may delegate all of its power of administration, with the exception of the power to authorize issuance of options. No director may vote or decide upon any matter relating solely to such director under the Directors Compensation Plan, nor may any director vote in any case in which the director's individual right to claim any benefit under the Directors Compensation Plan is particularly involved. The Directors Compensation Plan provides that options may only be granted to non-employee directors. The Directors Compensation Plan further provides that as of the effective date of the plan, an option to purchase 20,000 shares of common stock will automatically be granted to each non-employee director. Each non-employee director who is elected or appointed to our board after the effective date of the plan will automatically receive upon such election or appointment an option to purchase 20,000 shares of common stock. The Directors Compensation Plan also provides for the annual issuance of options to purchase 10,000 shares of common stock to each non-employee director on the date of our annual meeting of stockholders. The maximum number of shares of common stock that may be issued under the Directors Compensation Plan is 500,000. If, as of any date that the plan is in effect, there are not sufficient shares of stock available under the plan to allow for the automatic grant to each non-employee director of an option for the purchase of shares, the plan will terminate. The exercise price of an option shall be the fair market value of the stock on the date of grant for both discretionary option grants and formula option grants. The Directors Compensation Plan contains provisions whereby the board of directors may make adjustments to the number of shares of common stock to be acquired upon exercise of options in the event of a stock split, combination or stock dividend. The Directors Compensation Plan may be amended or terminated at any time by the board of directors. Such amendment or termination will not impair the rights of a nonemployee director or affect options previously granted and outstanding under the Directors Compensation Plan. 47Compensation Committee Interlocks and Insider Participation No member of our Compensation Committee is currently, or has been at any time since our formation, one of our officers or employees. No member of our compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee. Executive Compensation and Other Information The following table summarizes certain information with respect to the compensation earned by our executive officers for services rendered in all capacities during the years indicated:
Long-Term Compensation-- Annual Securities Compensation(1) Underlying Name and Principal Fiscal ---------------- Options All Other Position Year Salary Bonus (Number)(3) Compensation(2) ------------------ ------ -------- ------- -------------- ---------------Walter G. Goodrich...... 1999 $150,196 -- 87,288 $4,500 President and 1998 150,000 -- 26,800 3,225 Chief Executive Officer 1997 150,000 $30,000 25,000 4,400 Robert C. Turnham, Jr... 1999 $ 97,838 -- 48,310 $2,929 Executive Vice President and 1998 97,889 -- 16,080 2,929 Chief Operating Officer 1997 94,003 $18,000 -- 1,084 Roland L. Frautschi..... 1999 $ 87,539 -- 51,498 $2,620 Senior Vice President and 1998 87,589 -- 16,080 2,620 Chief Financial Officer 1997 87,861 $18,000 -- 2,618- -------- (1) During the years presented, perquisites for the persons named in the Summary Compensation Table aggregated less than 10% of the total annual salary and bonus reported for such individual in the Summary Compensation Table. Accordingly, no such amounts are included in the Summary Compensation Table. (2) Amounts represent matching contributions by us to the executive officer's SIMPLE IRA accounts. (3) Options granted prior to 1999 were surrendered in February 1999. See "-- Stock Option Exercises and Year End Holdings." Goodrich Petroleum Corporation 1995 Stock Option Plan ("Goodrich Plan") The Goodrich Plan provides for the granting of options (either incentive stock options within the meaninglimitations of Section422(b)162(m) of the Internal Revenue Code of 1986, as amended (the"Code"“Code”), which limits our ability to deduct compensation in excess of $1,000,000. While the deductibility of compensation is important to us and actions will, when deemed appropriate, be taken to ensure the deductibility of compensation, the Committee has also determined that flexibility in determining the appropriate amount of compensation is required, notwithstanding the statutory and regulatory provisions, in negotiating and implementing incentive compensation programs. Accordingly, the Compensation Committee retains the discretion to award compensation that exceeds the deductibility limit under Section 162(m).COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee is comprised of Messrs. Leuliette, Coleman and Leight. During the fiscal year ended December 31, 2016, no member of the Compensation Committee (1) was an officer or
options that do not constitute incentive stock options ("nonqualified stock options"), restricted stock awards, stock appreciation rights, long-term incentiveemployee, (2) was formerly an officer or (3) had any relationship requiring disclosure under the rules and regulations of the SEC.During the fiscal year ended December 31, 2016, none of our executive officers served as (1) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on the Compensation Committee of our Board; (2) a director of another entity, one of whose executive officers served on the Compensation Committee of our Board; or (3) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Board.
Summary Compensation
The following table summarizes, with respect to our NEOs, information relating to the compensation earned for services rendered in all capacities. Our NEOs consist of our Chief Executive Officer, Interim Chief Financial Officer, and the three other most highly compensated executive officers of the Company.
Summary Compensation for Year Ended December 31, 2014, 2015 and 2016
Name and Principal Position
Year Salary Bonus(1) Stock
Awards(2)(3)Non-Equity
Incentive Plan
CompensationAll Other
Compensation(4)Total ($) ($) ($) ($) ($) ($) Walter G. Goodrich
2016 433,375 48,281 3,585,809 0 5,758 4,073,223 Chairman and Chief
2015 515,000 377,500 440,150 0 15,900 1,348,550 Executive Officer
2014 515,000 420,001 486,675 15,600 1,437,276 Robert C. Turnham, Jr.
2016 411,142 45,563 3,585,809 0 5,760 4,048,274 President and Chief
2015 486,000 363,000 423,368 0 15,900 1,288,268 Operating Officer
2014 486,000 379,998 459,270 15,600 1,340,868 Mark E. Ferchau
2016 323,000 23,750 1,478,232 0 5,320 1,830,302 Executive Vice President
2015 380,000 151,667 329,243 0 15,900 876,810 2014 380,000 289,999 239,400 15,600 924,999 Michael J. Killelea
2016 260,950 19,188 1,180,805 0 4,298 1,465,241 Executive Vice President,
2015 307,000 121,867 253,128 0 15,900 697,895 General Counsel and
2014 307,000 182,998 154,728 15,600 660,326 Corporate Secretary
Robert T. Barker(4)
2016 196,667 10,125 298,281 0 2,800 507,873 Vice President, Controller
2015 180,000 23,500 54,108 0 14,117 and Interim Chief
2014 175,000 53,551 15,300 Financial Officer
Joseph T. Leary(5)
2016 41,667 2,500 44,167 Interim Chief Financial
2015 53,165 3,190 53,165 Officer
(1) Amounts include payments under the Company’s employee retention program and a one-time special bonus payment in March, 2015 related to achieving certain financial objectives during the first quarter.
(2) For 2016, the amounts reflect the aggregate amount of shares issued as exit awards upon emergence from bankruptcy in October 2016, as well as shares issued in December 2016 under the Management Incentive Plan.
(3) The amounts included in the “Stock Awards” column reflect the grant date fair value of the awards under Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, assuming the completion of the service-based vesting conditions to which such awards are subject. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that will be recognized by our NEOs. Assumptions used in the calculation of these amounts are included in Note 2 to our audited financial statements for the fiscal year ended December 31, 2014, 2015 and 2016 included in our Annual Report on Form 10-K. Stock awards reported in 2014 and 2015 were terminated in connection with the Company’s emergence from bankruptcy and, consequently, are no longer outstanding.
(4) The amounts included in the “All Other Compensation” column represent Company matching contributions to the Named Executive Officer’s 401(k) savings plan account. No Named Executive Officer received any perquisites or personal benefits. Grants of Plan-Based Awards
The following table provides information concerning each grant of an award made to our NEOs under any plan during 2016, including awards, if any, that have been transferred.
Grants of Plan-Based Awards for Year Ended December 31, 2016
Name
Grant Date All Other Stock
Awards: Number
of Shares of
Stock or UnitsGrant Date Fair
Value of Stock
and Option
Awards(1)(#) ($) Walter G. Goodrich
10/12/2016 375,000 1,488,521 12/8/2016 174,774 2,097,288 Robert C. Turnham, Jr.
10/12/2016 375,000 1,488,521 174,774 2,097,288 Mark E. Ferchau
10/12/2016 112,500 446,556 12/8/2016 85,973 1,031,676 Michael J. Killelea
10/12/2016 87,500 347,321 12/8/2016 69,457 833,484 Robert T. Barker
10/12/2016 6,750 26,793 12/8/2016 22,624 271,488
(1) As the Company’s stock was not trading on the award date, the grant date fair value for the October 12, 2016 award was calculated using $3.97 per share which was an effective date valuation provided by a third party accounting firm in January 2017. The grant date fair value for the December 8, 2016 award was calculated using the closing stock price on that date of $12.00. Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
The following is a discussion of material factors necessary to an understanding of the information disclosed in the Summary Compensation Table and the Grants of Plan-Based Awards Table.
Management Incentive Plan.
Pursuant to the Plan, our NEOs were granted shares by the Compensation Committee and approved by the board of directors in October 2016 under the MIP, with certain exit award shares being granted upon emergence from bankruptcy on October 12, 2016, and other shares vesting over time or being granted upon the conversion of certain second lien notes or the exercise of outstanding warrants. See the “Outstanding Equity Awards Value at the Fiscal Year-End Table” section below for further detail.
The phantom stock awarded in December 2016 pursuant to the MIP vests in one-third increments on December 8, 2017, December 8, 2018 and December 8, 2019. The phantom stock awards will vest earlier upon the grantee’s termination of employment due to his death or disability. In addition, the phantom stock will vest earlier upon a change in control of the Company (see the “Potential Payments Upon Termination or Change in Control” section below for definitions). Payment of vested phantom stock may be made in cash, shares of our common stock or any combination
thereof. The Goodrich Plan covers an aggregate of 375,000 shares of common stock (subject to certain adjustments in the event of stock dividends, stock splits and certain other events). No more than 62,500 shares of common stock, subject to adjustments, may be issued pursuant to grants made under the Goodrich Plan to any one employee in any one year. Stock Option Plan At the March 29, 2000 board of directors meeting, the Compensation Committee voted to accelerate the vesting schedule on options granted to employees on February 25, 1999. The vesting period for the applicable options was immediate and the total number of shares subject to options affected was 235,698. Administration The Goodrich Plan is administered by the Compensation Committee. The Compensation Committee has the power to determine which employees will receive an award, the time or times when such award will be 48made, the type of award and the number of shares of common stock to be issued under the award or the value of the award. Only persons who at the time of the grant are our employees or consultants are eligible to receive grants under the Goodrich Plan. Options The Compensation Committee will designate the employees to receive the options, the number of shares subject to the options and the terms and conditions of each option granted under the Goodrich Plan. The term of any option granted under the Goodrich Plan shall bethereof, as determined by theCompensation Committee; provided, however, that the term of any incentive stock option cannot exceed ten years from the date of the grant and any incentive stock option grantedCommittee in its discretion. Any payment toan employee who possesses more than 10% of the total combined voting power of all classes of our stock or of our subsidiaries within the meaning of Section 422(b)(6) of the Code must notbeexercisable after the expiration of five years from the date of grant. The exercise price per share of common stock granted under the Goodrich Plan as options is determined by the Compensation Committee; provided, however, that such exercise price cannotmade in cash will beless thanbased on the fair market value of a share of common stock on thedatepayment date.Non-Equity Incentive Plan Compensation.
As a result of the
option isbankruptcy filing there were no awards granted(subjectunder the Non-Equity Incentive Plan for 2016.Salary in Proportion to
adjustments)Total Compensation.Further,The percentage of each NEO’s total compensation that was paid and awarded for 2016 in theexercise priceform ofanybase salary was approximately 15% for each of Messrs. Goodrich and Turnham; 23% for Messrs. Ferchau and Killelea; and 44% for Mr. Barker.Outstanding Equity Awards Value at Fiscal Year-End Table
The following table provides information concerning unexercised options, stock that has not vested, and equity incentive plan awards for our NEOs that were outstanding on December 31, 2016.
Outstanding Equity Awards as of December 31, 2016
Stock Awards Name
Number of Shares
or Units of Stock
That Have Not
VestedMarket Value of
Shares or Units of
Stock That Have
Not Vested(1)(#) ($) Walter G. Goodrich
61,142 (2) 758,161 40,760 (3) 505,424 102,412 (4) 1,269,909 174,774 (5) 2,167,198 Robert C. Turnham, Jr.
40,760 (2) 505,424 61,142 (3) 758,161 102,412 (4) 1,269,909 174,774 (5) 2,167,198 Mark E. Ferchau
18,342 (2) 227,441 12,230 (3) 151,652 30,722 (4) 380,953 85,973 (5) 1,066,065 Michael J. Killelea
14,266 (2) 176,898 9,511 (3) 117,936 23,896 (4) 296,310 69,457 (5) 861,267 Robert T. Barker
1,101 (2) 13,652 734 (3) 9,102 1,843 (4) 22,853 22,624 (5) 280,538
(1) The market value reported was calculated utilizing our closing stock price on December 31, 2016, the last trading day of the fiscal year, which was $12.40.
(2) These restricted stock units were granted pursuant to the Goodrich Management Incentive Plan. The restricted stock will vest when the Convertible Notes held by the secondary lienholders to the Company outstanding as of October 12, 2016 have been exchanged for equity.
(3) These restricted stock units were granted pursuant to the Goodrich Management Incentive Plan. The restricted stock will vest upon the exercise of the UCC warrants outstanding as October 12, 2016 (the exercisability of which is contingent upon the Company’s achievement of market capitalization of $230,000,000).
(4) These restricted stock units were granted pursuant to the Goodrich Management Incentive Plan. The restricted stock units vest in one-third increments on each of October 12, 2017, 2018, and 2019.
(5) Restricted phantom stock vests in one-third increments on each of December 8, 2017, 2018 and 2019. Option Exercises and Stock Vested
The following table provides information concerning the vesting of restricted phantom stock awards during the fiscal year ended December 31, 2016 on an aggregated basis with respect to each of our NEOs. None of our NEOs exercised a stock option award during 2016.
Stock Vested for the Year Ended December 31, 2016
Name
Number of
Shares Acquired
on Vesting (#)Value Realized
on Vesting ($)(#) ($) Walter G. Goodrich
182,353 47,717 Robert C. Turnham, Jr.
181,242 47,630 Mark E. Ferchau
59,262 14,668 Michael J. Killelea
44,911 11,317 Robert T. Barker
3,072 843 Potential Payments Upon Termination or Change in Control
The discussion below discloses the amount of compensation and/or other benefits potentially due to Messrs. Goodrich, Turnham, Ferchau, Killelea, and Barker, in the event of a change in control, or a termination of their employment, including, but not limited to, in connection with a change in control of the Company. The amounts shown assume that such termination was effective as of December 31, 2016, and thus includes amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their respective termination or upon a change in control. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company or upon a change in control of the Company. We believe that change in control protection allows management to focus their attention and energy on the business transaction at hand without any distractions regarding the effects of a change in control. Likewise, post-termination payments allow management to focus their attention and energy on making the best objective business decisions that are in the interest of the company without allowing personal considerations to cloud the decision-making process.
Severance Agreement
Each of Messrs. Goodrich, Turnham, and Ferchau has entered into a severance agreement with the Company providing for a cash lump sum payment to each of them in the event of their termination of employment without “cause” or due to a “change in duties,” during the eighteen (18) month period immediately following a “change in control,” or the executive is terminated without cause by the Company at any time (each term as defined below). The amount to which each is entitled is equal to two (2) times his then “current annual rate of total compensation,” to be paid within a ninety (90) day period following the applicable termination of employment, or in the event the executive is a “specified employee” as defined in Section 409A of the Code at the time of termination, on the first business day following the six (6) month period immediately following the executive’s termination of employment. Each severance agreement provides for continued health and life insurance coverage under the Company plans (or the equivalent thereof) for each of them through the second anniversary of their respective termination of employment date, but only to the extent that the continuation of benefits is exempt from Section 409A of the Code. In the event that payments pursuant to the severance agreements create excise taxes for the executive pursuant to Section 4999 of the Code, we will provide the executive with an additional payment solely to compensate him for such excise tax payment.
The severance agreements define “cause” as (1) a material failure to perform expected duties, (2) the commission of fraud, embezzlement, or misappropriation against us, (3) a material breach by the executive of his fiduciary duty, or (4) a conviction of a felony offense or a crime involving moral turpitude.
The executive’s “current annual rate of total compensation” is comprised of the executive’s annual base salary, the annual cash bonus last awarded to the executive prior to the change of control, and the value of the equity-based compensation awards granted to
an employee who possessesthe executive during the twelve (12) months immediately prior to the change of control. All equity awards to be included in this calculation will be valued as of the date of grant.A “change of control” of the Company will be deemed to have occurred upon the occurrence of the following events: (1) a sale or other transfer of all or substantially all of our assets, (2) our liquidation or dissolution, (3) a person or group becomes the beneficial owner of fifty percent (50%) or more
than 10%of our voting power, or (4) a merger or consolidation, unless for at least six (6) months after the transaction, we own at least fifty percent (50%) of the totalcombinedvoting power of allclassesthe voting securities.The executives may voluntarily resign upon a “change in duties” upon (1) a reduction in the executive’s duties or responsibilities, (2) a reduction in the executive’s “current annual rate of
our stocktotal compensation” or (3) a change in location ofour subsidiaries withinthemeaningexecutive’s principal place of business of more than fifty (50) miles.Officer Severance Plans
Mr. Killelea and Mr. Barker are covered under the Goodrich Petroleum Officer Severance Plan, which provides for a lump sum cash payment to each of them in the event of their termination of employment without “cause” or due to a “change in duties,” during the eighteen (18) month period immediately following a “change in control,” each term as defined below. Prior to any payments under the Officer Severance Plan becoming payable, however, the executive will be required to file a general release in the Company’s favor. The amount to which each is entitled is equal to two (2) times the sum of his “annual base salary”, “bonus amount” and “equity award value,” as each term is defined below, to be paid no later than the ten (10) day period following the executive’s release becoming irrevocable, or in the event the executive is a “specified employee” as defined in Section
422(b)(6)409A of the Codemust be at least 110% of the fair market value of the sharesat the timesuch option is granted.of termination, on the first business day following the six (6) month period immediately following the executive’s termination of employment. Theexercise price of options grantedseverance plan also provides for continued health coverage under theGoodrich Plan is paid in full in a manner prescribed byCompany plans (or theCompensation Committee. Restricted Stock Awards Pursuantequivalent thereof) for each of Mr. Killelea and Mr. Barker for up toa restricted stock award, shares of common stock will be issued or delivered to the employee at any time the award is made without any cash payment to us, except to the extent otherwise provided by the Compensation Committee or required by law; provided, however, that such shares will be subject to certain restrictions on the disposition thereof and certain obligations to forfeit such shares to us as may be determined in the discretion of the Compensation Committee. The restrictions on disposition may lapse based upon (1) our attainment of specific performance targets established by the Compensation Committee, such as . the price of a share of common stock, . our earnings per share, . our revenue, . the revenue of one of our business units designated by the Compensation Committee, . the return on stockholders' equity achieved by us, or . our pre-tax cash flow from operations; (2) the grantee's tenure with us; or (3) a combination of both factors. We retain custody of the shares of common stock issued pursuant to a restricted stock award until the disposition restrictions lapse. An employee may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of such shares until the expiration of the restriction period. However, upon the issuance to the employee of shares of common stock pursuant to a restricted stock award, except for the foregoing restrictions, such employee will have all the rights of one of our stockholders with respect to such shares, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. Stock Appreciation Rights A stock appreciation right permits the holder to receive an amount (in cash, common stock or a combination thereof) equal to the number of stock appreciation rights exercised by the holder multiplied by the excess of the fair market value of common stock on the exercise date over the stock appreciation rights' exercise price. Stock appreciation rights may or may not be granted in connection with the grant of an option, 49and no stock appreciation right may be exercised earlier than six18 months from the date ofgrant.his respective termination of employment, but only to the extent that the continuation of benefits is exempt from Section 409A of the Code. In the event that payments pursuant to the severance plan create excise taxes for the executive pursuant to Section 4999 of the Code, we will provide the executive with an additional payment solely to compensate them for such excise tax payment.If Mr. Killelea or Mr. Barker incurs an involuntary termination other than following a change in control, then each executive is entitled to receive 100% of the sum of his annual base salary and bonus amount as well as up to twelve months of continued health benefits.
A
stock appreciation right may be exercised“change inwhole orduties” and a “change insuch installmentscontrol” under the severance plan are defined similarly to a “change in duties” andat such timesa “change in control” under our individual severance agreements.The severance plan defines “cause” as
determined by the Compensation Committee. Long-Term Incentive and Phantom Stock Awards The Goodrich Plan permits grants(1) a material failure to perform expected duties, (2) a conviction oflong-term incentive awards ("performance awards") and phantom stock awards, which may be paid in cash, common stocka felony offense or acombination thereof as determined bycrime involving moral turpitude, or (3) gross negligence or willful misconduct in theCompensation Committee. Performance awards granted underperformance of duties.The executive’s “annual base salary” shall mean the
Goodrich Plan have a maximum value established byhighest rate of base salary in effect during theCompensation Committee at the time of the grant. A grantee's receipt of such amount is contingent upon satisfaction by us, or any subsidiary, division or department thereof, of future performance conditions established by the Compensation Committeesix-month period ending immediately prior to thebeginningchange in control or involuntary termination and the executive’s “bonus amount” shall mean the annual cash bonus last awarded to the executive for the preceding fiscal year, or if greater, the annual cash bonus awarded for the fiscal year immediately prior to the fiscal year in which the change of control occurs.An “involuntary termination” shall mean any termination of the
performance period. Such performance awards, however, shall be subject to later revisions as the Compensation Committee shall deem appropriate to reflect significant unforeseen events or changes. A performance award will terminate if the grantee'sexecutive’s employment withus terminates duringtheapplicable performance period. Phantom stock awards granted under the Goodrich Plan are awards of common stockCompany that results from either (i) termination (whether before, on orrights to receive amounts equal to share appreciation over a specific period of time. Such awards vest over a period of time or upon the occurrence of a specific event(s) (including, without limitation,following a change of control)establishedby theCompensation Committee, without payment of any amountsCompany other than for cause; or (ii) upon a change in duties by theholder thereof (exceptexecutive on or within 18 months following a change of control.A summary of the possible cash severance payments and continuation of health and life insurance coverage, as well as the accelerated vesting or settlement of the options and phantom stock, are detailed below for each of the named executive officers. The value of all equity awards is based upon the closing price of our stock on December 31, 2016, or $12.40. None of our NEOs held unvested stock options at the end of 2016; therefore, there is no value associated with accelerated vesting of stock options in the table below.
Executive
Death or
DisabilityChange in
control followed
by a termination
without cause or
a change in
dutiesTermination
without causeChange in
control without a
Termination of
Employment($) ($) ($) ($) Walter G. Goodrich
Cash Severance(1)
— 6,092,926 6,092,926 — Health and Life Continuation(2)
— 74,533 74,533 — Accelerated Equity Awards(3)
3,437,106 3,437,106 — 3,437,106 Total
3,437,106 9,604,565 6,147,459 3,437,106 Robert C. Turnham, Jr.
Cash Severance(1)
— 6,038,116 6,038,116 — Health and Life Continuation(2)
— 52,267 52,267 — Accelerated Equity Awards(3)
3,437,106 3,437,106 — 3,437,106 Total
3,437,106 9,527,489 6,090,383 3,437,106 Mark E. Ferchau
Cash Severance(1)
— 3,302,152 3,302,152 — Health and Life Continuation(2)
— 74,533 74,533 — Accelerated Equity Awards(3)
1,447,018 1,447,018 — 1,447,018 Total
1,447,018 4,823,703 3,376,685 1,447,018 Michael J. Killelea
Cash Severance(1)
2,590,424 461,728 Health Continuation(2)
53,440 35,627 Accelerated Equity Awards(3)
1,157,577 1,157,577 1,157,577 Total
1,157,577 3,801,441 497,355 1,157,577 Robert T. Barker
Cash Severance(1)
1,050,078 253,551 Health Continuation(2)
16,700 11,133 Accelerated Equity Awards(3)
303,391 303,391 303,391 Total
303,391 1,370,168 264,684 303,391
(1) The total compensation used to determine the amount of cash severance each executive would have been entitled to as of December 31, 2015 is comprised of the following amounts: (a) Mr. Goodrich: $462,500 in annual salary; $486,675 in bonus; and $2,097,288 for the value of the previous year’s equity awards.
(b) Mr. Turnham: $462,500 in annual salary; $459,270 in bonus; and $2,097,288 for the value of the previous year’s equity awards.
(c) Mr. Ferchau: $380,000 in annual salary; $239,400 in bonus; and $1,013,676 for the value of the previous year’s equity awards.
(d) Mr. Killelea: $307,000 in annual salary; $154,728 in bonus; and $833,484 for the value of the previous year’s equity awards.
(e) Mr. Barker: $200,000 in annual salary; $53,551 in bonus; and $271,488 for the value of the previous year’s equity awards.
(2) The amounts disclosed above for the continuation of health and life insurance were calculated by using the current cost for health and life insurance (if applicable) for each executive as of December 31, 2016 under
our current health and life insurance plans. The continuation costs could be more or less than the amounts disclosed above depending on the time of the executive’s actual termination of employment.
(3) The acceleration of equity for each of the executives is comprised of restricted phantom stock for all of the executives pursuant to the Management Incentive Plan. Amounts disclosed in the table above reflect: (a) Mr. Goodrich: 277,186 shares of phantom stock.
(b) Mr. Turnham 277,186 shares of phantom stock.
(c) Mr. Ferchau 116,695 shares of phantom stock.
(d) Mr. Killelea: 93,353 shares of phantom stock.
(e) Mr. Barker: 24,467 shares of phantom stock.
Risk Assessment Related to our Compensation Structure
We believe our compensation plans for all employees, including the
extent requiredNamed Executive Officers, are appropriately structured and are not reasonably likely to have a material adverse effect on the Company. We believe our approach to goal setting, setting of targets with payouts at multiple levels of performance, and evaluation of performance results, assist in mitigating excessive risk-taking that could harm our value or reward poor judgment bylaw)our executives. Several features of our programs reflect sound risk management practices. We set performance goals that we believe are reasonable in light of past performance and market conditions. We also believe we have allocated our compensation among base salary and short- and long-term compensation target opportunities in such a way as to not encourage excessive risk-taking. Further, with respect to our incentive compensation programs, the metrics that determine payouts for our employees are Company-wide metrics only. This is based on our belief that applying Company-wide metrics encourages decision-making that is in the best long-term interests of the Company and our stockholders. We use phantom stock rather than stock options for equity awards because phantom stock retains value even in a depressed market so that employees’ are less likely to take unreasonable risks to get, orsatisfactionkeep, options “in-the-money.” Finally, the time-based vesting over three years for our long-term incentive awards, even after achievement of any performance criteria,or objectives. A phantom stock award terminates ifensures that our employees’ interests align with those of our stockholders for thegrantee's employment with us terminates during the applicable vesting period or, if applicable, the occurrence of a specific event(s), except as otherwise provided by the Compensation Committee at the time of grant. In determining the value oflong-term performanceawards or phantom stock awards, the Compensation Committee shall take into account the employee's responsibility level, performance, potential, other awards under the Goodrich Plan and such other consideration as it deems appropriate. Such payment may be made in a lump sum or in installments as prescribed by the Compensation Committee. Any payment made in common stock will be based upon the fair market valueof thecommon stock on the payment date. Stock Option Grants in Last Fiscal YearCompany.General
The following table sets forth
information concerning stock options granted during 1999a summary of the compensation paid tothe executive officers namedor earned by our non-employee directors inthe Summary2016. Directors who are our full-time employees receive no compensation for serving as directors.Director Compensation
Table:for Year Ended December 31, 2016
Name
Year Fees Earned or
Paid in CashStock Awards(1) All Other
CompensationTotal ($) ($) ($) ($) Josiah T. Austin(2)
2016 36,000 — 36,000 Michael J. Perdue(2)
2016 48,000 — 48,000 Arthur A. Seeligson(2)
2016 49,000 — 49,000 Stephen M. Straty(2)
2016 36,000 — 36,000 Gene Washington(2)
2016 42,000 — 42,000 Ronald F. Coleman (3)
2016 23,250 125,000 148,250 Eugene I. Davis(3)
2016 26,500 125,000 151,500 K. Adam Leight(3)
2016 28,500 125,000 153,500 Timothy D. Leuliette(3)
2016 28,500 125,000 153,500 Thomas M. Souers(3)
2016 24,000 125,000 149,000
Potential realizable(1) Messrs. Coleman, Davis, Leight, Leuliette and Souers each held 14,140 shares of restricted stock at year end 2016 which will vest on December 8, 2017. The amounts included in the “Stock Awards” column reflect the grant date fair value at assumed annual ratesofstock price appreciation Individual grantseach director’s award as computed in accordance with the Topic 718 of the Codification Assumptions used in the calculation of these amounts are included in Note 2 to our audited financial statements foroption term ------------------------------------------- --------------- Number of Percent of securities options Exercise underlying granted to or base options employees in price Expiration Name grantedthe fiscal year($/Sh) date 5% 10% ---- ---------- ------------ -------- ---------- ------- -------Walter G. Goodrich...... 62,288 17% $0.83 02/25/2004 $14,197 $19,961 25,000 7 2.89 12/15/2004 31,373 44,109 Robert C. Turnham, Jr... 30,810 8% $0.75 02/25/2004 $15,985 $31,806 17,500 5 2.63 12/15/2004 26,828 53,380 Roland L. Frautschi..... 35,498 9% $0.75 02/25/2004 $18,418 $30,910 16,000 4 2.63 12/15/2004 29,080 48,805ended December 31, 2016 included in our Annual Report on Form 10-K for the year ended December 31, 2016.Stock Option Exercises and Year-End Holdings The named executive officers did not exercise any stock options during 1999. 50At
(2) Resigned effective October 12, 2016.
(3) Appointed effective October 12, 2016. Retainer / Fees
Each non-employee director received the
February 25, 1999 meetingfollowing compensation effective March 1, 2016:a cash retainer of $16,000 for the Chairman of theboardAudit Committee, $6,000 for the Chairman ofdirectors, the board of directors approved a surrender/regrant program whereby our employees and directors could surrender their present options and be regranted options equal to 75% of their previous number of options. The options have an exercise price equal to the closing stock price on the date of declaration by the board of directors. On March 29, 2000,the Compensation Committee,voted$4,000 for the Chairman of the Nominating and Corporate Governance Committee, and $16,000 for the Lead Director; each toacceleratebe paid on a quarterly basis;a meeting fee of $1,000 for each Board meeting attended in person or via teleconference and $1,000 for each committee meeting attended in person or via teleconference (with meetings occurring within thevestingsame week constituting “one meeting”); andan annual cash retainer ofthese regranted options effective immediately. The$60,000 to be paid on a quarterly basis.As of December 1, 2016, each non-employee director received the following
table sets forth information concerningcompensation:a cash retainer of $15,000 for the Chairman of the Audit Committee, $13,000 for the Chairman of the Compensation Committee, $10,000 for the Chairman of the Nominating and Corporate Governance Committee, and $25,000 for the Lead Director; each to be paid on a quarterly basis. Lead Director does not receive fees for chairing other committees;a meeting fee of $1,500 for each regularly scheduled Board meeting and $1,250 for each Board teleconference meeting; $1,000 for each regularly scheduled committee meeting and $750 for each Committee teleconference meeting;An annual cash retainer of $60,000 to be paid on a quarterly basis; andRestricted stockoption holdingsgrant valued at $125,000 to vest over twelve months.This prospectus covers the offering for resale from time to time, in one or more offerings, of the Warrants, the Notes and the
value of unexercised in-the-money stock options heldPIK Notes owned byour executive officers named intheSummary Compensation Table:
Number of Shares Underlying Unexercised Value of Unexercised Options Held at In-the-Money Options Held December 31, 1999 at December 31, 1999(1) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- -------------Walter G. Goodrich...... -- 87,288 -- $123,638 Robert C. Turnham, Jr... -- 48,310 -- 68,624 Roland L. Frautschi..... -- 51,498 -- 69,045-------- (1) Computed based on the difference between aggregate fair market value and aggregate exercise price. The fair market value of our common stock on December 31, 1999 was $2.31 per share based on the closing sales price on the NYSE on such date. In February 1999, pursuant to the aforementioned stock option surrender/regrant program, Walter G. Goodrich surrendered stock options representing 83,050 shares of common stock, and was regranted stock options representing 62,288 shares of common stock. Such stock options are fully vested and have an exercise price per share of $0.83. Roland L. Frautschi and Robert C. Turnham, Jr. surrendered stock options representing 47,330 and 41,080 shares of common stock, respectively, and were regranted stock options representing 35,498 and 30,810 shares of common stock, respectively. These options have been exercised. In May 2000, the board of directors granted options to our executive officers. Walter G. Goodrich received options exercisable for 145,000 shares of common stock. Robert Turnham received options exercisable for 70,000 shares of common stock and Roland Frautschi received options exercisable for 50,000 shares of common stock. Such options have a three-year vesting period. Mr. Goodrich's options have an exercise price per share of $5.36 and Messrs. Turnham's and Frautschi's options have an exercise price per share of $4.875. 51TRANSACTIONS WITH OUR MANAGEMENT AND SECURITYHOLDERS In connection with our private placement in September 1999, we paid a placement fee of $900,000 to affiliates of H&Q Guaranty, which became a significant holder of our securitiesselling stockholders asa result of its purchases in this transaction. The securities sold in the private placement consisted of convertible notes issued by two subsidiaries, preferred units issued by a subsidiary and warrants to purchase our common stock. Concurrently with this transaction, Mr. Donald M. Campbell, the Chief Executive Officer of H&Q Guaranty, became a member of our board of directors. Mr. Campbell purchased $600,000 of securities and H&Q purchased $4,000,000 of securities in the private placement. In addition, in this private placement, Mr. Patrick E. Malloy, III, who became a director at our 2000 annual meeting, purchased $1,500,000 of securities, EIC/GDP Investors, LLC, an affiliate of a significant holder of our securities, purchased $1,000,000 of securities, Alps Investments, LLC, a significant holder of our securities, purchased $2,400,000 of securities and Mr. Michael D. Fulton and Ms. Katheryn E. Cole, significant holders of our securities, purchasedwell as an aggregate of$1,000,000 of securities. In February 2000, we completed a private placement of 1,500,000 shares of our common stock at $3.00 per share to the same investor group that purchased the convertible securities in September 1999. In this private placement, Mr. Campbell purchased 63,135 shares, Mr. Malloy purchased 157,839 shares, Entrepreneurial Investment Corporation, an affiliate of a significant holder of our securities, purchased 105,232 shares, Alps Investments, LLC purchased 252,543 shares and Mr. Fulton and Ms. Cole purchased an aggregate 105,231 shares. Also in February 2000, we issued each of Mr. Malloy and Entrepreneurial Investment Corporation 12,500 shares of our common stock in consideration of their agreement to underwrite our call for redemption of the preferred units issued in the September 1999 private placement. In August 2000, each of H&Q Guaranty, Entrepreneurial Investment Corporation and Mr. Malloy were paid 15,000 shares of our common stock in consideration of their agreement to underwrite our call for redemption of the convertible notes issued in the September 1999 private placement. In addition, we issued 15,000 shares of our common stock to an affiliate of H&Q Guaranty as a fee for soliciting the investors with respect to the redemption. In connection with the stand-by underwriting of the redemption, each of H&Q Guaranty, Entrepreneurial Investment Corporation and Mr. Malloy purchased convertible notes and subsequently redeemed them for an aggregate of 74,885 shares of common stock. Mr. Henry Goodrich, Chairman of our board of directors, is a party to a consulting agreement with us pursuant to which he received compensation of $150,000 in 1999 and $112,500 through September 2000. Mr. Goodrich's consulting agreement expired August 15, 2000. Each of the foregoing transactions with our management and securityholders was on terms at least as favorable to us as terms we could have obtained from unaffiliated third parties. 52PRINCIPAL STOCKHOLDERS The following table sets forth the beneficial ownership of our common stock as of November 15, 2000 by: . each person known by us to beneficially own 5% or more of our common stock; . each of the named executive officers and each of our directors; and . all of our officers and directors as a group. Percentage of ownership is based on 13,315,522 shares of common stock outstanding as of November 15, 2000. Beneficial ownership is calculated based on SEC requirements. Unless otherwise indicated below, each stockholder named in the table has sole voting and investment power with respect to all shares beneficially owned, subject to applicable community property laws.
Beneficial Ownership ----------------- Beneficial Owner Amount Percent ---------------- --------- -------Five Percent Stockholders+ Daniel H. Case, III(1)................................... 3,755,277 25.2 Hambrecht & Quist Guaranty Finance L.L.C.(1)............. 3,045,098 20.8 Alps Investments, LLC(2)................................. 1,531,798 11.1 Duane Roberts(3)......................................... 1,188,317 8.9 Michael D. Fulton & Katheryn E. Cole(4).................. 850,581 6.4 Named Executive Officers and Directors Donald M. Campbell(1).................................... 3,547,061 23.8 Patrick E. Malloy, III(5)................................ 1,638,832 12.0 Walter G. Goodrich(6).................................... 1,179,814 8.8 Henry Goodrich(7)........................................ 598,421 4.5 Sheldon Appel(8)......................................... 452,937 3.3 Robert C. Turnham, Jr.(9)................................ 83,287 * Michael Y. McGovern(10).................................. 77,380 * Roland L. Frautschi(11).................................. 80,745 * Arthur A. Seeligson(12).................................. 32,664 * Jeff Bernhard(13)........................................ 18,901 * Directors and Executive Officers as a Group (10 persons)(14)............................................ 7,201,023 45.8%- -------- *Less than 1%. +Excluding directors and executive officers. (1) Includes the following securities held by Hambrecht & Quist Guaranty Finance L.L.C. on its own behalf: (a) 1,720,350 shares of common stock, (b) 37,1074,374,998 shares of common stock issuable upon exercise or conversion of89,050 shares of Series A preferred stock, (c) 127,663 shares of common stock issuable upon conversion of 114,496 shares of Series B preferred stock, and (d) warrants to purchase 1,159,978 shares of common stock. Mr. Campbell is Chief Executive Officer of Hambrecht & Quist Guaranty Finance L.L.C. and may be deemed to exercise shared voting and investment power with respectthe Convertible Securities owned by the selling security holders.The Securities were obtained by the selling security holders named below pursuant to the
shares beneficiallyPlan.The selling security holders may from time to time offer and sell pursuant to this prospectus any or all of the Securities owned by
H&Q Guaranty. Mr. Case is Chairman and Chief Executive Officer of Hambrecht & Quist California, the majority parent of H&Q Guaranty, and of Hambrecht & Quist Group, the parent of H&Q California, and may be deemed to exercise shared voting and investment power with respect to the shares beneficially owned by H&Q Guaranty. In addition to the shares owned directly by H&Q Guaranty, the 53shares beneficially owned by Mr. Case include the following securities: (a) 377,582 shares of common stock held by Mr. Case on his own behalf, (b) 83,629 shares of common stock held by Stacey Case, Mr. Case's wife, (c) 16,725 shares of common stock issuable upon conversion of 15,000 shares of Series B preferred stock held by Mr. Case, (d) 12,265 shares of common stock issuable upon conversion of 11,000 shares of Series B preferred stock held by Mrs. Case, (e) warrants to purchase 175,989 shares of common stock held by Mr. Case, and (f) warrants to purchase 43,989 shares of common stock held by Mrs. Case. In addition to the shares owned directly by H&Q Guaranty, the shares beneficially owned by Mr. Campbell include the following securities: (a) 134,130 shares of common stock held by Mr. Campbell on his own behalf, (b) 132,019 shares of common stock held by Mr. Campbell in his retirement account, (c) 2,442 shares of common stock held by a partnership in which Mr. Campbell has an approximate 60% interest, (d) 6,042 shares of common stock issuable upon conversion of 14,500 shares of Series A preferred stock held by Mr. Campbell on his own behalf, (e) 3,584 shares of common stock issuable upon conversion of 8,600 shares of Series A preferred stock held by Mr. Campbell in his retirement account, (f) 44,254 shares of common stock issuable upon conversion of 39,690 shares of Series B preferred stock held by Mr. Campbell on his own behalf, (g) 44,600 shares of common stock issuable upon conversion of 40,000 shares of Series B preferred stock held by Mr. Campbell in his retirement account, (h) 892 shares of common stock issuable upon conversion of 800 shares of Series B preferred stock held by Mr. Campbell's wife, (i) warrants to purchase 66,825 shares of common stock, (j) warrants to purchase 65,175 shares of common stock held by Mr. Campbell in his retirement account, and (k) options to purchase 2,000 shares of common stock. The address of Hambrecht & Quist Guaranty Finance L.L.C. and Messrs. Case and Campbell is One Bush Street, San Francisco, California 94104. (2) Includes the following securities held by Alps Investments, LLC on its own behalf: (a) 1,003,798 shares of common stock and (b) warrants to purchase 528,000 shares of common stock. The address of Alps Investments, LLC is 650 Tysons Boulevard, McLean, Virginia 22102. (3) Includes the following securities: (a) 365,000 shares of common stock held by Mr. Roberts, (ii) 250,000 shares of common stock held by Entrepreneurial Capital Corporation, over which Mr. Roberts exercises shared voting and investment power, (c) 467,617 shares of common stock held by Entreprenuerial Investment Corporation, over which Mr. Roberts exercises shared voting and investment power, (d) 44,200 shares of common stock held by 3R Investments, over which Mr. Roberts exercises shared voting and investment power, (e) 51,500 shares of common stock held by Mr. Roberts' wife and (f) 10,000 shares of common stock owned by Mr. Roberts' children. Mr. Roberts address is 4100 Newport Place, Suite 400, Newport Beach, California 92660. (4) Includes the following securities held by Mr. Fulton and Ms. Cole on their own behalf: (a) 608,270 shares of common stock, (b) warrants to purchase 220,011 shares of common stock, and (c) 22,300 shares of common stock issuable upon conversion of 20,000 shares of Series B preferred stock. Mr. Fulton and Ms. Cole's address is 6328 NE 194th Street, Kenmore, Washington 98028. (5) Includes the following securities held by Mr. Malloy on his own behalf: (a) 1,294,331 shares of common stock, (b) 12,501 shares of common stock issuable upon conversion of 30,000 shares of Series A preferred stock, (c) warrants to purchase 330,000 shares of common stock, and (d) options to purchase 2,000 shares of common stock. Mr. Malloy's address is Bay Street at the Waterfront, Sag Harbor, New York 11963. (6) Includes the following securities held by Walter G. Goodrich on his own behalf: (a) 269,332 shares of common stock, (b) 1,667 shares of common stock issuable upon conversion of 4,000 shares of Series A preferred stock, (c) 47,833 shares of common stock issuable upon the conversion of 42,900 shares of Series B preferred stock and (d) options to purchase 8,333 shares of common stock. In addition, includes (a) 509,019 shares of common stock held by HGF Partnership, a Louisiana partnership, in which Walter G. Goodrich owns an indirect general partnership interest, (b) 282,134 shares of common stock owned by Goodrich Energy, Inc., a corporation with respect to which Walter G. Goodrich is the sole stockholder, and (c) 61,496 shares of common stock issuable upon conversion of 55,153 shares of Series B preferred stock held by Goodrich Energy. Walter G. Goodrich may be deemed to exercise shared voting and 54investment power with respect to the shares held by HGF Partnership. Walter G. Goodrich exercises sole voting and investment power with respect to the shares held by Goodrich Energy. Walter G. Goodrich and Henry Goodrich beneficially own 9.4%them but make no representation that any of theoutstanding shares of common stock. Walter G. Goodrich's address is 815 Walker Street, Suite 1040, Houston, Texas 77002. (7) IncludesSecurities will be offered for sale.The table below presents information regarding the selling security holders and the Securities that the selling security holders may offer and sell from time to time under this prospectus.
The following
securities: (a) 82,069 shares of common stock held by Henry Goodrich on his own behalf, (b) 509,019 shares of common stock held by HGF Partnership and (c) options to purchase 7,333 shares of common stock. Henry Goodrich may be deemed to exercise shared voting and investment power with respect totable sets forth:theshares held by HGF Partnership. Henry Goodrich and Walter G. Goodrich beneficially own 9.4%name of theoutstanding shares of common stock. Henry Goodrich's address is 333 Texas St., Suite 1375, Shreveport, Louisiana 71101. (8) Includesselling security holders;thefollowing securities: (a) 110,136 shares of common stock held by Mr. Appel on his own behalf, (b) 27,925 shares of common stock issuable upon conversion of 67,015 shares of Series A preferred stock held by Mr. Appel and (c) options to purchase 9,250 shares of common stock. In addition, includes 305,626 shares of common stock issuable upon conversion of 274,104 shares of Series B preferred stock held by a trust of which Mr. Appel is the trustee. Mr. Appel's address is 2148 Federal Avenue, Suite A, Los Angeles, California 90025. (9) Includes the following securities held by Mr. Turnham on his own behalf: (a) 52,545 shares of common stock, (b) 1,375 shares of common stock issuable upon the conversion of 3,300 shares of Series A preferred stock and (c) options to purchase 5,833 shares of common stock. In addition, includes the following securities held by Mr. Turnham's wife: (a) 21,450 shares of common stock and (b) 2,084 shares of common stock issuable upon conversion of 5,000 shares of Series A preferred stock. 10) Includes the following securities: (a) 53,369 shares of common stock held by Mr. McGovern on his own behalf and (b) warrants to purchase 22,011 shares of common stock held by a partnership in which Mr. McGovern has an approximate 50% interest. In addition, includes options to purchase 2,000 shares of common stock. (11) Includes the following securities held by Mr. Frautschi on his own behalf: (a) 75,412 shares of common stock and (b) options to purchase 5,333 shares of common stock. (12) Includes the following securities held by Mr. Seeligson on his own behalf: (a) 20,601 shares of common stock and (b) options to purchase 12,063 shares of common stock. (13) Includes the following securities: (a) 8,088 shares of common stock held by Mr. Benhard on his own behalf, (b) options to purchase 8,313 shares of common stock and (c) 2,500 shares of common stock held by Mr. Benhard's wife. (14) Thenumber of shares of common stock beneficially owned byall executive officers and directors as a group includesthefollowing securities: (a) 92,285selling security holders prior to the sale of the common stock covered by this prospectus;the number of shares of common stockissuable upon conversionthat may be offered by the selling security holders pursuant to this prospectus;the number of221,466 shares of Series A preferred stock, (b) 632,364shares of common stockissuable upon exercisebeneficially owned by the selling security holders following the sale of567,143 shares of Series B preferredany common stock(c) warrants to purchase 1,621,978 sharescovered by this prospectus;the percentage of common stock owned by the selling security holders following the sale of any common stock covered by this prospectus;the number of Warrants beneficially owned by the selling security holders prior to the sale of the Warrants covered by this prospectus; andthe number of Notes beneficially owned by the selling security holders prior to the sale of the Notes covered by this prospectus;All information with respect to the selling security holders’ ownership of the Securities has been furnished by or on behalf of the selling security holders and
(d) optionsis as of February 9, 2017. We believe, based on information supplied by the selling security holders, that except as may otherwise be indicated in the footnotes topurchase 35,626the table below, the selling security holders have sole voting and dispositive power with respect to the common stock reported as beneficially owned by them. Because the selling security holders identified in the table may sell some or all of the Securities owned by them which are included in this prospectus, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the Securities, no estimate can be given as to the number of Securities available for resale hereby that will be held by the selling security holders upon termination of this offering. In addition, the selling security holders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, the Securities they hold in transactions exempt from the registration requirements of the Securities Act after the date on which the selling security holders provided the information set forth on the table below. We have, therefore, assumed for the purposes of the following table, that the selling security holders will sell all of the common stock beneficially owned by them that is covered by this prospectus, but will not sell any other shares of our commonstock. 55stock that they may presently own. The percent of beneficial ownership for the selling security holders is based on 9,108,826 shares of our common stock outstanding as of February 9, 2017 (including 544,839 shares of our common stock issued under the Management Incentive Plan that are currently restricted), 2,499,999 shares of our common stock reserved for issuance upon the exercise of outstanding warrants at an exercise price of $0.01 per share, and 1,874,999 shares of our common stock reserved for issuance upon the conversion of the Convertible Notes.
Name of Selling Stockholder(1)
Notes
Beneficially
Owned
Prior to
OfferingNotes
Beneficially
Owned
After
Offering(2)PIK Notes
Beneficially
Owned
Prior to
Offering(3)PIK Notes
Beneficially
Owned
After
Offering(2)Warrants
Beneficially
Owned
Prior to
OfferingWarrants
Beneficially
Owned
After
Offering(2)Number of
Shares of
Common
Stock
Beneficially
Owned
Prior to
Offering(4)Total
Number of
Shares of
Common
Stock Being
RegisteredNumber of
Shares of
Common
Stock
Beneficially
Owned
After
Offering(2)Percentage
of Common
Stock
Beneficially
Owned
After
Offering(2)CVC Global Credit Opportunities Master Fund, L.P.(5)
$ 4,375,000 0 $ 2,532,655 0 273,437 0 487,789 478,789 0 — J.P. Morgan Securities LLC(6)
10,000,000 0 5,788,226 0 625,000 0 1,093,750 1,093,750 0 — O’Connor Global Multi-Strategy Alpha Master Limited(7)
4,046,000 0 2,341,921 0 252,890 0 449,793 442,546 7,247 * Nineteen77 Global Multi-Strategy Alpha (Levered) Master Limited(7)
829,000 0 479,853 0 51,797 0 90,997 90,656 341 * FHIT-Franklin High Income Fund(8)
8,250,000 0 4,775,287 0 515,625 0 1,971,594 902,344 1,069,250 7.9 % FT Opportunistic Distressed Fund, Ltd.(8)
500,000 0 882,132 0 31,250 0 77,718 54,688 23,030 * The PNC Financial Services Group, Inc. Pension Plan(9)
1,524,000 0 882,132 0 95,250 0 166,688 166,688 0 — EDS 1994 Pension Scheme(9)
400,000 0 231,536 0 25,000 0 43,750 43,750 0 — EDS Retirement Plan(9)
1,060,000 0 613,558 0 66,250 0 115,937 115,937 0 — P SCM Energy HY Ltd.(9)
2,000,000 0 1,157,653 0 125,000 0 223,486 218,750 4,738 * Shenkman Energy Opportunity Master Fund Ltd.(9)
3,586,000 0 2,075,662 0 224,125 0 407,145 392,219 14,926 * Four Points Multi-Strategy Master Fund, Inc.(9)
3,430,000 0 1,985,369 0 214,375 0 375,156 375,156 0 —
* Less than 1%.
(1) The number of shares of common stock shown in the table above assumes conversion of the Warrants and Convertible Notes, and includes common stock that would be held in the beneficial owner’s name or jointly with others, or in the name of a bank, nominee or trustee for the beneficial owner’s account.
(2) This calculation is based upon the assumption that all Securities will be sold in the offering.
(3) The number of PIK Notes beneficially owned prior to the offering includes both PIK Notes previously issued and the maximum amount of PIK Notes that can or will be issued in the future.
(4) The Number of shares of common stock beneficially owned prior to the offering includes those shares of common stock issuable upon exercise of the warrants, those shares issuable upon conversion of the Convertible Notes and all other shares beneficially owned outside of those two categories.
(5) CVC is the beneficial owner of these shares for purposes of Rule 13d-3 under the Exchange Act in its capacity as an investment adviser with the power to vote, or to direct the voting of, and dispose, or to direct the disposition of, such shares. The address of CVC is 712 Fifth Avenue, 42nd Floor, New York, NY 10019.
(6) Each of Carlos M. Hernandez, Erik J. Stein, Erin Elizabeth Hill, Gregory G. Quental, James R. Walker Jr., Jason Edwin Sippel, Matthew Cherwin, Patrick C. Kirby and Robert C. Holmes is a Manager of J.P. Morgan Securities LLC, a Delaware limited liability company, and as such may be deemed to have voting and dispositive power over the ordinary shares held by J.P. Morgan Securities LLC. Each of Carlos M. Hernandez, Erik J. Stein, Erin Elizabeth Hill, Gregory G. Quental, James R. Walker Jr., Jason Edwin Sippel, Matthew Cherwin, Patrick C. Kirby and Robert C. Holmes disclaims beneficial ownership of these ordinary shares. The address for each of J.P. Morgan Securities LLC, Carlos M. Hernandez, Erik J. Stein, Erin Elizabeth Hill, Gregory G. Quental, James R. Walker Jr., Jason Edwin Sippel, Matthew Cherwin, Patrick C. Kirby and Robert C. Holmes is 383 Madison Avenue, 3rd Floor, New York, New York 10179.
(7) UBS O’Connor LLC (“O’Connor”) is the investment manager of each of GLEA XL and GLEA (together with GLEA XL, collectively, the “O’Connor Funds”) and accordingly has voting control and investment discretion over the securities described herein held by the O’Connor Funds. Dawn Fitzpatrick (“Ms. Fitzpatrick”), the Chief Executive Officer of O’Connor, Kevin Russell (“Mr. Russell”), the Chief Investment Officer of O’Connor and Andrew Martin (“Mr. Martin”), a Portfolio Manager for O’Connor, each also have voting control and investment discretion over the securities described herein held by the O’Connor Funds. As a result, each of O’Connor, Ms. Fitzpatrick, Mr. Russell and Mr. Martin may be deemed to have beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the securities described herein held by the O’Connor Funds. The address of O’Connor is One North Wacker Drive, Floor 32, Chicago, IL 60606.
(8) Franklin Advisers, Inc. is the beneficial owner of these shares for purposes of Rule 13d-3 under the Exchange Act in its capacity as an investment adviser with the power to vote, or to direct the voting of, and dispose, or to direct the disposition of, such shares. The address of Franklin Advisers, Inc. is One Franklin Parkway, San Mateo, CA 94403.
(9) Shenkman Capital Management, Inc. is the beneficial owner of these shares for purposes of Rule 13d-3 under the Exchange Act in its capacity as an investment adviser with the power to vote, or to direct the voting of, and dispose, or to direct the disposition of, such shares. The address of Shenkman Capital Management, Inc. is 461 Fifth Avenue, New York, NY 10017. The selling security holders are not directors, officers or employees of ours or an affiliate of such person. Pursuant to the Plan, however, we agreed to: (i) permit Franklin to appoint three (3) nominees to the Board. Following the expiration of the initial term of the directors appointed by Franklin and for so long as Franklin shall beneficially own greater than 10% of our total outstanding common stock, Franklin shall be entitled to designate three (3) nominees to serve on the Board, with it being understood that Franklin shall permanently, despite any later increase in its common stock ownership, no longer be entitled to designate any director nominees at such time as Franklin beneficially owns 10% or less of our total outstanding common stock and (ii) permit the holders of a majority of our then outstanding Warrants, following the expiration of the initial term of the Class I Directors and until the later to occur of (i) March 30, 2020 and (ii) the date of the annual meeting of stockholders in the year 2020, to designate two nominees to serve as the Class I Directors of the Board.
The following description of our capital stock, together with the additional information we include in any applicable prospectus supplements, summarizes the material terms and provisions of our capital stock that we may offer, in the case of our common stock, under this prospectus. It may not contain all the information that is important to you. For the complete terms of our common stock and preferred stock, please refer to our Certificate of Incorporation and our Bylaws, which are incorporated by reference into the registration statement which includes this prospectus. The Delaware General Corporation Law (“DGCL”) may also affect the terms of these securities.
Authorized Capital Stock
Our authorized capital stock consists of
25,000,00075,000,000 shares of common stock, $0.01 par value$0.20pershare,share; and10,000,000 shares of preferred stock, $1.00 par value$1.00per shareof which 1,375,000 shares are designated as Series A Convertible(“Preferred Stock”).Common Stock
and 750,000 shares are designated as Series B Convertible Preferred Stock. As of the date of this prospectus, 13,315,522On February 9, 2017, 9,108,826 shares of our common stock
796,318were issued and outstanding, including 544,839 shares of ourSeries A preferredcommon stockand 660,839issued under the Management Incentive Plan that are currently restricted. All outstanding shares of ourSeries Bcommon stock are fully paid and nonassessable.In addition, on February 9, 2017, (a) 2,499,999 shares of our common stock are reserved for issuance upon the exercise of outstanding warrants at an exercise price of $0.01 per share, (b) 1,250,000 shares of our common stock are reserved for issuance upon the exercise of outstanding UCC Warrants and (c) 1,874,999 shares of our common stock are reserved for issuance upon the conversion of our Convertible Notes.
Dividends. Subject to preferential dividend rights of any other class or series of stock, the holders of shares of our common stock are entitled to receive dividends, including dividends of our stock, if, as and when declared by the Board, subject to any limitations applicable by law and to the rights of the holders, if any, of our Preferred Stock.
Liquidation. In the event we are liquidated, dissolved or our affairs are wound up, after we pay or make adequate provision for all of our known debts and liabilities and pay or set aside for payment any preferential amount due to the holders of any other class or series of stock, each holder of our common stock will be entitled to share ratably in any or all assets that remain to be paid or distributed.
Voting Rights. Subject to any special voting rights of any series of preferred stock,
were issued and outstanding. The following summaryfor all matters submitted to a vote ofthe provisionsstockholders, each holder of ourcapitalcommon stock issubject to and qualified in its entirety by our articles of incorporation and bylaws and by the provision of applicable law. Common Stock Holders of common stock areentitled to one vote for each shareheldregistered in the holder’s name; provided, however, that except as otherwise required by law, each holder ofrecordour common stock is not entitled to vote onall matters submittedany amendment to the Certificate of Incorporation (including any certificates of designation relating to any series of preferred stock) that relates solely to the terms of one or more outstanding series of preferred stock, if the holders of such affected series of preferred stock are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation (including any certificates of designation relating to any series of preferred stock). Holders of our common stock vote together as a single class. There is no cumulative voting in the election of our directors, which means that, subject to any rights to elect directors that are granted to the holders of any class or series of preferred stock, a majority of thestockholders. Holdersvotes cast at a meeting of stockholders at which a quorum is present is sufficient to elect a director.Preemptive Rights. Any issuance of common stock,
door other capital stock, and rights, convertible securities, options or warrants to purchase common stock or other capital stock issued subsequent to the Effective Date(“New Securities”) by the Company or any of its subsidiaries, other than an issuance of Exempt Securities (asdefined below), shall be subject to a preemptive right, granted by the Company to each stockholder that, together with its affiliates, holds of record at least 10% of the common stock then outstanding (each, a “Qualified Shareholder”), the right to purchase a pro rata share of any and all issuances, sales or distributions of New Securities proposed to be made by the Company or any of its subsidiaries, subject to certain requirements.
Notwithstanding the foregoing, Qualified Shareholders shall not have the right to
cumulate their votesparticipate in theelectionissuance ofdirectors. Holdersany New Securities which are otherwise authorized to be issued in accordance with the Certificate of Incorporation (i) if such New Securities were issued as consideration in any merger, consolidation or combination with or acquisition of securities or assets of another person in exchange for New Securities, (ii) if made upon conversion or exercise of any rights, convertible securities, options or warrants to purchase common stock or other capital stock of the Company, (iii) if made by any subsidiary of the Company to the Company or any of its direct or indirect wholly owned subsidiaries, (iv) if made as securities which are the subject of an effective registration statement, (v) if made to directors, officers, employees or consultants as compensation pursuant to any employee incentive plans or (vi) if such New Securities were issued in connection with the Plan (the New Securities described in the foregoing clauses (i) through (vi), “Exempt Securities”).Limitation on Voting. Notwithstanding anything contained in the Certificate of Incorporation to the contrary, JPMS and its affiliates, collectively, shall not be entitled to
receive dividends when, asvote, directly or indirectly, equity securities of the Company representing, in aggregate, greater than 4.99% of the total combined voting power of any class of equity securities of the Company entitled to vote on any matter (any equity securities held by JPMS and its affiliates, collectively, in excess of such 4.99% limitation, the “Excess Voting Stock”). For the avoidance of doubt, ifdeclared by the boardJPMS or any ofdirectors out of funds legally available therefor, subjectits affiliates shall transfer any Excess Voting Stock to anydividend preferencesother person that is not an affiliate of JPMS, the limitation set forth above shall no longer apply to such Excess Voting Stock. Excess Voting Stock may only be transferred by JPMS or any of its affiliates: (i) among or between JPMS and its affiliates; (ii) in a widespread public distribution; (iii) in transfers in which no transferee (or group of associated transferees) would receive from JPMS and its affiliates in such sale or transfer two percent (2%) or more of anyoutstandingclass of voting securities of the Company, which for the avoidance of doubt, does not include the amount of securities already owned by such transferee (together with its affiliates or group of associated transferees) prior to such transfer; (iv) to an underwriter for the purpose of conducting a widespread public distribution of the voting securities of the Company; (v) to the Company; or (vi) to a transferee that would control more than fifty percent (50%) of the voting securities of the Company without any transfer of Excess Voting Stock from JPMS or its affiliates.Other Rights and Restrictions. Subject to the preferential rights of any other class or series of stock, all shares of
preferred stock. In the event ofourliquidation, dissolution or winding up, holders ofcommon stock havethe right to share ratably inequal dividend, distribution, liquidation and other rights, and have no preference, appraisal or exchange rights, except for anyassets remaining after the satisfaction in fullappraisal rights provided by Delaware law. Furthermore, holders ofallourliabilities and of all liquidation preferences on any outstanding shares of preferred stock. Holders ofcommon stock have nopreemptiveconversion, orpreferential rights to purchasesinking fund orsubscribe for any partredemption rights. Our Certificate ofany additional securities or rights to convert theirIncorporation and Bylaws do not restrict the ability of a holder of our common stockinto other securities and are not subjecttofuture calls or assessments by us. All outstandingtransfer the holder’s shares of our common stock.The rights, powers, preferences and privileges of holders of our common stock are
and all shares of common stock offered in connection with the offering and to be issued upon conversion of the preferred stock upon issuance will be, fully paid and nonassessable. Preferred Stock Generally. Our board of directors is authorized, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock and to fix and determine the designations, series, powers, preferences, rights, qualifications, limitations and restrictions of the preferred stock. The rights of the holders of common stock will besubject to, and may be adversely affected by, the rights oftheholders of shares of our outstanding Preferred Stock and of any series of preferredstock.stock which we may designate and issue in the future.Preferred Stock
Under our Certificate of Incorporation, the Board has the authority, subject to any limitations prescribed by law and without further stockholder approval, to issue from time to time up to 10,000,000 shares of Preferred Stock.
The Preferred Stock is issuable in one or more series, each with such powers, voting powers, designations, preferences, rights, qualifications, limitations and restrictions as the Board, or any committee of the Board to which such responsibility is specifically and lawfully delegated, may determine in resolutions providing for their issuance.
The issuance of
a new series of thepreferred stockcouldmay have the effect of delaying, deferring or preventing a changeofin control ofGoodrich. Series A Convertibleus without further action by the stockholders and may adversely affect the voting and other rights of the holders of our common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including loss of voting control to others.As of February 9, 2017, we had no outstanding shares of Preferred Stock.
Our certificatePursuant to our Certificate of
incorporation authorizes 1,375,000 shares of Series A Convertible Preferred Stock. The Series AIncorporation we are authorized to issue “blank check” preferred stock,ranks seniorwhich may be issued from time to time in one or more series upon authorization by the Board. The Board, or any committee of the Board to which such responsibility is specifically and lawfully delegated, without further approval of the stockholders, is authorized to fix the dividend rights and terms, voting rights, conversion rights, redemption rights and terms, sinking fund provisions, liquidation preferences, restrictions upon the creation of indebtedness or issuance of additional preferred stock, and any other rights, preferences, privileges and restrictions applicable to each series of the preferred stock.The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, among other things, adversely affect the voting power or rights of the holders of our common stock and, under certain circumstances, make it more difficult for a third party to gain control of us, discourage bids for our common stock at a premium or otherwise adversely affect the market price of the common stock.
Nonvoting Equity Securities. Notwithstanding anything contained in our Certificate of Incorporation to the
common stockcontrary, we will not issue nonvoting equity securities to the extent prohibited by Section 1123 of the Bankruptcy Code, 11 U.S.C. § 1123 (“Section 1123”), and we will provide, as to any classes of securities possessing voting power, an appropriate distribution of such power among such classes, including, in the case of any class of equity securities having a preference over another class of equity securities with respect to dividends, adequate provisions for the election of directors representing such preferred class in the event of default in the payment of such dividends; provided, however, that this prohibition (i) will have no effect beyond that required by Section 1123, (ii) will have effect, if any, only for so long as such Section 1123 is in effect anddistributionsapplicable to us and (iii) in all events may be amended or eliminated in accordance with applicable law as from time to time in effect.The summaries above of
assets upon our liquidation, dissolution or winding up. There are 796,318 shares of Series A preferred stock outstanding as of the date hereof. The Series A preferred stock has a par value of $1.00 per share, with a liquidation preference of $10.00 per share. It is convertible at the option of the holder at any time, unless earlier redeemed, into sharesselected provisions of our common stockat an initial conversion rate of 0.4167 shares of common stock per share of Series A preferred stock. The Series A preferred stock will automatically convert into common stock at a rate of 0.4167 shares of common stock for each share of Series A preferred stock if the closing price for the Series A preferred stock exceeds $15.00 per share for ten consecutive trading days. Holders of shares of Series Aand preferred stock areentitled to receive, when, as and if declaredqualified entirely byour board of directors, out of any funds legally available for this purpose, cash dividends attheannual rate of 8% or $0.80 per share, accruing without interest and cumulative from the date of first issuance. These dividends are payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year. Dividends and distributions (other than dividends payable solely in junior ranking capital stock) may not be declared, paid or 56set apart for payment and purchases, redemptions or other acquisitions of shares of common stock or other junior ranking capital stock unless all accrued and unpaid dividends on the Series A preferred stock have been paid or declared and set apart for payment. We may, at our option, redeem all or part of the shares of Series A preferred stock then outstanding, subject to the limitations, if any, imposed by applicable law, at a redemption price of $12.00 per share plus any accrued and unpaid dividends, whether or not declared. There is no mandatory redemption or sinking fund obligation with respect to the Series A preferred stock. In the event of a voluntary or involuntary liquidation, dissolution or winding up of Goodrich, holders of shares of Series A preferred stock will be entitled to receive, out of our assets legally available therefor, a sum equal to $10.00 per share of Series A preferred stock, subject to adjustments for stock splits or combinations, plus all dividends, if any, accrued and unpaid to the distribution date. Holders of shares of Series A preferred stock have no voting rights, except as required by law, unless dividends payable on the Series A preferred stock fall into arrears in an amount equal to at least six quarterly dividends, whether or not consecutive. In such an event, the number of our directors may be increased by two upon such election by Series A holders, and holders of shares of Series A preferred stock (voting separately as a class with the holders of stock ranking on a parity with the Series A preferred stock and with like voting rights) will be exclusively entitled to elect, at any meeting of stockholders at which directors are to be elected during the period such dividends remain in arrears, such two additional directors to serve until all such dividends have been paid in full or set apart for payment. So long as any shares of Series A preferred stock are outstanding, we may not, without the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of Series A preferred stock, voting separately as a class, do the following: . amend, alter or repeal any provisionprovisions of our Certificate of Incorporation, our Bylaws, and our debt agreements, all of which are included orBylaws to adversely affect the rights of the Series A preferred stock; . authorize or issue or increase the authorized amount of any additional class or series of stock ranking seniorincorporated by reference as exhibits to theSeries A preferred stock; or . effect any reclassificationregistration statement ofthe Series A preferred stock. So long as any shares of Series A preferred stock are outstanding, we may not, without the affirmative vote of the holders of at least 50% of all outstanding shares of Series A preferred stock, voting separately aswhich this prospectus is aclass, do the following: . authorize or issue or increase the authorized amount of any additional class or series of stock having dividend or liquidation rights on a parity with the Series A preferred stock and having the right to vote on matters as to which the Series A preferred stock is not entitled to vote; or . incur indebtedness for money borrowed or authorize or issue stock ranking on a parity with such Series A preferred stock as to dividends or liquidation if adjusted stockholders' equity is less than the liquidation preference of the Series A preferred stock and all stock ranking senior to or on a parity with the Series A preferred stock. Upon the occurrence of the first "Ownership Change" with respect topart. You should read ourcompany, holders of Series A preferred stock have the right, at the holder's option, for a period of 45 days following notice of such change to convert all, but not less than all, of such holder's Series A preferred stock into common stock with an aggregate Market Value equal to the aggregate Adjusted Value of the Series A preferred stock for which conversion is elected. In September 1999, such an Ownership Change occurred when H&Q Guaranty and its affiliates became the beneficial owner of more than 30% of our voting stock. Under the terms of our Series A preferred stock, we were required to send notice of such occurrence within 30 days of such event setting forth the details regarding the special conversion right. The board has determined that it is in the best interests of the 57company to send such notice, and to offer such conversion right, to the current holders of Series A preferred stock, granting such holders a 45-day period after the mailing of the notice in which to elect such conversion at the rate of 0.7813 shares of common stock for each share of Series A preferred stock. Two of the holders of our Series A preferred stock elected to participate in the special conversion. There are currently 16 record holders of our Series A preferred stock. If a Corporate Change (as defined below) should occur with respect to us, each holder of Series A preferred stock shall have the right, at the holder's option, for a period of 45 days after the mailing of a notice by us that a Corporate Change has occurred, to convert all, but not less than all, of such holder's Series A preferred stock into Marketable Stock (as defined below) with an aggregate Market Value (as defined below) equal to the Adjusted Value (as defined below) of the Series A preferred stock. If following a Corporate Change no Marketable Stock is outstanding, each holder of Series A preferred stock will have a special conversion right, if he so elects, to receive an amount of securities, cash or other property distributed to holders of common stock in the Corporate Change. The value of such amount will equal the Adjusted Value per share of the Series A preferred stock. We or our successor, as the case may be, may, at our/their option, in lieu of providing Marketable Stock, provide the holder with cash equal to the Adjusted Value of the shares of Series A preferred stock. If the Series A preferred stock becomes subject to this special conversion right due to a Corporate Change, the Series A preferred stock remains convertible into the kind and amount of securities, cash or other assets that the holders would have owned immediately after the Corporate Change if the holders had converted the Series A preferred stock immediately before the effective date of the Corporate Change. At least 30 days prior to the proposed effective date of a Corporate Change, we will mail to each holder of Series A preferred stock a notice setting forth the details of the proposed Corporate Change and the special conversion right. Within 30 days of the occurrence of a Corporate Change with respect to us, we will mail to each registered holder of Series A preferred stock a notice of such occurrence setting forth details regarding the special conversion right of such Corporate Change. A holder of Series A preferred stock must exercise the special conversion right within the 45-day period after the mailing of such notice of occurrence by us or such special conversion right shall expire. Exercise of such conversion right shall be irrevocable, and dividends on Series A preferred stock tendered for special conversion shall cease to accrue from and after the conversion date. As used herein, a "Corporate Change" with respect to us means: . the occurrence of any transaction or event in connection with which all or substantially all of our common stock is exchanged for, converted into, acquired for or constitutes solely the right to receive cash, securities, property or other assets; or . the conveyance, sale, lease, assignment, transfer or other disposal of all or substantially all of our property, business or assets. As used herein, the "Adjusted Value" of a share of Series A preferred stock is an amount equal to the Stated Value; provided, however, that if the Reference Value of a share of common stock exceeds both the Market Value of a share of common stock and the Applicable Value, then the Adjusted Value shall be determined by multiplying the greater of the Market Value of a share of common stock or the Applicable Value by the quotient of the Stated Value of a share of Series A preferred stock divided by the Reference Value per share of common stock. As used herein, the "Applicable Value" shall be an amount equal to the sum of the cash, Market Value of Marketable Stock and the value of any other securities, property or other consideration distributed to holders of common stock for each share of common stock upon or in connection with a Corporate Change. As used herein, "Market Value" of the common stock, or of the common stock of the corporation that is the successor to all or substantially all of our business and assets as a result of a Corporate Change, shall be the average of the closing market price of such common stock or other common stock, as the case may be, for the five business days ending on the last business day preceding the date of the Ownership Change or Corporate Change. 58As used herein, the term "Marketable Stock" shall mean our common stock or the common stock of our successor as a result of a Corporate Change, which in either case is listed on the NYSE or the American Stock Exchange or approved for quotation in the Nasdaq National Market or any similar system of automated dissemination of quotations of securities prices in the United States. As used herein, "Stated Value" of a share of Series A preferred stock converted during the 45-day period following the occurrence of a Corporate Change or an Ownership Change shall mean the price per share we would be required to pay if we exercised our option to redeem such shares on the conversion date, plus an amount equal to the amount by which the Market Value of the common stock exceeds the exercise price of the Warrant. As used herein, the term "Reference Value" shall initially mean $1.92 per share; provided, however, that in the event of any adjustment to the conversion price, the Reference Value shall also be adjusted so that the ratio of the Reference Value to the conversion price, after giving effect to any such adjustment, shall always be the same as the ratio of $1.92 to the initial conversion price. Series B Convertible Preferred Stock. OurCertificate of Incorporation,authorizes 750,000 shares of Series B Convertible preferred stock. The sharesour Bylaws, and our debt agreements. To the extent that any particular provision described in a prospectus supplement differs from any of theSeries B preferred stock constitute a single seriesprovisions described in this prospectus, then the provisions described in this prospectus will be deemed to have been superseded by that prospectus supplement.Anti-Takeover Effects of
our preferred stock. The holders of the Series B preferred stock have no preemptive rights with respect to any shares of our capital stock or any of our other securities. The Series B preferred stock is not subject to any sinking fund or other obligation of Goodrich to redeem or retire the Series B preferred stock. The Series B preferred stock has not been approved for listing on any stock exchange. Anti-Takeover Provisions ofDelaware Law, Our Certificate of Incorporation and Our BylawsSome provisions of Delaware law, our Certificate of Incorporation and our Bylaws
Classifiedcontain provisions that could make the following transactions more difficult: acquisitions of us by means of a tender offer, a proxy contest or otherwise or removal of our incumbent officers and directors. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.These provisions are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection and our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Delaware Law
Section 203 of the DGCL prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
the transaction is approved by the board of directors before the date the interested stockholder attained that status;upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
• on or after such time the business combination is approved by the board of directors and authorized at a meeting of stockholders by at least 66 2⁄3% of the outstanding voting stock that is not owned by the interested stockholder. An interested stockholder is defined as a person who, together with any affiliates or associates of such person, beneficially owns, directly or indirectly, 15% or more of the outstanding voting shares of a Delaware corporation. The term “business combination” is broadly defined to include a broad array of transactions, including mergers, consolidations, sales or other dispositions of assets having a total value in excess of 10% of the consolidated assets of the corporation or all of the outstanding stock of the corporation, and
Limitations on Removalsome other transactions that would increase the interested stockholder’s proportionate share ownership in the corporation.Our Certificate of
DirectorsIncorporation and OurboardBylawsProvisions of our Certificate of Incorporation and our Bylaws may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock.
Among other things, our Certificate of Incorporation and Bylaws:
provide for the division of the Board into three classes, each class consisting as nearly as possible of one-third of the whole. The term of office of one class of directorsis divided into three classes. The directors ofexpires each year; with each classareof directors elected forthree-year terms, witha term of three years and until thetermsstockholders elect their qualified successors; provided, however, that:following the expiration of thethree classes staggered so that directors from a single class are elected at eachinitial term of the Class I Directors and until the later to occur of (i) March 30, 2020 and (ii) the date of the annual meeting ofstockholders. Written Consentstockholders in the year 2020 (the “Warrant Holder Designation Period”), the holders ofStockholders Our certificatea majority ofincorporation providesthe then outstanding warrants issued to the New 2L Note Purchasers (as defined in the Plan) will be entitled to designate nominees to serve as the Class I directors to the Board (the “Warrant Holder Selected Directors”); andfollowing the expiration of the initial term of the Class II Directors and for so long as Franklin shall beneficially own greater than 10% of the total outstanding common stock of the Company (the “Franklin Designation Period”), Franklin shall be entitled to designate three nominees to serve as the Class II Directors to the Board, with it being understood that Franklin shall
permanently, despite any later increase in its common stock ownership, no longer be entitled to designate any director nominees at such time as Franklin beneficially owns 10% or less of the total outstanding common stock of the Company.
provide that all vacancies, including newly created directorships, may, except as otherwise required by law or, if applicable, the rights of holders of a series of preferred stock or certain board designation rights, be filled by a majority of directors then in office, even if less than a quorum, or by the sole remaining director; provided, however that:if the number of Class I Directors is increased during the Warrant Holder Designation Period, the Company and the Board of Directors shall cause anyaction required or permittedvacancy created by such increase to betakenfilled by an additional director designated in writing by the holders of a majority of the then outstanding warrants; andif the number of Class II Directors is increased during the Franklin Designation Period, the Company and the Board shall cause any vacancy created by such increase to be filled by an additional director designated in writing by Franklin.
• provide that our Bylaws may be amended by the affirmative vote of the holders of at least 66 2⁄3% of our then outstanding voting stock;
• provide that directors may be removed be removed from office by 66 2⁄3% of our then outstanding voting stock; provided, however, that during the Warrant Holder Designation Period, a Warrant Holder Selected Director may be removed only for cause by the holders of at least 66 2⁄3% of the shares then entitled to vote at an election of directors; provide that special meetings of our stockholders may only betaken at a dulycalledmeeting of stockholders or by written consent of stockholders owning the minimum number of shares required to approve such action. Any actionby ourstockholders must be taken at an annual or special meeting of stockholders. Special meetings of the stockholders may be called at any time by theChairman of the Board,the President,Vice Chairman, Chief Executive Officer or by a majority of theboarddirectors then in office;authorize the Board to adopt resolutions providing for the issuance of undesignated preferred stock. This ability makes it possible for the Board to issue, without stockholder approval, preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us;provide that the authorized number of directorson the written request of any two directors, ormay be changed only by theSecretary. A special meeting must be called by the Chairman of the Board, the President or the Secretary when a written request is delivered to such officer, signed by the holders of at least 10% of the issued and outstanding stock entitled to vote at such meeting. Advance Notice Procedure for Stockholder Proposals Our bylawsBoard;establishanadvance noticeprocedure forprocedures with regard to stockholder proposals relating to the nomination of candidates for election as directorsas well as foror new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to beconsideredtaken. Generally, for a proposal to be timely submitted for consideration at an annualmeetings of stockholders. In general,meeting, noticeof intent to nominate a directormust be delivered toor mailed and received atourprincipal executive offices as follows: . with respect to an election to be held at the annual meeting of stockholders,secretary not less than 90 days nor more than 120 days prior to the first anniversary date of theimmediately precedingannual meetingof stockholders; . with respect to an electionfor the preceding year. Generally, for a proposal to beheldtimely submitted for consideration at a special meeting at which directors are to be elected, notice must be delivered to our secretary not earlier than the date on which public announcement ofstockholders fortheelectiondate ofdirectors,such meeting is first made by the Company and not later than the close of business on the10th15th day following theday on which such notice of thedate of first public announcement. Our Bylaws specify themeeting was mailedrequirements as to form and content of all stockholders’ notices. These requirements may preclude stockholdersor public disclosure offrom bringing matters before thedate of the meeting was made, whichever first occurs, and must contain specified information concerning the person to be nominated. 59Notice of stockholders' intent to raise businessstockholders at an annualmeeting mustor special meeting; andprovide that our Bylaws may bedelivered to or mailed and received at our principal executive offices not less than 90 days prior toamended by theanniversary date of the preceding annual meeting of stockholders. These procedures may operate to limit the ability of stockholders to bring business before a stockholders' meeting, including with respect to the nomination of directors or considering any transaction that could result in a change in control. These advance notice procedures are not applicable prior to the trigger date. LimitationBoard.Limitations of Liability and Indemnification Matters
Our Certificate of
Officers and Directors Our certificateIncorporation limits the liability ofincorporation provides that no director shall be personally liable to us orourstockholdersdirectors for monetary damages for breach of their fiduciary duty asa director,directors, except for liability that cannot be eliminated under the DGCL. Delaware law providesthat directors of a company will not be personally liable for monetary damages for breach of their fiduciary duty as
follows: .directors, except for liabilities:for any breach ofthe director'stheir duty of loyalty to us or our stockholders;.for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;.for unlawful payment ofadividend or unlawful stockpurchaserepurchase orstockredemption,(Sectionas provided under Section 174 of theDelaware General Corporation Law); and .DGCL; orfor any transaction from which the director derived an improper personal benefit.The effectAny amendment, repeal or modification of these provisions will be prospective only and would not affect any limitation on liability of a director for acts or omissions that occurred prior to any such amendment, repeal or modification.
Our Certificate of Incorporation also provides that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. If Delaware law is amended to
eliminateauthorize corporate action further eliminating or limiting therightspersonal liability ofGoodrich anda director, then the liability of ourstockholders, through stockholders' derivative suitsdirectors will be eliminated or limited to the fullest extent permitted by Delaware law, as so amended. Our Certificate of Incorporation also permits us to purchase insurance on behalf ofGoodrich,any officer, director, employee or other agent for any liability arising out of that person’s actions as our officer, director, employee or agent, regardless of whether Delaware law would permit indemnification. We have entered into indemnification agreements with each of our directors and officers. These agreements require us torecover monetary damagesindemnify these individuals to the fullest extent permitted under Delaware law against liability that may arise by reason of their service to us, and to advance expenses incurred as adirectorresult of any proceeding against them as to which they could be indemnified. We believe that the limitation of liability provision in Certificate of Incorporation and the indemnification agreements facilitates our ability to continue to attract and retain qualified individuals to serve as directors and officers.The limitation of liability and indemnification provisions in our Certificate of Incorporation and Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary
dutyduties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar asa director, including breaches resulting from grossly negligent behavior, exceptindemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in thesituations described above.opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
ComputerShare,American Stock Transfer & Trust Company.Listing
Our common stock is quoted on the OTC Markets under the symbol “GDPP.”
We issued $40.0 million in aggregate principal amount of Notes in connection with the Plan under the Indenture dated as of the Effective Date. The terms of the Notes will include those expressly set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). For any interest period ending other than at maturity, we may elect to pay all or any portion of interest in kind on the then outstanding principal of the Notes by issuing PIK Notes on the first interest payment date on which interest on Initial Notes is paid in kind and by increasing the principal amount of the PIK Notes or by issuing the additional PIK Notes on any subsequent interest payment date on which interest on the Notes is paid in kind. The PIK Notes will be part of the same series of the Notes and will include identical terms, except that the PIK Notes will not be convertible. PIK Notes will not be fungible with Initial Notes and will trade separately.
This Description of Notes is intended to be a useful overview of the material provisions of the Notes and the Indenture. However, you should read the Indenture for a complete description of the obligations of the Company and your rights.
You will find the definitions of capitalized terms used in this Description of Notes under the heading “—Certain Definitions.” For purposes of this description, references to “the Company,” “we,” “our” and “us” refer only to Goodrich Petroleum Corporation and not to any of its subsidiaries. The Indenture treats the registered holder of a Note as the owner of it for all purposes. Only registered holders of Notes have rights under the Indenture, and all references to “holders” in this Description of Notes are to registered holders of Notes.
General
The Notes. The Notes will:
be second lien, senior secured obligations of the Company;be subject to conversion, excepting the PIK Notes, at the holder’s sole option, into fully paid and non-assessable shares of Common Stock;mature on the later of August 30, 2019 and the date that is six months after the scheduled maturity date (including after giving effect to the exercise of the RBL Extension Option) of the First Lien Credit Agreement or any Permitted First Lien Replacement Facility, but in any event no later than March 30, 2020;be issued in denominations of $2,000 and whole multiples of $1,000 in excess thereof (or, with respect to the PIK Notes, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof);be represented by one or more registered Notes in global form, but in certain circumstances may be represented by Notes in definitive form as described under “Book-Entry, Delivery and Form”;be secured by second-priority liens on the Second Lien Collateral, subject to Permitted Liens and the terms of the Intercreditor Agreement;rank senior in right of payment to all of the Company’s and the Subsidiary Guarantor’s future subordinated Indebtedness;rank equally in right of payment with all of the Company’s and the Subsidiary Guarantor’s existing and future senior Indebtedness;be effectively junior, pursuant to the terms of the Intercreditor Agreement to the extent of the value of the Priority Lien Collateral, to the Company’s obligations and the Subsidiary Guarantor’s obligations under the Company’s First Lien Credit Agreement and any other Priority Lien Obligations, which will be secured on a first-priority basis by Liens on the same Collateral that secure the Notes and the Guarantees;be effectively junior to any of the Company’s or the Subsidiary Guarantor’s existing and future secured Indebtedness secured by assets not constituting Second Lien Collateral for the Notes and the Guarantees to the extent of the value of the collateral securing such Indebtedness;be effectively senior to all the Company’s and the Subsidiary Guarantor’s existing and future unsecured senior Indebtedness to the extent of the value of the Second Lien Collateral (after giving effect to the Permitted Liens on the Second Lien);be structurally subordinated in right of payment to all Indebtedness and other liabilities of any of the Company’s future Subsidiaries that is not a Subsidiary Guarantor of the Notes; andbe guaranteed on a senior secured basis by the Subsidiary Guarantor and certain future Subsidiaries. As of the date of this prospectus, the Subsidiary Guarantor is Goodrich Petroleum Company, L.L.C., which is the Company’s sole current Subsidiary.Interest. Interest on the Notes:
will accrue at the rate of 13.50% per annum;will accrue from the most recent interest payment date, or, if no interest has been paid, from and including the date of original issuance;will be payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year;will be payable to the holders of record on January 1, April 1, July 1 and October 1 immediately preceding the related interest payment dates;be payable in kind on the then outstanding principal amount of the Notes by issuing PIK Notes on the first interest payment date on which interest on Initial Notes is paid in kind and by increasing the principal amount of the PIK Notes or by issuing the additional PIK Notes on any subsequent interest payment date on which interest on the Notes is paid in kind;must be paid in-kind (“PIK”) during such time as the First Lien Credit Agreement (but not any refinancing or replacement thereof) is in effect; andwill be computed on the basis of a 360-day year comprised of twelve 30-day months.If any payment date with respect to the Notes falls on a day that is not a Business Day, the payment will be made on the next succeeding Business Day with the same force and effect as if made on such payment date, and no additional interest will accrue as a result of such delayed payment provided such payment is made on the next succeeding Business Day. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal of the Notes at one percentage point per annum in excess of the above rate, and on overdue installments of interest (without regard to any applicable grace period) at such higher rate, to the extent lawful.
Guarantees. The Guarantees of the Notes:
will be general senior obligations of each Subsidiary Guarantor;will, with respect to the Subsidiary Guarantors, be secured on a second-priority basis, subject to certain permitted Liens, by a Lien on the Second Lien Collateral of such Subsidiary Guarantor described below under “—Security for the Notes”;will be effectively junior, pursuant to the terms of the Intercreditor Agreement described below under “The Intercreditor Agreement,” to the extent of the value of the Priority Lien Collateral, to that Subsidiary Guarantor’s guarantee of the Company’s obligations under the First Lien Credit Agreement and any other Priority Lien Obligations, which will be secured on a first-priority basis by the same assets of the Subsidiary Guarantors that secure the Notes;will be effectively junior to all existing and future secured Indebtedness of each Subsidiary Guarantor secured by assets not constituting Collateral, to the extent of the value of the collateral securing such Indebtedness;will be structurally subordinated to all existing and future Indebtedness and other liabilities of any non-guarantor Subsidiaries of such Subsidiary Guarantor;will be effectively senior to all the Subsidiary Guarantor’s existing and future unsecured senior Indebtedness to the extent of the value of the Second Lien Collateral (after giving effect to the Permitted Liens on the Second Lien Collateral); andwill be senior in right of payment to any existing and future subordinated Indebtedness of each Subsidiary Guarantor.Payments on the Notes; Paying Agent, Registrar and Conversion Agent
If a holder of Notes has given wire transfer instructions in accordance with the Indenture, we will pay all principal, interest and premium, if any, on that holder’s Notes in accordance with those instructions to an account in the United States. Otherwise we will pay principal of, premium, if any, and interest on the Notes at the office or agency designated by the Company, except that we may, at our option, pay interest on the Notes by check mailed to holders of the Notes at their registered address as it appears in the registrar’s books or by PIK payments. We have initially designated the corporate trust office of the Trustee in Dallas, Texas to act as our paying agent, registrar and conversion agent. We may, however, change the paying agent, registrar or conversion agent without prior notice to the holders of the Notes, and the Company or any of its Subsidiaries may act as paying agent or registrar.
We will pay principal of, premium, if any, and interest on, Notes in global form registered in the name of or held by The Depository Trust Company (“DTC”) or its nominee in immediately available funds to DTC or its nominee, as the case may be, as the registered holder of such global note.
Transfer and Exchange
A holder may transfer or exchange Notes in accordance with the Indenture. The registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of Notes. No service charge will be imposed by the Company, the Trustee or the registrar for any registration of transfer or exchange of Notes, but the Company may require a holder to pay a sum sufficient to cover any transfer tax or other governmental taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed as well as between a record date and the next succeeding interest payment date.
The registered holder of a note will be treated as its owner for all purposes.
Optional Redemption
At any time on or after October 12, 2018, we may redeem, in whole or in part, the Notes at the following redemption prices (expressed as a percentage of principal amount of the Notes), plus accrued and unpaid interest thereon, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date):
Period
Redemption Price October 12, 2018 to April 12, 2019
106.75 % April 12, 2019 and thereafter
100.00 % In addition, the Notes may be redeemed, in whole or in part, at any time prior to October 12, 2018 at our option, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest thereon, if any, to, the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Any optional redemption under the caption “Optional Redemption” shall be made on apro rata basis between the Initial Notes and the PIK Notes, subject to adjustment in a manner that most nearly approximates apro rata basis.
“Applicable Premium” means, with respect to any note on any applicable redemption date, the excess, if any, of:
(a) the present value at such time of (i) the redemption price of such note as of October 12, 2018 (without regard to accrued and unpaid interest and such redemption price being set forth in the table appearing above under the caption “Optional Redemption”) plus (ii) all required interest payments due on such Note through October 12, 2018 (excluding accrued and unpaid interest to the prepayment date), computed using a discount rate equal to the Treasury Rate plus 100 basis points; over
(b) the principal amount of such note. “Treasury Rate” means, as of any redemption date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled 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 redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to October 12, 2018; provided, however, that if the period from the redemption date to October 12, 2018 is not equal to the constant maturity of a 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 period from the redemption date to October 12, 2018 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. The Company will (a) calculate the Treasury Rate as of the second Business Day preceding the applicable redemption date and (b) prior to such redemption date file with the Trustee an Officers’ Certificate setting forth the Applicable Premium and the Treasury Rate and showing the calculation of each in reasonable detail.
Selection and Notice
If we are redeeming less than all of the outstanding Notes, the Trustee will select the Notes for redemption in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed, then on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion will deem to be fair and appropriate (or, in the case of Notes in global form, the Company will select Notes for redemption based on DTC’s method that most nearly approximates a pro rata selection), although no note of $2,000 (or $1.00 in the case of any PIK Notes) in original principal amount or less will be redeemed in part. Notices of redemption will be given at least 15 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption relating to such note will state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the partially redeemed note. On and after the redemption date, interest will cease to accrue on Notes or the portion of them called for redemption unless we default in the payment of the redemption price of, and accrued interest on, the Notes to be redeemed on that date.
Mandatory Redemption; Offers to Purchase; Open Market Purchases
Subject to the terms of the Intercreditor Agreement and to the extent not required to be used to prepay the Indebtedness in respect of the First Lien Credit Agreement as in effect on the date hereof, the Company is required to redeem the Notes:
(i) prior to or within two Business Days following the consummation of any disposition of Property permitted pursuant to items (i) and (j) of the covenant described under “—Covenants—Limitation on Sales of Assets and Subsidiary Stock” the Company shall be required to redeem the Notes in an aggregate principal amount of the net cash proceeds of such disposition (net of (1) all reasonable and documented fees and expenses of accountants, lawyers and other professional advisors and brokerage commissions, (2) any taxes directly attributable to such disposition, (3) any Indebtedness or other liabilities required to be paid with the proceeds of such disposition and (4) so long as no Default or Event of Default shall have occurred and be continuing, any such proceeds that are (or are intended to be) invested within 180 days of receipt thereof inlong-term productive assets of the general type used in the business of the Company and the Subsidiary Guarantors (it being understood and agreed that any proceeds that are not actually invested pursuant to this clause (4) within such 180 day period shall be required to be applied to redeem the Notes pursuant to this caption “Mandatory Redemption; Offers to Purchase; Open Market Purchases”)).
(ii) Prior to or within two Business Days of the Incurrence of any Refinancing Indebtedness in respect of the Notes, the Company shall be required to redeem the Notes in an aggregate principal amount equal to the net cash proceeds of such Refinancing Indebtedness.
Except as expressly provided above, any redemption under this caption “Mandatory Redemption; Offers to Purchase; Open Market Purchases” shall be subject to payment of the Prepayment Premium and shall be made on a pro rata basis between the Initial Notes and the PIK Notes, subject to adjustment in a manner that most nearly approximates a pro rata basis.
We may acquire Notes by means other than a redemption or required repurchase, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisition does not otherwise violate the terms of the Indenture. However, other existing or future agreements of the Company may limit the ability of the Company or its Subsidiaries to purchase Notes prior to maturity.
Conversion
Each holder of the Initial Note is entitled to convert, at the holder’s sole option, any portion of the outstanding and unpaid Conversion Amount into fully paid and non-assessable shares of Common Stock, at the Conversion Rate. The Conversion Rate is subject to adjustment as described below. If the holder elects to exercise his or her conversion rights, we may elect to: (i) deliver shares of Common Stock to the holder; (ii) pay the holder an amount in cash equal to the market value of the shares calculated using the Closing Price of the Common Stock on the Conversion Date (provided that under the terms of the Indenture we are not allowed to make a cash payment in an aggregate amount exceeding 10% of the obligation to deliver shares of Common Stock upon conversion of the Notes on any Conversion Date); or (iii) any combination thereof. However, we will not issue any fractional shares of Common Stock upon conversion. If the issuance of Common Stock would result in the issuance of a fractional share of common stock, we will pay a cash adjustment in respect of such fractional share in an amount equal to the same fraction of the Closing Price on the Conversion Date. No separate payment or adjustment will be made for accrued and unpaid interest on a converted Note or for dividends or distributions on shares of Common Stock issued upon conversion of a Note except as provided in the Indenture.
The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount; provided, however that the
Company shall not be required to pay any tax that may be payable in respect of any issuance of Common Stock to any person other than the converting holder or with respect to any income tax due by such holder with respect to such Common Stock. The Company may refuse to make any such issuance or delivery unless and until a person otherwise entitled to such issuance or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid or is not payable.
Adjustments to Conversion Price.
We will adjust the Conversion Price as set forth below:
(a) in case we pay or make a dividend or other distribution to all or substantially all holders of any class of capital stock of the Company payable in Common Stock, the Conversion Price shall be reduced by multiplying such Conversion Price by a fraction of which (x) the numerator shall be the number of outstanding shares of Common Stock prior to such dividend or other distribution and (y) the denominator shall be (i) such number of shares plus (ii) the total number of shares constituting such dividend or other distribution;
(b) in case we issue rights or warrants to all or substantially all holders of our Common Stock entitling them, for a period of not more than 45 days, to subscribe for or purchase shares of Common Stock at a price per share less than the current market price determined in accordance with the Indenture (the “Current Market Price”) on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be reduced by multiplying such Conversion Price by a fraction of which (i) the numerator shall be (x) the number of outstanding shares of Common Stock plus (y) the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such Current Market Price and (ii) the denominator shall be (x) the number of shares of outstanding Common Stock plus (y) the number of shares of Common Stock so offered for subscription or purchase. In case any rights or warrants referred to in this clause in respect of which an adjustment shall have been made shall expire unexercised, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would then be in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants;
(c) in case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price shall be proportionately increased;
(d) in case we, by dividend or otherwise, distribute to all or substantially all holders of our Common Stock evidences of indebtedness, shares of capital stock of any class or series, other securities, cash or assets (other than Common Stock referred to in clause (a) of this caption “—Adjustments to Conversion Price”, rights or warrants referred to in clause (b) of this caption “—Adjustments to Conversion Price” or a dividend or distribution payable exclusively in cash), the Conversion Price shall be reduced by multiplying such Conversion Price by a fraction of which (x) the numerator shall be (i) the Current Market Price on the date fixed for such payment minus (ii) the then fair market value (determined in accordance with the Indenture) of the portion of such evidences of indebtedness, shares of capital stock, other securities, cash and assets distributed per share of Common Stock and (y) the denominator shall be such Current Market Price;
(e) in case we, by dividend or otherwise, make a distribution to all or substantially all holders of our Common Stock payable exclusively in cash, the Conversion Price shall be adjusted by multiplying such Conversion Price by a fraction of which the numerator shall be (i) the Current Market Price on the date fixed for such payment minus (ii) the amount in cash per share of Common Stock paid in such distribution and the denominator shall be the Current Market Price on the date fixed for such payment,providedthat in the event that the amount in cash per share of Common Stock paid in such distribution is greater than or equal to the Current Market Price on the date fixed for such payment, each holder of Notes shall receive, for each $1,000 principal
amount of Notes, without conversion and at the same time and upon the same terms as holders of Common Stock, the amount of cash that such holder would have received if such holder owned a number of shares of Common Stock equal to the Conversion Rate on the Business Day immediately preceding the date fixed for such payment for such cash dividend or distribution;
(f) in case we or any of our subsidiaries consummates a tender or exchange offer for all or any portion of the Common Stock, the Conversion Price shall be reduced by multiplying such Conversion Price by a fraction of which (x) the numerator shall be (i) the Current Market Price on such date of expiration minus the (ii) an aggregate Premium Amount paid in such tender or exchange offer divided by the difference between the number of shares of Common Stock outstanding at the close of business on the date of expiration of such tender or exchange offer (before giving effect to the acquisition of shares of Common Stock pursuant thereto) and the number of shares of Common Stock acquired pursuant thereto and (y) the denominator shall be such Current Market Price.
Effect of Reclassifications, Business Combinations, Asset Sales and Corporate Events.
If any of the following events occur: (i) any recapitalization, reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which clause (c) of the caption “—Adjustments to Conversion Price” applies), (ii) any consolidation, merger, binding share exchange or combination of the Company with another Person, or (iii) any sale or conveyance to another Person of all or substantially all of the property and assets of the Company and its
addressSubsidiaries, in each case as a result of which common stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or any combination thereof) (any such event or transaction, a “Reorganization Event”), then, following the effective time of the Reorganization Event, the right to receive shares of common stock upon conversion of the Notes, if any, will be changed into a right to receive the kind and amount of shares of stock, other securities or property or assets (including cash or any combination thereof) that a holder would have been entitled to receive upon such Reorganization Event in respect of common stock, as provided in the Indenture.At no time when the Common Stock is
311 West Monroe Street, Chicago, Illinois 60606registered under Section 12 of the Securities Act shall we effect any conversion of the Notes andtelephonea holder shall not have the right to convert any portion of the Notes, to the extent that, after giving effect to the conversion as set forth on the applicable notice of conversion, such holder would beneficially own in excess of the Beneficial Ownership Limitation; provided, however, that, upon a holder providing us with 61 days’ notice (the “Waiver Notice”) at any time, whether before or after the Common Stock is registered under Section 12 of the Securities Act, that such holder wishes to waive the provisions of the Trustee’s disclaimer, as outlined in the Indenture, with regard to any or all Common Stock issuable upon conversion of such holder’s Notes, this limitation shall be of no force or effect with regard to the Notes referenced in the Waiver Notice.Ranking
The Notes will be secured obligations of the Company that rank senior in right of payment to all existing and future Indebtedness that is expressly subordinated in right of payment to the Notes. The Notes will rank equally in right of payment with all of the Company’s and the Subsidiary Guarantor’s existing and future senior Indebtedness. The Notes will effectively rank junior to the Company’s obligations and the Subsidiary Guarantor’s obligations under the First Lien Credit Agreement and any other Priority Lien Obligations, which will be secured on a first-priority basis by liens on the same Collateral that secure the Notes and the Guarantees. In the event of bankruptcy, liquidation, reorganization or other winding up of the Company or upon a default in payment with respect to, or the acceleration of, any Indebtedness under the First Lien Credit Agreement or other secured Priority Lien Indebtedness, the assets of the Company that secure secured Indebtedness will be available to pay obligations on the Notes only after all Indebtedness under the First Lien Credit Agreement and other secured Priority Lien Indebtedness has been repaid in full from such assets. In addition, although the Notes will be guaranteed by our sole current Subsidiary, certain of our future Subsidiaries may not guarantee the Notes. See
“—Covenants—Future Subsidiary Guarantors.” In the event of bankruptcy, liquidation, reorganization or other winding up of a non-guarantor Subsidiary, the assets of such Subsidiary will be available to pay obligations on the Notes only after all obligations of such Subsidiary have been repaid in full from such assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the Notes and the Subsidiary Guarantees then outstanding.
Subsidiary Guarantees
The Notes are initially guaranteed by our sole current Subsidiary. Certain of our future Subsidiaries may also in the future guarantee our obligations under the Notes, including as set forth under “—Covenants—Future Subsidiary Guarantors.” The Subsidiary Guarantors, if any, will, jointly and severally, fully and unconditionally guarantee on a senior secured basis our obligations under the Notes and all obligations under the Indenture. Guarantees of the Subsidiary Guarantors will be secured on a second-priority basis by a Lien on the Second Priority Collateral of such Subsidiary Guarantors. The obligations of Subsidiary Guarantors will be effectively junior, pursuant to the terms of the Intercreditor Agreement, to the extent of the value of the Priority Lien Collateral, to that Subsidiary Guarantors’ guarantees of the Company’s obligations under the First Lien Credit Agreement and any other Priority Lien Obligations, which will be secured on a first-priority basis by the same assets of the Subsidiary Guarantors that secure the Notes. The obligations of Subsidiary Guarantors under the Subsidiary Guarantees will rank equally in right of payment with other Indebtedness of such Subsidiary Guarantor, except to the extent such other Indebtedness is expressly subordinate to the obligations arising under the Subsidiary Guarantee.
Although the Indenture limits the amount of Indebtedness that Restricted Subsidiaries may incur, such Indebtedness may be substantial and such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the incurrence by such Subsidiaries of liabilities that are not considered Indebtedness under the Indenture. See “—Covenants—Limitation on Indebtedness and Preferred Stock.”
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law, although no assurance can be given that a court would give the holder the benefit of such provision. See “Risk Factors—Risks Related to the Notes—The Guarantee by our Subsidiary Guarantors of the Notes could be deemed a fraudulent conveyance under certain circumstances, and a court may try to subordinate or void that Subsidiary Guarantee.” If a Subsidiary Guarantee were rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor’s liability on its Subsidiary Guarantee could be reduced to zero. If the obligations of a Subsidiary Guarantor under its Subsidiary Guarantee were voided, holders of Notes would have to look to the assets of any remaining Subsidiary Guarantors for payment. There can be no assurance in that event that such assets would suffice to pay the outstanding principal and interest on the Notes.
In the event a Subsidiary Guarantor is
(312) 588-4700. Registration Rightssold or disposed of (whether by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all of its assets (other than by lease)) and whether or not the Subsidiary Guarantor is the surviving entity in such transaction to a Person which is not the Company or a Restricted Subsidiary of the Company, such Subsidiary Guarantor will be released from its obligations under its Subsidiary Guarantee if the sale or other disposition does not violate the covenants described under “—Covenants—Limitation on Sales of Assets and Subsidiary Stock.”In addition, a Subsidiary Guarantor will be released from its obligations under the Indenture and its Subsidiary Guarantee if such Subsidiary Guarantor ceases to guarantee any other Indebtedness of the Company or a Subsidiary Guarantor under the First Lien Credit Agreement, and is not a borrower under the First Lien Credit Agreement, provided no Event of Default has occurred and is continuing; or if the Company designates
such Subsidiary Guarantor as an Unrestricted Subsidiary and such designation complies with the other applicable provisions of the Indenture or if such Subsidiary Guarantor otherwise no longer meets the definition of a Restricted Subsidiary; or in connection with
our private placementsany covenant defeasance, legal defeasance or satisfaction and discharge ofsecuritiesthe Notes as provided below under the captions “—Defeasance” and “—Satisfaction and Discharge.”As of the date of this prospectus, the Company’s only Subsidiary is a Restricted Subsidiary. Under certain circumstances, the Company may designate Subsidiaries as Unrestricted Subsidiaries. None of the Unrestricted Subsidiaries will be subject to the restrictive covenants in
September 1999the Indenture andFebruary 2000 we entered into a registration rights agreementnone will guarantee the Notes.Security for the Notes
The obligations of the Company with respect to the Notes, the obligations of the Subsidiary Guarantor under the Subsidiary Guarantee, all other Second Lien Obligations, and the performance of all other obligations of the Company and the Subsidiary Guarantors under the Second Lien Security Documents will be secured by second-priority Liens on the Collateral granted to the Second Lien Agent for the benefit of the holders of
those securities. The registration rights agreementthe Second Lien Obligations. For all purposes of this Description of Notes and the Indenture, all references to “second-priority” Liens mean Liens that may be junior in priority to the Liens securing Priority Lien Obligations, to the extent permitted to be incurred or to exist under the Intercreditor Agreement, and to other Permitted Liens.Except as otherwise provided in the Intercreditor Agreement or the Second Lien Security Documents, the Indenture provides that the Second Lien Collateral consists of all of the interests and property of the Company and its domestic Subsidiaries that are subject to any Lien securing the Priority Lien Obligations (or that would be required, under the First Lien Credit Agreement as in effect on the Issue Date, to secure such Priority Lien Obligations if such Priority Lien Obligations were outstanding and such First Lien Credit Agreement were in effect).
The security documents and mortgages creating Second Liens will be substantially in the form of the corresponding instruments creating Priority Liens, with such changes are reasonably necessary to reflect the terms of the Intercreditor Agreement and with such deletions or modifications of representations, warranties and covenants as are customary with respect to security documents establishing Liens securing publicly traded debt securities.
Release of the Second Lien Collateral
The Second Lien Collateral will be automatically released from the Lien and security interest created by the Second Lien Security Documents at any time or from time to time in accordance with the provisions of the Indenture and the Second Lien Security Documents under any one or more of the following circumstances:
(1) in connection with asset sales and dispositions permitted or not prohibited under the covenant described under “—Covenants—Limitations on Sales of Assets or Subsidiary Stock” so long as the Company will apply the net proceeds of such sale or disposition as required under caption “—Mandatory Redemption; Offers to Purchase; Open Market Purchases”; provided, however, that such Liens will not be released if such sale or disposition is to the Company or a Restricted Subsidiary;
(2) with respect to the assets of a Subsidiary Guarantor that constitute Second Lien Collateral, upon the release of such Subsidiary Guarantor from its Guarantee; and
(3) with consent of holders of the Notes as described in caption “—Amendments and Waivers” below; and
(4) if required in accordance with the terms of the Intercreditor Agreement.
The Liens on all Second Lien Collateral that secures the Notes and the Subsidiary Guarantees also will be released in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the Notes as provided below under the captions “—Defeasance” and “—Satisfaction and Discharge”.
The Intercreditor Agreement
On October 12, 2016, the Second Lien Agent entered into an Intercreditor Agreement (the “Intercreditor Agreement”) with the Priority Lien Agent, the Second Lien Agent, the Company and Subsidiary Guarantor, to provide for, among other things, the junior nature of the second liens with respect to priority liens. Although the holders of the Notes will not be parties to the Intercreditor Agreement, by their acceptance of the Notes they will agree to be bound thereby. The Intercreditor Agreement will permit the Priority Lien Obligations and the Second Lien Obligations to be refunded, refinanced or replaced by certain permitted refinancing indebtedness without affecting the lien priorities set forth in the Intercreditor Agreement, in each case without the consent of any holder of Priority Lien Obligations or Second Lien Obligations (including holders).
Lien Priorities
The Intercreditor Agreement provides that, notwithstanding:
(1) anything to the contrary contained in the Second Lien Security Documents establishing the Second Liens or any other documents establishing Priority Liens;
(2) how a Lien was acquired (whether by grant, possession, statute, operation of law, subrogation, or otherwise);
(3) the time, manner, order of the grant attachment or perfection of a Lien;
(4) any conflicting provision of the New York Uniform Commercial Code or other applicable law;
(5) any defect in, ornon-perfection, setting aside, or avoidance of, a Lien or a Priority Lien Document or a Note Document;
(6) the modification of a Priority Lien Obligation or a Second Lien Obligation; and
(7) the subordination of a Lien on Collateral securing a Priority Lien Obligation to a Lien securing another obligation of the Company or other Person that is permitted under the Priority Lien Documents as in effect on the date hereof or securing a DIP Financing; all Second Liens at any time granted by the Company or any Subsidiary Guarantor will be subject and subordinate to all Priority Liens securing Priority Lien Obligations, subject to the Priority Lien Cap.
The provisions described under the caption “—Lien Priorities” are intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of Priority Lien Obligations, each present and future Priority Lien Agent as holder of Priority Liens, each present and future holder of Second Lien Obligations and each present and future Second Lien Agent as holder of Second Liens. No other Person will be entitled to rely on, have the benefit of or enforce those provisions.
In addition, the provisions under the caption “—Lien Priorities” are intended solely to set forth the relative ranking, as Liens, of the Liens securing Second Lien Debt as against the Priority Liens, and the Liens securing Priority Lien Debt as against the Second Liens. Neither the Notes nor any other Second Lien Obligations are intended to be, or will ever be by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced in right of payment.
Limitation on Enforcement of Remedies
The Intercreditor Agreement provides that, except as provided below, prior to the Discharge of Priority Lien Obligations, none of the Second Lien Agent or any holder of Second Lien Obligations, may commence any judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, or take any other
action available to it in respect of, the Collateral under any Second Lien Security Document, applicable law or otherwise (including but not limited to right of set off). Only the Priority Lien Agent will be entitled to take any such actions or exercise any such remedies with respect to the Collateral prior to the Discharge of Priority Lien Obligations. The Intercreditor Agreement will provide that, notwithstanding the foregoing, the Second Lien Agent may, but will have no obligation to, on behalf of the holders of Second Lien Obligations, take all such actions (not adverse to the Priority Liens or the rights of the Priority Lien Agent and holders of the Priority Lien Obligations) it deems necessary to perfect or continue the perfection of their Second Liens in the Collateral or to create, preserve or protect (but not enforce) the Second Liens in the Collateral. Nothing shall limit the right or ability of the Second Lien Agent or the holders of Second Lien Obligations to (i) purchase (by credit bid or otherwise) all or any portion of the Collateral in connection with any enforcement of remedies by the Priority Lien Agent so long as the Priority Lien Agent and the holders of the Priority Lien Obligations receive payment in full in cash of all Priority Lien Obligations upon giving effect thereto or (ii) file a proof of claim with respect to the Second Lien Obligations. Until the Discharge of Priority Lien Obligations, the Priority Lien Agent will have the exclusive right to deal with that portion of the Collateral to the extent consisting of deposit accounts and securities accounts, including exercising rights under control agreements with respect to such accounts. In addition, whether before or after the Discharge of Priority Lien Obligations, the Second Lien Agent and the holders of Second Lien Obligations may take any actions and exercise any and all rights that would be available to a holder of unsecured claims;provided,however, that the Second Lien Agent and such holders of Second Lien Obligations may not take any of the actions described below under clauses (1) through (9) of the paragraph under the caption “—No Interference; Payment Over”, or prohibited by the provisions described in the first two paragraphs below under the caption “—Agreements With Respect to Insolvency or Liquidation Proceedings”;provided further that in the event that the Second Lien Agent or any holder of Second Lien Obligations becomes a judgment lien creditor in respect of any Collateral as a result of its enforcement of its rights as an unsecured creditor with respect to the Second Lien Obligations, such judgment lien shall be subject to the terms of the Intercreditor Agreement for all purposes (including in relation to the Priority Lien Obligations and the Second Lien Obligations, as applicable), as the other liens securing the Second Lien Obligations, are subject to the Intercreditor Agreement.
Notwithstanding the foregoing, prior to the Discharge of Priority Lien Obligations, both before and during an Insolvency or Liquidation Proceeding, after a period of 180 days has elapsed (which period will be tolled during any period in which the Priority Lien Agent is not entitled, on behalf of holders of Priority Lien Obligations, to enforce or exercise any rights or remedies with respect to any Collateral as a result of (x) any injunction issued by a court of competent jurisdiction or (y) the automatic stay or any other stay in any Insolvency or Liquidation Proceeding) since the later of (1) the date on which the Second Lien Debt is accelerated or (2) the date on which the Second Lien Agent has delivered to the Priority Lien Agent written notice of the acceleration of any Second Lien Debt (the “Standstill Period”), the Second Lien Agent and the holders of Second Lien Obligations may enforce or exercise any rights or remedies with respect to any Collateral;provided,however, that notwithstanding the expiration of the Standstill Period, in no event may the Second Lien Agent or any other holder of Second Lien Obligations enforce orexercise any rights or remedies with respect to any Collateral, or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding, if the Priority Lien Agent on behalf of the holders of Priority Lien Obligations or any other holder of Priority Lien Obligations shall have commenced, and shall be diligently pursuing (or shall have sought or requested relief from, or modification of, the automatic stay or any other stay or prohibition in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof), the enforcement or exercise of any rights or remedies with respect the Collateral or any such action or proceeding (prompt written notice thereof to be given to the Second Lien Agent by the Priority Lien Agent);provided,further, that, at any time after the expiration of the Standstill Period, if neither the Priority Lien Agent nor any holder of Priority Lien Obligations shall have commenced and be diligently pursuing (or shall have sought or requested relief from, or modification of, the automatic stay or any other stay or other prohibition in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof) the enforcement or exercise of any rights or remedies with respect to any material portion of the Collateral or any such action or proceeding, and the Second Lien Agent shall have commenced the enforcement or exercise of any rights or
remedies with respect to any material portion of the Collateral or any such action or proceeding, then for so long as the Second Lien Agent is diligently pursuing such rights or remedies, none of any holder of Priority Lien Obligations nor the Priority Lien Agent shall take any action of a similar nature with respect to such Collateral, or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding; provided, further, that, if the Second Lien Agent or any Second Lien Secured Party exercises rights or remedies in accordance with the terms of this section, then such person shall promptly give notice thereof to the Priority Lien Agent.
Priority Lien Agent
The Intercreditor Agreement provides that neither the Priority Lien Agent nor any holder of any Priority Lien Obligations will have any duties or other obligations to any holder of Second Lien Obligations with respect to the Collateral, other than to transfer to the Second Lien Agent any remaining Collateral and the proceeds of the sale or other disposition of any Collateral remaining in its possession following the Discharge of Priority Lien Obligations, in each case, without representation or warranty on the part of the Priority Lien Agent or any holder of Priority Lien Obligations.
In addition, the Intercreditor Agreement further provides that, until the Discharge of Priority Lien Obligations (but subject to the rights of the Second Lien Agent and the holders of Second Lien Obligations and following the expiration of any of the Standstill Period as provided in the paragraph defining “Standstill Period”), the Priority Lien Agent will be entitled, for the benefit of the holders of the Priority Lien Obligations, to sell, transfer or otherwise dispose of or deal with the Collateral without regard to any Second Lien therein granted to the holders of Second Lien Obligations or any rights to which the Second Lien Agent or any holder of Second Lien Obligations would otherwise be entitled as a result of such Second Lien. Without limiting the foregoing, the Intercreditor Agreement will provide that neither the Priority Lien Agent nor any holder of any Priority Lien Obligations will have any duty or obligation first to marshal or realize upon the Collateral, or to sell, dispose of or otherwise liquidate all or any portion of the Collateral, in any manner that would maximize the return to the holders of Second Lien Obligations, notwithstanding that the order and timing of any such realization, sale, disposition or liquidation may affect the amount of proceeds actually received by the holders of Second Lien Obligations from such realization, sale, disposition or liquidation.
The Intercreditor Agreement additionally provides that the Second Lien Agent and each holder of Second Lien Obligations will waive any claim that may be had against the Priority Lien Agent or any holder of any Priority Lien Obligations arising out of any actions which the Priority Lien Agent or such holder of Priority Lien Obligations takes or omits to take (including actions with respect to the creation, perfection or continuation of Liens on any Collateral, actions with respect to the foreclosure upon, sale, release or depreciation of, or failure to realize upon, any Collateral, and actions with respect to the collection of any claim for all or any part of the Priority Lien Obligations from any account debtor, guarantor or any other party) in accordance with the Intercreditor Agreement and the Priority Lien Documents or the valuation, use, protection or release of any security for such Priority Lien Obligations.
No Interference; Payment Over
The Intercreditor Agreement provides that the Second Lien Agent and each holder of Second Lien Obligations:
(1) will not take or cause to be taken any action the purpose or effect of which is, or could be, to make any Lien that the Second Lien Agent or the holders of Second Lien Obligations have on the Collateral pari passu with, or to give the Second Lien Agent or any holder of Second Lien Obligations any preference or priority relative to, any Lien that the Priority Lien Agent holds on behalf of the holders of any Priority Lien Obligations secured by any Collateral or any part thereof;
(2) will not challenge or question in any proceeding the validity or enforceability of any Priority Lien Obligations or Priority Lien Documents or the validity, attachment, perfection or priority of any Lien
held by the Priority Lien Agent on behalf of the holders of any Priority Lien Obligations, or the validity or enforceability of the priorities, rights or duties established by the provisions of the Intercreditor Agreement;
(3) will not take or cause to be taken any action the purpose or effect of which is, or could be, to interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the Collateral by the Priority Lien Agent or the holders of any Priority Lien Obligations in an enforcement action;
(4) will have no right to (A) direct the Priority Lien Agent or any holder of any Priority Lien Obligations to exercise any right, remedy or power with respect to any Collateral or (B) consent to the exercise by the Priority Lien Agent or any holder of any Priority Lien Obligations of any right, remedy or power with respect to any Collateral;
(5) will not institute any suit or assert in any suit or in any Insolvency or Liquidation Proceeding, any claim against the Priority Lien Agent or any holder of any Priority Lien Obligations seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to, and neither the Priority Lien Agent nor any holders of any Priority Lien Obligations will be liable for, any action taken or omitted to be taken by the Priority Lien Agent or such holders of Priority Lien Obligations with respect to any Collateral securing such Priority Lien Obligations;
(6) prior to the Discharge of Priority Lien Obligations, will not seek, and will waive any right, to have any Collateral or any part thereof marshaled upon any foreclosure or other disposition of such Collateral;
(7) will not attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of the Intercreditor Agreement;
(8) will not object to forbearance by the Priority Lien Agent or any holder of Priority Lien Obligations; and
(9) prior to the Discharge of Priority Lien Obligations, will not assert, and thereby waive, to the fullest extent permitted by law, any right to demand, request, plead or otherwise assert or claim the benefit of any marshalling, appraisal, valuation or other similar right that may be available under applicable law with respect to the Collateral or any similar rights a junior secured creditor may have under applicable law. The Intercreditor Agreement provides that if the Second Lien Agent or any holder of Second Lien Obligations obtains possession of any Collateral or realizes any proceeds or payment in respect of any Collateral, pursuant to the exercise of remedies with respect to any of the Collateral under any Second Lien Security Document or by the exercise of any rights available to it under applicable law or in any Insolvency or Liquidation Proceeding, to the extent permitted under the Intercreditor Agreement, at any time prior to the Discharge of Priority Lien Obligations, then it will hold such Collateral, proceeds or payment in trust for the Priority Lien Agent and the holders of Priority Lien Obligations and transfer such Collateral, proceeds or payment, as the case may be, to the Priority Lien Agent within three days of receipt. Each of the Second Lien Agent and the holders of Second Lien Obligations will further agree that if, at any time, any of them obtains written notice that all or part of any payment with respect to any Priority Lien Obligations previously made shall be rescinded for any reason whatsoever, they will promptly pay over to the Priority Lien Agent any payment received by them and then in their possession or under their direct control in respect of any such Priority Lien Collateral and shall promptly turn any such Collateral then held by them over to the Priority Lien Agent, and the provisions set forth in the Intercreditor Agreement will be reinstated as if such payment had not been made, until the Discharge of Priority Lien Obligations. All Second Liens will remain attached to and enforceable against all proceeds so held or remitted, subject to the priorities set forth in the Intercreditor Agreement. The Intercreditor Agreement will provide that the provisions described in this paragraph will not apply to any proceeds of Collateral realized in a transaction not prohibited by the Priority Lien Documents and as to which the possession or receipt thereof by the Second Lien Agent or any holder of Second Lien Obligations is otherwise permitted by the Priority Lien Documents.
Automatic Release of Second Liens
The Intercreditor Agreement provides that, prior to the Discharge of Priority Lien Obligations, the Second Lien Agent and each holder of Second Lien Obligations will agree that, if the Priority Lien Agent or the holders of Priority Lien Obligations release their Lien on any Collateral, the Second Lien on such Collateral will terminate and be released automatically and without further action if (i) such release is in connection with a sale, transfer or other disposition of Collateral in a transaction or circumstance that does not violate the provisions under “—Covenants—Limitation on Asset Sales” (or any similar provision of any other Note Document), (ii) such release is effected in connection with the Priority Lien Agent’s foreclosure upon, or other exercise of rights or remedies with respect to, such Collateral, or (iii) such release is effected in connection with a sale or other disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if the Priority Lien Agent and the holders of Priority Lien Obligations shall have consented to such sale or disposition of such Collateral;provided, in the case of each of clauses (i), (ii), and (iii), the Second Liens on such Collateral securing the Second Lien Obligations shall remain in place (and shall remain subject and subordinate to all Priority Liens securing Priority Lien Obligations, subject to the Priority Lien Cap) with respect to any proceeds of a sale, transfer or other disposition of Collateral not paid to the holders of Priority Lien Obligations or that remain after the Discharge of Priority Lien Obligations.
Agreements With Respect to Insolvency or Liquidation Proceedings
The Intercreditor Agreement is a “subordination agreement” under Section 510(a) of the Bankruptcy Code. If the Company or any of its Subsidiaries becomes subject to any Insolvency or Liquidation Proceeding and, asdebtor(s)-in-possession, or if any receiver or trustee for such Person or Persons, moves for approval of financing (“DIP Financing”) to be provided by one or more lenders (the “DIP Lenders”) under Section 364 of the Bankruptcy Code or the use of cash collateral under Section 363 of the Bankruptcy Code, the Intercreditor Agreement will provide that none of the Second Lien Agent and any holder of Second Lien Obligations will raise any objection, contest or oppose, and will waive any claim such Person may now or hereafter have, to any such financing or to the Liens on the Collateral securing the same (“DIP Financing Liens”), or to any use, sale or lease of cash collateral that constitutes Collateral or to any grant of administrative expense priority under Section 364 of the Bankruptcy Code, unless (1) the Priority Lien Agent or the holders of any Priority Lien Obligations oppose or object to such DIP Financing, such DIP Financing Liens or such use of cash collateral, or (2)(x) the sum of (A) the aggregate principal amount of the DIP Financing, (B) the aggregate amount of Indebtedness for borrowed money constituting principal outstanding under the Priority Lien Documents and (C) the aggregate face amount of any letters of credit issued and outstanding under the Priority Lien Documents exceeds (y) the sum of (A) the amount of the Priority Lien Obligations “rolled up” or otherwise refinanced by such DIP Financing, if any, plus (B) $10,000,000.00. To the extent such DIP Financing Liens are senior to, or rankpari passu with, the Liens on Collateral securing Priority Lien Obligations, the Second Lien Agent will, for itself and on behalf of holders of the Second Lien Obligations, subordinate the Liens on the Collateral that secure the Second Lien Obligations to the Liens on the Collateral that secure Priority Lien Obligations and to such DIP Financing Liens, so long as the Second Lien Agent, on behalf of holders of the Second Lien Obligations, retains Liens on all the Collateral, including proceeds thereof arising after the commencement of any Insolvency or Liquidation Proceeding, with the same priority as existed prior to the commencement of the case under the Bankruptcy Code. In addition, the Intercreditor Agreement is provide that, if the Priority Lien Secured Parties are granted adequate protection Liens on post-petition assets of the Company and any of its Subsidiaries to secure Priority Lien Obligations in connection with the DIP Financing, the Second Lien Secured Parties shall have the right to request adequate protection Liens on post-petition assets of the Company and any of its Subsidiaries to secure the Second Lien Obligations in connection with the DIP Financing (which Liens shall be junior to the adequate protection Liens and prepetition Liens of the Priority Lien Secured Parties) and the Priority Lien Secured Parties shall not object to such a request by the Second Lien Secured Parties. For the avoidance of doubt, nothing in this provision of the Intercreditor Agreement shall limit or impair the right of the Second Lien Agent to object to any motion regarding DIP Financing or cash collateral to the extent that the objection could be asserted in an Insolvency Proceeding by unsecured creditors generally, is not otherwise prohibited by the terms of the Intercreditor
Agreement and is not based on the status of any Second Lien Secured Party as a holder of a Lien. Furthermore, the Intercreditor Agreement will provide that prior to the Discharge of Priority Lien Obligations, without the consent of the Priority Lien Agent to be granted or withheld in its sole discretion, none of the Second Lien Agent and any holder of Second Lien Obligations will propose, support or enter into any DIP Financing; provided that if no Priority Lien Secured Party offers to provide DIP Financing within the amount permitted under clause (2)(y) of this paragraph on or before the date of the hearing to approve a DIP Financing, then any holder of the Second Lien Obligations may seek to provide such DIP Financing secured by Liens equal or senior in priority to the Liens securing the Priority Lien Obligations and the Priority Lien Secured Parties may object thereto on any and all grounds;provided that such DIP Financing may not “roll-up” or otherwise refinance any pre-petition Second Lien Obligations.
The Intercreditor Agreement provides that the Second Lien Agent and each holder of Second Lien Obligations will not object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) a sale or other disposition, a motion to sell or dispose or the bidding procedure for such sale or disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if (1) the Priority Lien Agent or the requisite holders of Priority Lien Obligations shall have consented to such sale or disposition of such Collateral and (2) all Second Liens on the Collateral securing the Second Lien Obligations shall attach to the proceeds of such sale in the same respective priorities as set forth in the Intercreditor Agreement with respect to the Collateral; provided that (i) no motion or order regarding such sale or other disposition shall impair the rights of the Second Lien Secured Parties under Section 363(k) of the Bankruptcy Code and (ii) the Priority Lien Cap shall be reduced by an amount equal to the net cash proceeds of any such sale or other disposition which are used to pay the principal or face amount of the Priority Lien Obligations. The Intercreditor Agreement further provides that the Second Lien Agent and the holders of Second Lien Obligations will waive any claim that may be had against the Priority Lien Agent or any holder of Priority Lien Obligations arising out of any DIP Financing Liens, request for adequate protection or administrative expense priority under Section 364 of the Bankruptcy Code (in each case, that is granted in a manner that is consistent with the Intercreditor Agreement). The Intercreditor Agreement further provides that the Second Lien Agent and the holders of Second Lien Obligations will not file or prosecute in any Insolvency or Liquidation Proceeding any motion for adequate protection (or any comparable request for relief) based upon their interest in the Collateral, and will not object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) (a) any request by the Priority Lien Agent or any holder of Priority Lien Obligations for adequate protection or (b) any objection by the Priority Lien Agent or any holder of Priority Lien Obligations to any motion, relief, action or proceeding based on the Priority Lien Agent or any holder of Priority Lien Obligations claiming a lack of adequate protection, except that the Second Lien Agent and the holders of Second Lien Obligations:
(1) may freely seek and obtain relief granting adequate protection in the form of a replacement lienco-extensive in all respects with, but subordinated to, and with the same relative priority to the Priority Liens as existed prior to the commencement of the Insolvency or Liquidation Proceeding, all Liens granted in the Insolvency or Liquidation Proceeding to, or for the benefit of, the holders of the Priority Lien Obligations; and
(2) may freely seek and obtain any relief upon a motion for adequate protection (or any comparable relief), without any condition or restriction whatsoever, at any time after the Discharge of Priority Lien Obligations. In any Insolvency or Liquidation Proceeding, none of the Second Lien Agent and any holder of Second Lien Obligations shall support or vote for any plan of reorganization or disclosure statement of the Company or any Subsidiary Guarantor unless (x) such plan is accepted by the class of holders of the Priority Lien Obligations in accordance with Section 1126(c) of the Bankruptcy Code or otherwise provides for the payment in full in cash of all Priority Lien Obligations (including allpost-petition interest approved by the bankruptcy court, fees and expenses) on the effective date of such plan of reorganization, or (y) such plan provides on account of the holders of the Priority Lien Obligations for the retention by the Priority Lien Agent, for the benefit of the holders of the
Priority Lien Obligations, of the Liens on the Collateral securing the Priority Lien Obligations, and on all proceeds thereof whenever received, and such plan also provides that any Liens retained by, or granted to, the Second Lien Agent are only on property securing the Priority Lien Obligations and shall have the same relative priority with respect to the Collateral or other property, respectively, as provided in the Intercreditor Agreement with respect to the Collateral. Except as otherwise provided in the Intercreditor Agreement, the holders of the Second Lien Obligations shall remain entitled to vote their claims in any such Insolvency or Liquidation Proceeding.
The Intercreditor Agreement additionally provides that the Second Lien Agent and each holder of Second Lien Obligations will waive any claim that may be had against the Priority Lien Agent or any holder of any Priority Lien Obligations arising out of any election by the Priority Lien Agent or any holder of Priority Lien Obligations in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code.
Until the Discharge of Priority Lien Obligations has occurred, none of the Second Lien Agent or any holder of Second Lien Obligation shall seek relief, pursuant to Section 362(d) of the Bankruptcy Code or otherwise, from the automatic stay of Section 362(a) of the Bankruptcy Code or from any other stay in any Insolvency or Liquidation Proceeding in respect of the Collateral without the prior written consent of the Priority Lien Agent.
None of the Second Lien Agent or any holder of Second Lien Obligations shall oppose or seek to challenge any claim by the Priority Lien Agent or any other holder of Priority Lien Obligations for allowance or payment in any Insolvency or Liquidation Proceeding of Priority Lien Obligations consisting ofpost-petition interest, fees or expenses to the extent of the value of the Priority Liens (it being understood that such value will be determined without regard to the existence of the Second Liens on the Collateral). Neither the Priority Lien Agent nor any holder of Priority Lien Obligations shall oppose or seek to challenge any claim by the Second Lien Agent or any holder of Second Lien Obligations for allowance or payment in any Insolvency or Liquidation Proceeding of Second Lien Obligations consisting ofpost-petition interest, fees or expenses to the extent of the value of the Second Liens on the Collateral.
Without the express written consent of the Priority Lien Agent, none of the Second Lien Agent or any holder of Second Lien Obligation shall (or shall join with or support any third party in opposing, objecting to or contesting, as the case may be), in any Insolvency or Liquidation Proceeding involving the Company or any Subsidiary Guarantor, (i) oppose, object to or contest the determination of the extent of any Liens held by any of holder of Priority Lien Obligations or the value of any claims of any such holder under Section 506(a) of the Bankruptcy Code or (ii) oppose, object to or contest the payment to the holder of Priority Lien Obligations of interest, fees or expenses under Section 506(b) of the Bankruptcy Code.
Notwithstanding anything to the contrary contained in the Intercreditor Agreement, if in any Insolvency or Liquidation Proceeding a determination is made that any Lien encumbering any Collateral is not enforceable for any reason, the Second Lien Agent and the holders of Second Lien Obligations agree that any distribution or recovery they may receive in respect of any Collateral shall be segregated and held in trust and forthwith paid over to the Priority Lien Agent for the benefit of the holders of Priority Lien Obligations in the same form as received without recourse, representation or warranty (other than a representation of the Second Lien Agent that it has not otherwise sold, assigned, transferred or pledged any right, title or interest in and to such distribution or recovery) but with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. The Second Lien Agent, for itself and on behalf of the holders of Second Lien Obligations, appoints the Priority Lien Agent, and any officer or agent of the Priority Lien Agent, with full power of substitution, theattorney-in-fact of each the Second Lien Agent and the holders of Second Lien Obligations for the limited purpose of carrying out the provisions related to this paragraph and taking any action and executing any instrument that the Priority Lien Agent may deem necessary or advisable to accomplish the purposes of this paragraph, which appointment is irrevocable and coupled with an interest.
The Second Lien Agent and the holders of Second Lien Obligations will agree that the Priority Lien Agent shall have the exclusive right to credit bid the Priority Lien Obligations and further that none of the Second Lien Agent or any holder of Second Lien Obligations shall (or shall join with or support any third party in opposing, objecting to or contesting, as the case may be) oppose, object to or contest such credit bid by the Priority Lien Agent.
Without the consent of the Priority Lien Agent to be granted or withheld in its sole discretion, unless the Standstill Period has expired, each of the Second Lien Agent and the holders of Second Lien Obligations agree they will not file an involuntary bankruptcy claim or seek the appointment of an examiner or a trustee.
Each of the Second Lien Agent and the holders of Second Lien Obligations waives any right to assert or enforce any claim under Section 506(c) or 552 of the Bankruptcy Code as against the Priority Lien Agent, the holders of Priority Lien Obligations or any of the Collateral.
Notice Requirements and Procedural Provisions
The Intercreditor Agreement also provides for various advance notice requirements and other procedural provisions typical for agreements of this type, including procedural provisions to allow any successor Priority Lien Agent to become a party to the Intercreditor Agreement (without the consent of any holder of Priority Lien Obligations or Second Lien Obligations (including holders of the Notes)) upon the refinancing or replacement of the Priority Lien Obligations or Priority Lien Debt Obligations as permitted by the applicable Priority Lien Documents.
No New Liens; Similar Documents
So long as the Discharge of Priority Lien Obligations has not occurred, neither the Company nor any Subsidiary shall grant or permit any additional Liens, or take any action to perfect any additional Liens, on any property to secure:
(2) any Second Lien Obligation unless it has also granted, or concurrently therewith grants (or offers to grant), a Lien on such property to secure the Priority Lien Obligations and has taken all actions required to perfect such Liensprovided,however, the refusal or inability of the Priority Lien Agent to accept such Lien will not prevent the Second Lien Agent from taking the Lien; or
(3) any Priority Lien Obligation unless it has also granted, or concurrently therewith grants (or offers to grant), a Lien on such property to secure the Second Lien Obligations and has taken all actions required to perfect such Liensprovided,however, the refusal or inability of the Second Lien Agent to accept such Lien will not prevent the Priority Lien Agent from taking the Lien, with each such Lien to be subject to the provisions of the Intercreditor Agreement.
To the extent that the foregoing provisions are not complied with for any reason, without limiting any other rights and remedies available to the Priority Lien Agent and/or the other holders of Priority Lien Obligations, the Second Lien Agent or the holders of Second Lien Obligations, each of the Second Lien Agent and the holders of the Second Lien Obligations will agree that any amounts received by or distributed to any of them pursuant to or as a result of Liens granted in contravention of this paragraph shall be subject to the Intercreditor Agreement. The Intercreditor Agreement shall also provide for further undertakings by the Second Lien Agent and the Priority Lien Agent and agreements that (x) all Second Lien Security Documents providing for the Second Liens shall be in all material respects the same forms of documents providing for the Priority Liens other than as to the priority nature, modifications that make the Second Lien Security Documents with respect to the Second Liens less restrictive than the corresponding documents with respect to the Priority Liens and provisions in the Second Lien Security Documents for the Second Liens which relate solely to rights and duties of the Second Lien Agent and the holders of the Second Lien Obligations.
Insurance
Unless and until the Discharge of Priority Lien Obligations has occurred (but subject to the rights of the Second Lien Agent and the holders of Second Lien Obligations following expiration of the Standstill Period as provided in the paragraph defining “Standstill Period”), the Priority Lien Agent shall have the sole and exclusive right, subject to the rights of the obligors under the Priority Lien Documents, to adjust and settle claims in respect of Collateral under any insurance policy in the event of any loss thereunder and to approve any award granted in any condemnation or similar proceeding (or any deed in lieu of condemnation) affecting the Collateral. Unless and until the Discharge of Priority Lien Obligations has occurred, and subject to the rights of the obligors under the Priority Lien Documents, all proceeds of any such policy and any such award (or any payments with respect to a deed in lieu of condemnation) in respect to the Collateral shall be paid to the Priority Lien Agent pursuant to the terms of the Priority Lien Documents (including for purposes of cash collateralization of letters of credit). If the Second Lien Agent or any holder of Second Lien Obligations shall, at any time, receive any proceeds of any such insurance policy or any such award or payment in contravention of the foregoing, it shall forthwith pay such proceeds over to the Priority Lien Agent in accordance with the Intercreditor Agreement. In addition, if by virtue of being named as an additional insured or loss payee of any insurance policy of any obligor covering any of the Collateral, the Second Lien Agent or any holder of Second Lien Obligations shall have the right to adjust or settle any claim under any such insurance policy, then unless and until the Discharge of Priority Lien Obligations has occurred, the Second Lien Agent or any holder of Second Lien Obligations shall promptly, without delay or hindrance, follow the instructions of the Priority Lien Agent, or of the obligors under the Priority Lien Documents to the extent the Priority Lien Documents grant such obligors the right to adjust or settle such claims, with respect to such adjustment or settlement (subject to the rights of the Second Lien Agent and the holders of Second Lien Obligations following expiration of the Standstill Period, as provided in the paragraph defining “Standstill Period”).
Amendment to Priority Lien Documents and Note Documents
Prior to the Discharge of Priority Lien Obligations, without the prior written consent of the Priority Lien Agent and the Required Priority Lien Secured Parties (unless permitted by the terms of any Priority Substitute Credit Facility then in effect), no Note Document may be amended, supplemented, restated or otherwise modified and/or refinanced or entered into to the extent such amendment, supplement, restatement or modification and/or refinancing, or the terms of any new Note Document would (i) modify a covenant or event of default that directly restricts one or more Grantors from making payments on the Second Lien Obligations that would otherwise be permitted under the Intercreditor Agreement and the Note Documents as in effect on the date hereof, (ii) shorten the final maturity or weighted average life to maturity of the Second Lien Obligations, (iii) add any additional Property as collateral for the Second Lien Obligations unless such Property is added as collateral for the Priority Lien Obligations (iv) provide for any Person to issue a guarantee or be required to issue a guarantee unless such Person guarantees the Priority Lien Obligations, (v) add or provide for any increase in, or shorten the period for payment of, any mandatory prepayment or redemption provisions or shorten the period for reinvestment of any net cash proceeds (other than change of control or asset sale tender offer provisions substantially similar to those applicable under the Note Documents, as in effect on the date hereof, or otherwise customary in the market at the time of such amendment, exchange or refinancing), (vi) increase the interest rate or yield, including by increasing the “applicable margin” or similar component of the interest rate, by imposing fees or premiums, or by modifying the method of computing interest, or modifying or implementing any commitment, consent, facility, utilization, make-whole or similar fee so that the aggregate yield is in excess of the total yield on the Second Lien Obligations as in effect on the issue date thereof (excluding increases resulting from the accrual of interest at the default rate), (vii) amend or otherwise modify any “Default” or “Event of Default” or covenants thereunder in a manner, taken as a whole, that is materially adverse to any Grantors unless such modification would also apply to the Priority Lien Documents (viii) adversely affect the lien priority rights of the Priority Lien Secured Parties or (ix) contravene the provisions of the Intercreditor Agreement.
Prior to the Discharge of the Second Lien Obligations, without the prior written consent of the Second Lien Agent and the Required Second Lien Secured Parties, no Priority Lien Document may be amended,
supplemented, restated or otherwise modified and/or refinanced or entered into to the extent such amendment, supplement, restatement or modification and/or refinancing would (i) modify a covenant or event of default that directly restricts one or more Grantors from making payments on the Second Lien Obligations that would otherwise be permitted under the Intercreditor Agreement and the Priority Lien Documents as in effect on the date hereof, (ii) shorten the final maturity of the Priority Lien Obligations, (iii) add any additional Property as collateral for the Priority Lien Obligations unless such Property is added as collateral for the Second Lien Obligations, (iv) provide for any Person to issue a guarantee or be required to issue a guarantee unless such Person guarantees the Second Lien Obligations or (v) contravene the provisions of the Intercreditor Agreement.
Purchase Option
Notwithstanding anything in the Intercreditor Agreement to the contrary, within sixty (60) days of the earlier of (i) the commencement of an Insolvency or Liquidation Proceeding or (ii) the acceleration of the Priority Lien Obligations, each of the holders of the Second Lien Debt and each of their respective designated affiliates (the “Second Lien Purchasers”) will have the right, at their sole option and election (but will not be obligated), at any time upon prior written notice to the Priority Lien Agent, to purchase from the holders of the Priority Lien Obligations (x) all (but not less than all, other than any Priority Lien Obligations constituting Excess Priority Lien Obligations) Priority Lien Obligations (including unfunded commitments) and (y) any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing that are outstanding on the date of such purchase. Promptly following the receipt of such notice, the Priority Lien Agent will deliver to the Second Lien Agent a statement of the amount of Priority Lien Debt, other Priority Lien Obligations (other than any Priority Lien Obligations constituting Excess Priority Lien Obligations) and DIP Financing provided by the Priority Lien Agent or any holder of the Priority Lien Obligations, if any, then outstanding and the amount of the cash collateral requested by the applicable Priority Lien Agent to be delivered pursuant to clause (2) of the immediately following paragraph. The right to purchase provided for in this paragraph will expire unless, within 10 Business Days after the receipt by the Second Lien Agent of such statement from the Priority Lien Agent, the Second Lien Agent delivers to the Priority Lien Agent an irrevocable commitment of the Second Lien Purchasers to purchase all (but not less than all, other than any Priority Lien Obligations constituting Excess Priority Lien Obligations) of the Priority Lien Obligations (including unfunded commitments) and (y) any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing and to otherwise complete such purchase on the terms set forth under this section.
On the date specified by the Second Lien Agent (on behalf of the Second Lien Purchasers) in such irrevocable commitment (which shall not be less than five Business Days, nor more than 20 Business Days, after the receipt by the Priority Lien Agent of such irrevocable commitment), the holders of the Priority Lien Obligations shall sell to the Second Lien Purchasers (x) all (but not less than all, other than any Priority Lien Obligations constituting Excess Priority Lien Obligations (such period from the date of receipt by the Priority Lien Agent of such irrevocable commitment to such date specified by the Second Lien Agent for such sale in such irrevocable commitment the “Pendency Period”)) of the Priority Lien Obligations (including unfunded commitments) and (y) any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing that are outstanding on the date of such sale, subject to any required approval of any governmental authority then in effect, if any, and only if on the date of such sale, the Priority Lien Agent receives the following:
(1) payment, as the purchase price for all Priority Lien Obligations sold in such sale, of an amount equal to the full par value amount of all Priority Lien Obligations (other than outstanding letters of credit as referred to in the clause (2) of this paragraph) other than any Priority Lien Obligations constituting Excess Priority Lien Obligations to the extent not purchased and loans provided by any of the Priority Lien Agent or any holder of Priority Lien Obligations in connection with a DIP Financing then outstanding (including principal, interest, fees, reasonable attorneys’ fees and legal expenses, but excluding contingent indemnification obligations for which no claim or demand for payment has been made at or prior to such time);provided that in the case of obligations in respect of Hedging
Obligations that constitute Priority Lien Obligations, the Second Lien Purchasers shall cause the applicable agreements governing such Hedging Obligations to be assigned and novated or, if such agreements have been terminated, such purchase price shall include an amount equal to the sum of any unpaid amounts then due in respect of such Hedging Obligations, calculated in accordance with the terms of such Hedging Obligation and after giving effect to any netting arrangements;
(2) a cash collateral deposit in such amount as the Priority Lien Agent determines is reasonably necessary to secure the payment of any outstanding letters of credit constituting Priority Lien Obligations that may become due and payable after such sale (but not in any event in an amount greater than one hundred five percent (105%) of the amount then reasonably estimated by the Priority Lien Agent to be the aggregate outstanding amount of such letters of credit at such time), which cash collateral shall be (A) held by the issuer of such letters of credit as security solely to reimburse the issuers of such letters of credit that become due and payable after such sale and any fees and expenses incurred in connection with such letters of credit and (B) returned to the Second Lien Agent (except as may otherwise be required by applicable law or any order of any court or other governmental authority) promptly after the expiration or termination from time to time of all payment contingencies affecting such letters of credit; and
(3) any agreements, documents or instruments which the Priority Lien Agent may reasonably request pursuant to which the Second Lien Agent and the Second Lien Purchasers in such sale expressly assume and adopt all of the obligations of the Priority Lien Agent and the holders of the Priority Lien Obligations under the Priority Lien Documents and in connection with loans provided by the Priority Lien Agent or any holder of Priority Lien Obligations in connection with a DIP Financing on and after the date of the purchase and sale and the Second Lien Agent (or any other representative appointed by the holders of a majority in aggregate principal amount of the Second Lien Obligations owned by the purchasers) becomes a successor agent thereunder.
(4) During the Pendency Period, the Priority Lien Secured Parties shall refrain from exercising remedies (subject to exigent circumstances). Such purchase of the Priority Lien Obligations (including unfunded commitments) and any loans provided by any of the Priority Lien Agent or any holder of Priority Lien Obligations in connection with a DIP Financing shall be made on a pro rata basis among the Second Lien Purchasers giving notice to the Priority Lien Agent of their interest to exercise the purchase option under the Intercreditor Agreement according to each such Second Lien Purchaser’s portion of the Second Lien Debt outstanding on the date of purchase or such portion as such Second Lien Purchasers may otherwise agree among themselves. Such purchase price and cash collateral shall be remitted by wire transfer in federal funds to such bank account of the Priority Lien Agent as the Priority Lien Agent may designate in writing to the Second Lien Agent for such purpose. Interest shall be calculated to but excluding the Business Day on which such sale occurs if the amounts so paid by the Second Lien Purchaser Purchasers to the bank account designated by the Priority Lien Agent are received in such bank account prior to 12:00 noon, New York City time, and interest shall be calculated to and including such Business Day if the amounts so paid by the Second Lien Purchaser Purchasers to the bank account designated by the Priority Lien Agent are received in such bank account later than 12:00 noon, New York City time.
Such sale shall be expressly made without representation or warranty of any kind by the Priority Lien Secured Parties as to the Priority Lien Obligations, the Collateral or otherwise and without recourse to any Priority Lien Secured Party, except that the Priority Lien Secured Parties shall represent and warrant severally as to the Priority Lien Obligations (including unfunded commitments) and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing then owing to it: (i) that such applicable Priority Lien Secured Party owns such Priority Lien Obligations (including unfunded commitments) and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing; and (ii) that such applicable Priority Lien Secured Party has the necessary corporate or other governing authority to assign such interests.
After such sale becomes effective, the outstanding letters of credit will remain enforceable against the issuers thereof and will remain secured by the Priority Liens upon the Collateral in accordance with the applicable provisions of the Priority Lien Documents as in effect at the time of such sale, and the issuers of letters of credit will remain entitled to the benefit of the Priority Liens upon the Collateral and sharing rights in the proceeds thereof in accordance with the provisions of the Priority Lien Documents as in effect at the time of such sale, as fully as if the sale of the Priority Lien Debt had not been made, but, except with respect to cash collateral held by the issuers of such letters of credit, only the Person or successor agent to whom the Priority Liens are transferred in such sale will have the right to foreclose upon or otherwise enforce the Priority Liens and only the Second Lien Purchasers in the sale will have the right to direct such Person or successor as to matters relating to the foreclosure or other enforcement of the Priority Liens.
Application of Proceeds
Prior to the Discharge of Priority Lien Obligations, and regardless of whether an Insolvency or Liquidation Proceeding has been commenced, Collateral or proceeds received in connection with the enforcement or exercise of any rights or remedies with respect to any portion of the Collateral will be applied:
1. first, to the payment in full in cash of all Priority Lien Obligations that are not Excess Priority Lien Obligations,
2. second, to the payment in full in cash of all Second Lien Obligations,
3. third, to the payment in full in cash of all Excess Priority Lien Obligations,
5. fourth, to the Company or as otherwise required by applicable law. Postponement of Subrogation
The Intercreditor Agreement provides that no payment or distribution to any holder of Priority Lien Obligations pursuant to the provisions of the Intercreditor Agreement shall entitle the Second Lien Agent or any holder of Second Lien Obligations to exercise any rights of subrogation in respect thereof until the Discharge of Priority Lien Obligations. Following the Discharge of Priority Lien Obligations, each holder of Priority Lien Obligations will execute such documents, agreements, and instruments as any holder of Second Lien Obligations may reasonably request to evidence the transfer by subrogation to any such Person of an interest in the Priority Lien Obligations resulting from payments or distributions to such holder by such Person, so long as all costs and expenses (including all reasonable legal fees and disbursements) incurred in connection therewith by such holder of Priority Lien Obligations are paid by such Person upon request for payment thereof.
Permitted Prepayments of Second Lien Obligations
Until the Discharge of Priority Lien Obligations, unless otherwise permitted by the Priority Lien Agent or otherwise permitted by the terms of any Priority Substitute Credit Facility, no Second Lien Secured Party may accept or retain any optional prepayment (howsoever described) of principal of the Second Lien Obligations; provided that the foregoing shall not prohibit a Second Lien Secured Party from receiving cash in lieu of fractional shares upon a retirement of Second Lien Obligations by exchanging such Second Lien Obligations for Capital Stock of the Company pursuant to the Indenture.
The Company may retire any Second Lien Obligations by exchanging such Second Lien Obligations for Capital Stock of the Company (other than Disqualified Capital Stock (as defined in the First Lien Credit Agreement)). Notwithstanding anything to the contrary in this section, the Second Lien Obligations may be refinanced in whole or in part so long as refinancing is permitted by the terms of the First Lien Credit Agreement then in effect and “—Amendments to Priority Lien Documents and Note Documents.”
Repurchase at the Option of holders
Change of Control
If a Change of Control occurs, unless we have previously or concurrently exercised our right to redeem all of the Notes as described under “—Optional Redemption,” each holder will have the right to require us to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess of $2,000 or $1.00 or an integral multiple thereof in the case of any PIK Notes) of such holder’s Notes at a purchase price in cash equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Within 30 days following any Change of Control, unless we have previously or concurrently exercised our right to redeem all of the Notes as described under “—Optional Redemption,” we will deliver a notice (the “Change of Control Offer”) to each holder, with a copy to the Trustee, stating:
(1) that a Change of Control has occurred and that such holder has the right to require us to purchase such holder’s Notes at a purchase price in cash equal to 101% of the principal amount of such Notes plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date) (the “Change of Control Payment”);
(2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Change of Control Payment Date”);
(3) that any Note not properly tendered will remain outstanding and continue to accrue interest;
(4) that unless we default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Payment Date;
(5) that holders electing to have any Notes in certificated form purchased pursuant to a Change of Control Offer will be required to surrender such Notes, with the form entitled “Option of holder to Elect Purchase” on the reverse of such Notes completed, to the paying agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their tendered Notes, in whole or in part (which shall be $2,000 or whole multiples of $1,000 in excess thereof or $1.00 or an integral multiple thereof in the case of any PIK Notes), and their election to require us to purchase such Notes,provided that the paying agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth, among other things, the name of the holder of the Notes, the principal amount of Notes tendered for purchase, a statement that such holder is withdrawing its tendered Notes, in whole or in part, its election to have such Notes purchased and the principal amount, if any, of such Note (which shall be $2,000 or whole multiples of $1,000 in excess thereof or $1.00 or an integral multiple thereof in the case of any PIK Notes) that remains subject to the original Change of Control Offer;
(7) that if we are repurchasing a portion of the Note of any holder, the holder will be issued a new Note equal in principal amount to the unpurchased portion of the Note surrendered,provided that the unpurchased portion of the Note must be equal to a minimum principal amount of $2,000 and an integral multiple of $1,000 in excess of $2,000 (or $1.00 or an integral multiple thereof in the case of any PIK Notes); and
(8) the procedures determined by us, consistent with the Indenture, that a holder must follow in order to have its Notes repurchased. On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all Notes or portions of Notes (in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess of $2,000 or $1.00 or an integral multiple thereof in the case of any PIK Notes) properly tendered pursuant to the Change of Control Offer and not properly withdrawn;
(2) deposit with the paying agent an amount in United States Dollars equal to the Change of Control Payment in respect of all Notes or portions of Notes accepted for payment,provided that the funds once deposited are to be uninvested until disbursed pursuant to this caption “—Change of Control”; and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The paying agent will promptly mail or deliver to each holder of Notes accepted for payment the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess of $2,000 (or $1.00 or an integral multiple thereof in the case of any PIK Notes).
If the Change of Control Payment Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no further interest will be payable to holders who tender pursuant to the Change of Control Offer.
The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.
We will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by us and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon the occurrence of a Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer.
We will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the Indenture by virtue of our compliance with such securities laws or regulations.
Our ability to repurchase Notes pursuant to a Change of Control Offer may be limited by a number of factors. The occurrence of certain of the events that constitute a Change of Control would constitute a default under the First Lien Credit Agreement. In addition, certain events that may constitute a change of control under the First Lien Credit Agreement and cause a default under that agreement will not constitute a Change of Control under the Indenture. Future Indebtedness of the Company and its Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased upon a
Change of Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company’s ability to pay cash to the holders upon a repurchase may be limited by the Company’s then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases.
If holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in a Change of Control Offer and the Company, or any third party making a Change of Control Offer in lieu of the Company as described above, purchases all of the Notes validly tendered and not withdrawn by such holders, the Company will have the right, upon not less than 30 nor more than 60 days’ prior notice, given not more than 30 days following such purchase pursuant to the Change of Control Offer described above, to redeem all Notes that remain outstanding following such purchase at a redemption price in cash equal to the applicable Change of Control Payment plus, to the extent not included in the Change of Control Payment, accrued and unpaid interest, if any, to the date of redemption.
The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving the Company. The Change of Control purchase feature is a result of negotiations between the underwriters and us. As of the date of this prospectus, we have no present intention to engage in a transaction involving a Change of Control, although it is possible that we could decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional Indebtedness are contained in the covenants described under “—Covenants—Limitation on Indebtedness and Preferred Stock” and “—Covenants—Limitation on Liens.” Such restrictions in the Indenture can be waived only with the consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes). Except for the limitations contained in such covenants, however, the Indenture does not contain any covenants or provisions that may afford holders of the Notes protection in the event of a highly leveraged transaction.
The definition of “Change of Control” includes a disposition of all or substantially all of the property and assets of the Company and its Restricted Subsidiaries taken as a whole to any Person. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of “all or substantially all” of the property or assets of a Person. As a result, it may be unclear as to whether a Change of Control has occurred and whether a holder of Notes may require the Company to make an offer to repurchase the Notes as described above. The provisions under the Indenture relative to our obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified or terminated with the written consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes) prior to the occurrence of such Change of Control.
Covenants
The Indenture contains covenants including, among others, the following:
Use of Proceeds
The Company will not permit the proceeds of the Notes to be used for any purpose other than to: (i) repay outstanding obligations under the Existing First Lien Credit Agreement and (ii) fund the initial development of the Haynesville Shale drilling program as generally described in the management presentation dated June 2016. Neither the Company nor any Person acting on behalf of the Company has taken or will take any action which might cause any of the Note Documents to violate Regulation U, Regulation T or Regulation X of the Board or
any other regulation of the Board or to violate Section 7 of the Exchange Act or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.
The Company shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Notes (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of the FCPA or any other applicable anti-corruption law or regulation, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
Limitation on Indebtedness and Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness) and the Company will not permit any of its Restricted Subsidiaries to issue Preferred Stock; provided, however, that the Company may Incur Indebtedness and any of the Subsidiary Guarantors may Incur Indebtedness and issue Preferred Stock if on the date of such Incurrence or issuance:
(1) the Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.25 to 1.00, determined on a pro forma basis (including a pro forma application of proceeds); and
(2) no Default would occur as a consequence of, and no Event of Default would be continuing following, Incurring the Indebtedness or the application of its proceeds. The first paragraph of this covenant will not prohibit the Incurrence of the following Indebtedness:
(1) Indebtedness under one or more Credit Facilities of the Company or any Restricted Subsidiary Incurred pursuant to this clause (1) in an aggregate principal amount not to exceed $50.0 million;provided,however, that any Indebtedness Incurred pursuant to this clause (1) in excess of $20.0 million shall be Incurred solely if the First Lien Credit Agreement is refinanced with a Permitted First Lien Replacement Facility and such Incurrence is permitted by the borrowing base set forth in such Permitted First Lien Replacement Facility as in effect at the time of such Incurrence;
(2) Guarantees Incurred by the Company or any Subsidiary Guarantor of Indebtedness of the Company or any Subsidiary Guarantor Incurred in accordance with the provisions of the Indenture (including any increase in principal amount as a result of a PIK payment and any PIK Notes in respect thereof);provided,however, that in the event such Indebtedness that is being Guaranteed is a Subordinated Obligation or a Guarantor Subordinated Obligation, then the related Guarantee shall be subordinated in right of payment to the Notes or the Subsidiary Guarantee to at least the same extent as the Indebtedness being Guaranteed, as the case may be;
(3) Indebtedness of the Company owing to and held by any Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Restricted Subsidiary;provided,however, that (a)(i) if the Company is the obligor on such Indebtedness and the obligee is not a Subsidiary Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the Notes and (ii) if a Subsidiary Guarantor is the obligor of such Indebtedness and the obligee is neither the Company nor a Subsidiary Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations of such Subsidiary Guarantor with respect to its Subsidiary Guarantee and (b)(i) any subsequent issuance or transfer of Capital Stock or any other event which results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to a Person other than the Company or a Restricted Subsidiary of the Company shall be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be, that was not permitted by this clause;
(4) Indebtedness represented by (a) the Notes issued on the Issue Date (together with any PIK Notes issued in respect thereof) and all Subsidiary Guarantees, (b) any Indebtedness (other than the Indebtedness described in clauses (1), (2), (3), (6) or (7)) outstanding on the Issue Date, and (c) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (4) or clause (5) or (7) or Incurred pursuant to the first paragraph of this covenant;
(5) Permitted Acquisition Indebtedness;
(6) Indebtedness in respect of (a) self-insurance obligations, bid, appeal, reimbursement, performance, surety and similar bonds and completion guarantees provided by the Company or a Restricted Subsidiary in the ordinary course of business and any Guarantees or letters of credit functioning as or supporting any of the foregoing bonds or obligations and (b) obligations represented by letters of credit for the account of the Company or a Restricted Subsidiary in order to provide security for workers’ compensation claims (in the case of clauses (a) and (b) other than for an obligation for money borrowed);
(7) Indebtedness represented by Capitalized Lease Obligations of the Company or any of its Restricted Subsidiaries (whether or not Incurred pursuant to sale and leaseback transactions), mortgage financings or purchase money obligations, Incurred in connection with the acquisition, construction, improvement or development of real or personal, movable or immovable, property, in each case Incurred for the purpose of financing, refinancing, renewing, defeasing or refunding all or any part of the purchase price or cost of acquisition, construction, improvement or development of property used in the business of the Company or such Restricted Subsidiary;provided,however, that after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred pursuant to this clause (7), together with any Refinancing Indebtedness Incurred pursuant to clause (4) in respect of such Indebtedness, and then outstanding does not exceed the greater of $5.0 million or 1.0% of the Company’s Adjusted Consolidated Net Tangible Assets, determined as of the date of Incurrence of such Indebtedness after giving effect to such Incurrence and the application of the proceeds therefrom;
(8) Cash Management Obligations Incurred in the ordinary course of business; and
(9) in addition to the items referred to in clauses (1) through (8) above, Indebtedness of the Company and its Subsidiary Guarantors in an aggregate outstanding principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (9) and then outstanding, will not exceed the greater of $15.0 million or 2.0% of the Company’s Adjusted Consolidated Net Tangible Assets, determined as of the date of Incurrence of such Indebtedness after giving effect to such Incurrence and the application of the proceeds therefrom. For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant:
(1) in the event an item of that Indebtedness meets the criteria of more than one of the types of Indebtedness described in the first and second paragraphs of this covenant, the Company, in its sole discretion, will, in each case, subject to clause (2) below, classify such item of Indebtedness on the date of Incurrence in any manner that complies with this covenant;
(2) all Indebtedness outstanding on the date of the Indenture under the First Lien Credit Agreement after giving effect to the initial offering and sale of Notes and the use of proceeds therefrom, shall be deemed Incurred on the Issue Date under clause (1) of the second paragraph of this covenant and may not later be reclassified;
(3) Guarantees Incurred by the Company or any Subsidiary Guarantor of, or obligations Incurred by the Company or any Subsidiary Guarantor in respect of letters of credit supporting, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included;
(4) if obligations in respect of letters of credit are Incurred pursuant to a Credit Facility and are being treated as Incurred pursuant to clause (1) of the second paragraph above and the letters of credit relate
to other Indebtedness, then such other Indebtedness shall not be included to the extent of the underlying letter of credit;
(5) the principal amount of any Disqualified Stock of the Company or a Restricted Subsidiary, or Preferred Stock of a Restricted Subsidiary, will be equal to the greater of the maximum mandatory redemption or repurchase price (not including, in either case, any redemption or repurchase premium) or the liquidation preference thereof;
(6) Indebtedness permitted by this covenant need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness; and
(7) the amount of Indebtedness issued at a price that is less than the principal amount thereof will be equal to the amount of the liability in respect thereof determined in accordance with GAAP. Accrual of interest, accrual of dividends, the amortization of debt discount or the accretion of accreted value, the payment of interest in the form of additional Indebtedness, the payment of dividends in the form of additional shares of Preferred Stock or Disqualified Stock and unrealized losses or charges in respect of Hedging Obligations will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant.
The Company will not permit any of its Unrestricted Subsidiaries to Incur any Indebtedness, or issue any shares of Disqualified Stock, other than Non-Recourse Debt. If at any time an Unrestricted Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary as of such date (and, if such Indebtedness is not permitted to be Incurred as of such date under this “Limitation on Indebtedness and Preferred Stock” covenant, the Company shall be in Default of this covenant).
For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness;provided, however, that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company may Incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rates of currencies. The principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such Refinancing Indebtedness is denominated that is in effect on the date of such refinancing.
The Indenture does not treat (1) unsecured Indebtedness as subordinated or junior to secured Indebtedness merely because it is unsecured or (2) senior Indebtedness as subordinated or junior to any other senior Indebtedness merely because it has a junior priority with respect to the same collateral.
Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to:
(1) pay any dividend or make any payment or distribution on or in respect of the Company’s or any Restricted Subsidiaries’ Capital Stock (including any payment or distribution in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) except:
(a) dividends or distributions by the Company payable solely in Capital Stock of the Company (other than Disqualified Stock but including options, warrants or other rights to purchase such Capital Stock of the Company); and
(b) dividends or distributions payable to the Company or a Restricted Subsidiary and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation) so long as the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution;
(2) purchase, repurchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any direct or indirect parent of the Company held by Persons other than the Company or a Restricted Subsidiary (other than in exchange for Capital Stock of the Company (other than Disqualified Stock));
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations or Guarantor Subordinated Obligations (other than (x) Indebtedness permitted under clause (3) of the second paragraph of the covenant “—Covenants—Limitation on Indebtedness and Preferred Stock” or (y) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations or Guarantor Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase, redemption, defeasance or other acquisition or retirement);
(4) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Unsecured Debt (but excluding for the avoidance of doubt, any “make-whole” payment in connection with such purchase, repurchase, redemption, defeasance, acquisition or retirement); or
(5) make any Restricted Investment in any Person; (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Restricted Investment referred to in clauses (1) through (5) shall be referred to herein as a “Restricted Payment”), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment:
(a) a Default shall have occurred and be continuing (or would result therefrom);
(b) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to the covenant described under the first paragraph under “—Covenants—Limitation on Indebtedness and Preferred Stock” after giving effect, on a pro forma basis, to such Restricted Payment; or
(c) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Issue Date would exceed the sum of (the “Restricted Payments Basket”):
(i) 50% of Consolidated Net Income for the period (treated as one accounting period) from October 12, 2016 to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which internal financial statements are in existence (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit);
(ii) 100% of the aggregate Net Cash Proceeds and the Fair Market Value of property or securities other than cash (including Capital Stock of Persons engaged primarily in the Oil and Gas Business
or assets used in the Oil and Gas Business), in each case received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Issue Date (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to (x) Persons indicated in clause (6) of the next succeeding paragraph or any direct or indirect parent of the Company, to the extent such Net Cash Proceeds have been used to make a Restricted Payment pursuant to clause (6) of the next succeeding paragraph, (y) a Subsidiary of the Company or (z) an employee stock ownership plan, option plan or similar trust (to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or Guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination));
(iii) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company’s balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the Fair Market Value of any other property (other than such Capital Stock), distributed by the Company upon such conversion or exchange), together with the net proceeds, if any, received by the Company or any of its Restricted Subsidiaries upon such conversion or exchange; and
(iv) the amount equal to the aggregate net reduction in Restricted Investments made by the Company or any of its Restricted Subsidiaries in any Person subsequent to the Issue Date resulting from:
(A) repurchases, repayments or redemptions of such Restricted Investments by such Person or proceeds realized upon the sale of such Restricted Investment (other than to a Subsidiary of the Company);
(B) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount in each case under this clause (iv) was included in the calculation of the amount of Restricted Payments; provided, however, that no amount will be included under this clause (iv) to the extent it is already included in Consolidated Net Income; and
(C) the sale by the Company or any Restricted Subsidiary (other than to the Company or a Restricted Subsidiary) of all or a portion of the Capital Stock of an Unrestricted Subsidiary or a distribution from an Unrestricted Subsidiary or a dividend from an Unrestricted Subsidiary (whether any such distribution or dividend is made with proceeds from the issuance by such Unrestricted Subsidiary of its Capital Stock or otherwise). The provisions of the preceding paragraph will not prohibit:
(1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or Guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination) or a substantially concurrent cash capital contribution received by the Company from its shareholders; provided, however, that (a) such Restricted Payment will be excluded from subsequent calculations of the amount of Restricted Payments and (b) the Net Cash Proceeds from such sale of Capital Stock or capital contribution will be excluded from clause (c)(ii) of the preceding paragraph;
(2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of the Company or Guarantor Subordinated Obligations of any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, Refinancing Indebtedness or any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Guarantor Subordinated Obligations made by exchange for or out of the proceeds of the substantially concurrent sale of Refinancing Indebtedness that, in each case, is permitted to be Incurred pursuant to the covenant described under “—Covenants—Limitation on Indebtedness and Preferred Stock;” provided, however, that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded from subsequent calculations of the amount of Restricted Payments;
(3) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Unsecured Debt of the Company or a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Unsecured Debt constituting Refinancing Indebtedness of the Company or such Restricted Subsidiary that, in each case, is permitted to be Incurred pursuant to the covenant described under “—Covenants—Limitation on Indebtedness and Preferred Stock;” provided, however, that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded from subsequent calculations of the amount of Restricted Payments;
(4) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Disqualified Stock of the Company or a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Company or such Restricted Subsidiary, as the case may be, that, in each case, is permitted to be Incurred pursuant to the covenant described under “—Covenants—Limitation on Indebtedness and Preferred Stock;” provided, however, that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded from subsequent calculations of the amount of Restricted Payments;
(5) dividends paid or distributions made within 60 days after the date of declaration if at such date of declaration such dividend or distribution would have complied with this covenant if it had been made on such date; provided, however, that such dividends and distributions will be included in subsequent calculations of the amount of Restricted Payments; and provided further, however, that for purposes of clarification, this clause (5) shall not include cash payments in lieu of the issuance of fractional shares included in clause (10) below;
(6) so long as no Default has occurred and is continuing, the repurchase or other acquisition of Capital Stock (including options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock) of the Company held by any existing or former employees, officers or directors of the Company or any Restricted Subsidiary of the Company or their assigns, estates or heirs, in each case pursuant to the repurchase or other acquisition provisions under employee stock option or stock purchase plans or agreements or other agreements to compensate officers, employees or directors, in each case approved by the Company’s Board of Directors;provided,however that such repurchases or other acquisitions pursuant to this clause (6) during any calendar year will not exceed $2.5 million in the aggregate (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum of $5.0 million in any calendar year); provided further, that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds received by the Company from the sale of Capital Stock of the Company to any existing or former employees, officers or directors of the Company and any of its Restricted Subsidiaries or their assigns, estates or heirs that occurs after the Issue Date (to the extent the cash proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (c) of the preceding paragraph), plus (B) the cash proceeds of key man life insurance policies received by the Company and its Restricted Subsidiaries after the Issue Date, less (C) the amount of any Restricted Payments made pursuant to clauses (A) and (B) of this clause (6); provided further, that the amount of any such repurchase or other acquisition under this clause (C) will be excluded in subsequent calculations of the amount of Restricted Payments and the proceeds received from any such transaction will be excluded from clause (c)(ii) of the preceding paragraph;
(7) loans or advances to employees, officers or directors of the Company or any Subsidiary of the Company, in each case as permitted by Section 402 of the Sarbanes-Oxley Act of 2002, the proceeds of which are used to purchase Capital Stock of the Company, or to refinance loans or advances made pursuant to this clause (7), in an aggregate principal amount not in excess of $2.5 million at any one time outstanding; provided, however, that the amount of such loans and advances will be excluded in subsequent calculations of the amount of Restricted Payments;
(8) purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock deemed to occur upon the exercise of stock options, warrants, rights to acquire Capital Stock or other convertible securities if such Capital Stock represents a portion of the exercise or exchange price thereof, and any purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock made in lieu of withholding taxes in connection with any exercise or exchange of warrants, options or rights to acquire Capital Stock; provided, however, that such acquisitions or retirements will be excluded from subsequent calculations of the amount of Restricted Payments;
(9) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Unsecured Debt or Subordinated Obligation (i) at a purchase price not greater than 101% of the principal amount of such Unsecured Debt or Subordinated Obligation in the event of a Change of Control in accordance with provisions similar to the covenant described under “—Change of Control”;provided,however, that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, the Company has made the Change of Control Offer as provided in such covenant with respect to the Notes and has completed the repurchase or redemption of all Notes validly tendered for payment in connection with such Change of Control Offer; provided, however, that such acquisitions or retirements will be excluded in subsequent calculations of the amount of Restricted Payments;
(10) payments or distributions to dissenting stockholders pursuant to applicable law or in connection with the settlement or other satisfaction of legal claims made pursuant to or in connection with a consolidation, merger or transfer of assets; provided, however, that any payment pursuant to this clause (10) shall be excluded in the calculation of the amount of Restricted Payments;
(11) cash payments in lieu of the issuance of fractional shares; provided, however, that any payment pursuant to this clause (11) shall be excluded in the calculation of the amount of Restricted Payments;
(12) the payment of scheduled or accrued dividends to holders of any class of or series of Disqualified Stock of the Company issued on or after the Issue Date in accordance with “—Covenants—Limitation on Indebtedness and Preferred Stock”, to the extent such dividends are included in Consolidated Interest Expense; provided, however, that any payment pursuant to this clause (12) shall be excluded in the calculation of the amount of Restricted Payments;
(13) Restricted Payments in an amount not to exceed $5.0 million in the aggregate since the Issue Date; provided, however, that the amount of such Restricted Payments will be included in subsequent calculations of the amount of Restricted Payments; and
(14) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Preferred Stock of the Company or a Restricted Subsidiary in an amount paid (whether in cash, securities or otherwise) not to exceed $5.0 million in the aggregate. The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of such Restricted Payment of the asset(s) or securities proposed to be paid, transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment. The Fair Market Value of any cash Restricted Payment shall be its face amount and the Fair Market Value of any non-cash Restricted Payment shall be determined in accordance with the definition of that term.
In the event that a Restricted Payment meets the criteria of more than
$500,000one ofregistrablethe exceptions described in (1) through (14) above or is entitled to be made pursuant to the first paragraph above, the Company shall, in its sole discretion, subdivide and classify such Restricted Payment in any manner that complies with this covenant.As of the date of this prospectus, the Company’s sole Subsidiary is a Restricted Subsidiary. For purpose of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of “Investment.” Such designation will be permitted only if a Restricted Payment in such amount would be permitted at such time, whether pursuant to the first paragraph of this covenant or under clause (13) of the second paragraph of this covenant, or pursuant to the definition of “Permitted Investments,” and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Notwithstanding the foregoing, none of the Company or any Restricted Subsidiary shall directly purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Unsecured Debt or Capital Stock (but excluding in each case, for the avoidance of doubt, any “make-whole” payment in connection with such purchase, repurchase, redemption, defeasance, acquisition or retirement) with proceeds of any borrowing under the First Lien Credit Agreement.
Limitation on Liens
The Company will not, and will not permit any Subsidiary Guarantor to, directly or indirectly, create, Incur or suffer to exist any Lien, other than Permitted Liens, upon any of its property or assets (including Capital Stock of Restricted Subsidiaries), which Lien secures Indebtedness.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any Restricted Subsidiary;
(2) make any loans or advances to the Company or any Restricted Subsidiary (it being understood that the subordination of loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness Incurred by the Company or any Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances); or
(3) sell, lease or transfer any of its property or assets to the Company or any Restricted Subsidiary. The preceding provisions will not prohibit:
(i) any encumbrance or restriction pursuant to or by reason of an agreement in effect at or entered into on the Issue Date, including, without limitation, the Indenture and the Second Lien Security Documents as in effect on such date;
(ii) any encumbrance or restriction with respect to a Person pursuant to or by reason of an agreement relating to any Capital Stock or Indebtedness Incurred by a Person on or before the date on which such Person was acquired by the Company or another Restricted Subsidiary (other than Capital Stock or Indebtedness Incurred as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Person was acquired by the Company or a Restricted Subsidiary or in contemplation of the
transaction) and outstanding on such date;provided,however, that any such encumbrance or restriction shall not extend to any assets or property of the Company or any other Restricted Subsidiary other than the assets and property so acquired;
(iii) encumbrances and restrictions contained in contracts entered into in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of, or from the ability of the Company and the Restricted Subsidiaries to realize the value of, property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary;
(iv) any encumbrance or restriction with respect to an Unrestricted Subsidiary pursuant to or by reason of an agreement that the Unrestricted Subsidiary is a party to entered into before the date on which such Unrestricted Subsidiary became a Restricted Subsidiary;provided,however, that such agreement was not entered into in anticipation of the Unrestricted Subsidiary becoming a Restricted Subsidiary and any such encumbrance or restriction shall not extend to any assets or property of the Company or any other Restricted Subsidiary other than the assets and property of such Unrestricted Subsidiary;
(v) with respect to any Restricted Subsidiary incorporated or organized outside the United States, any encumbrance or restriction contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was Incurred if either (1) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant in such Indebtedness or agreement or (2) the Company determines that any such encumbrance or restriction will not materially affect the Company’s ability to make principal or interest payments on the Notes, as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive;
(vi) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refunding, replacement or refinancing of Indebtedness Incurred pursuant to an agreement referred to in clauses (i) through (v) or clause (xii) of this paragraph or this clause (vi) or contained in any amendment, restatement, modification, renewal, supplemental, refunding, replacement or refinancing of an agreement referred to in clauses (i) through (v) or clause (xii) of this paragraph or this clause (vi); provided that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement taken as a whole are no less favorable in any material respect to the holders of the Notes than the encumbrances and restrictions contained in the agreements governing the Indebtedness being refunded, replaced or refinanced;
(vii) in the case of clause (3) of the first paragraph of this covenant, any encumbrance or restriction:
(a) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in Oil and Gas Properties), license or similar contract, or the assignment or transfer of any such lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in Oil and Gas Properties), license (including, without limitation, licenses of intellectual property) or other contract;
(b) contained in mortgages, pledges or other security agreements permitted under the Indenture securing Indebtedness of the Company or a Restricted Subsidiary to the extent such encumbrances or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements;
(c) contained in any agreement creating Hedging Obligations permitted from time to time under the Indenture which are not included in the definition of Indebtedness pursuant to clause (3) of the penultimate paragraph of the definition thereof;
(d) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary; or
(e) provisions with respect to the disposition or distribution of assets or property in operating agreements, joint venture agreements, development agreements, area of mutual interest agreements and other agreements that are customary in the Oil and Gas Business and entered into in the ordinary course of business;
(viii) any encumbrance or restriction contained in (a) purchase money obligations for property acquired in the ordinary course of business and (b) Capitalized Lease Obligations permitted under the Indenture, in each case, that impose encumbrances or restrictions of the nature described in clause (3) of the first paragraph of this covenant on the property so acquired;
(ix) any encumbrance or restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition;
(x) any customary encumbrances or restrictions imposed pursuant to any agreement of the type described in the definition of “Permitted Business Investment;”
(xi) encumbrances or restrictions arising or existing by reason of applicable law or any applicable rule, regulation or order;
(xii) encumbrances or restrictions contained in agreements governing Indebtedness of the Company or any of its Restricted Subsidiaries permitted to be Incurred pursuant to an agreement entered into subsequent to the Issue Date in accordance with the covenant described under the caption “—Covenants—Limitation on Indebtedness and Preferred Stock;”provided,however, that the provisions relating to such encumbrance or restriction contained in such Indebtedness are not materially less favorable to the Company and its Restricted Subsidiaries, taken as a whole, as determined by the Company in good faith, than the provisions contained in the First Lien Credit Agreement and in the Indenture as in effect on the Issue Date;
(xiii) the issuance of Preferred Stock by a Restricted Subsidiary or the payment of dividends thereon in accordance with the terms thereof; provided that issuance of such Preferred Stock is permitted pursuant to the covenant described under the caption “—Covenants—Limitation on Indebtedness and Preferred Stock” and the terms of such Preferred Stock do not expressly restrict the ability of a Restricted Subsidiary to pay dividends or make any other distributions on its Capital Stock (other than requirements to pay dividends or liquidation preferences on such Preferred Stock prior to paying any dividends or making any other distributions on such other Capital Stock);
(xiv) supermajority voting requirements existing under corporate charters, bylaws, stockholders agreements and similar documents and agreements;
(xv) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and
(xvi) any encumbrance or restriction contained in the First Lien Credit Agreement as in effect as of the Issue Date, and in any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive with respect to such dividend and other payment restrictions than those contained in the First Lien Credit Agreement as in effect on the Issue Date. Limitation on Sales of Assets and Subsidiary Stock
The Company and the Subsidiary Guarantors will not sell, assign, farm-out, convey or otherwise transfer any Property except for: (a) the sale of Hydrocarbons in the ordinary course of business; (b) farmouts of undeveloped acreage and assignments in connection with such farmouts; (c) the sale or transfer of equipment that
is no longer necessary for the business of the Company or the Subsidiary Guarantors or is replaced by equipment of at least comparable value and use; (d) a disposition by a Subsidiary Guarantor to the Borrower or by the Borrower or a Subsidiary Guarantor to a Subsidiary Guarantor; (e) a disposition of cash, cash equivalents or other financial assets; (f) an issuance of Equity Interests by a Subsidiary Guarantor to the Borrower or to a Subsidiary Guarantor; (g) any casualty or condemnation event (other than a Casualty Event described in clause (i) of this paragraph below); (h) the making of a Restricted Payment permitted under caption “—Covenants—Limitation on Restricted Payments” or a Permitted Investment; (i) the sale or other disposition (including Casualty Events) of any Oil and Gas Property or any interest therein or any Subsidiary owning Oil and Gas Properties;provided, however, that (i) 100% of the consideration received in respect of such sale or other disposition shall be cash; (ii) the consideration received in respect of such sale or other disposition shall be equal to or greater than the fair market value of the Oil and Gas Property, interest therein or Subsidiary subject of such sale or other disposition (as reasonably determined by the board of directors of the Company and the Company shall deliver to the Trustee an Officers’ Certificate certifying to that effect) and (iii) if any such sale or other disposition is of a Subsidiary owning Oil and Gas Properties, such sale or other disposition shall include all the Equity Interests of such Subsidiary; and (j) sales and other dispositions of Properties not regulated by subsections (a) to (i) of this covenant having a fair market value not to exceed $1,000,000 during any 12-month periodprovided that any net cash proceeds of such sale or disposition permitted by the foregoing clause (i) or this clause (j) are used to make the prepayments or reinvested as required under caption “—Mandatory Redemption; Offers to Purchase; Open Market Purchases.”
Limitation on Affiliate Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into, make, amend or conduct any transaction (including making a payment to, the purchase, sale, lease or exchange of any property or the rendering of any service), contract, agreement or understanding with or for the benefit of any Affiliate of the Company (an “Affiliate Transaction”) unless:
(1) the terms of such Affiliate Transaction are not materially less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction at the time of such transaction in arm’s-length dealings with a Person who is not such an Affiliate; and
(2) either: (a) if such Affiliate Transaction involves an aggregate consideration in excess of $10.0 million but not greater than $30.0 million, the Company delivers to the Trustee an Officers’ Certificate certifying that such Affiliate Transaction satisfies the criteria in clause (1) above, or (b) if such Affiliate Transaction involves an aggregate consideration in excess of $30.0 million, the Company delivers to the Trustee an Officers’ Certificate certifying that such Affiliate Transaction satisfies the criteria in clause (1) above and that the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company having no personal pecuniary interest in such transaction. The preceding provisions will not apply to and do not prohibit:
(1) any Restricted Payment (other than Investments) permitted to be made pursuant to the covenant described under “—Covenants—Limitation on Restricted Payments”;
(2) any payments, awards or grants in cash, Capital Stock or other property pursuant to, or the funding of, employment or severance agreements and other compensation arrangements, options to purchase Capital Stock of the Company, restricted stock plans, long-term incentive plans, stock appreciation rights plans, participation plans or similar employee benefits plans and/or insurance and indemnification arrangements provided to or for the benefit of directors and employees approved by the Board of Directors of the Company;
(3) loans or advances to employees, officers or directors in the ordinary course of business of the Company or any of its Restricted Subsidiaries in an aggregate outstanding principal amount not to exceed $5.0 million;
(4) advances to or reimbursements of employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business of the Company or any of its Restricted Subsidiaries;
(5) any transaction to the extent between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, and Guarantees issued by the Company or a Restricted Subsidiary for the benefit of the Company or a Restricted Subsidiary, as the case may be, in accordance with the Indenture;
(6) transactions with a Person (other than an Unrestricted Subsidiary) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in such Person;
(7) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company to, or the receipt by the Company of any capital contribution from its shareholders;
(8) indemnities of officers, directors and employees of the Company or any of its Restricted Subsidiaries permitted by bylaw or statutory provisions and any employment agreement or other employee compensation plan or arrangement entered into in the ordinary course of business by the Company or any of its Restricted Subsidiaries;
(9) the payment of reasonable compensation and fees paid to, and indemnity provided on behalf of, officers or directors of the Company or any Restricted Subsidiary;
(10) the performance of obligations of the Company or any of its Restricted Subsidiaries under the terms of any agreement to which the Company or any of its Restricted Subsidiaries is a party as of or on the Issue Date and which is disclosed on the applicable schedule to the Indenture, as these agreements may be amended, modified, supplemented, extended or renewed from time to time; provided, however, that any future amendment, modification, supplement, extension or renewal entered into after the Issue Date will be permitted only to the extent that its terms are not materially more disadvantageous, taken as a whole, to the Company and its Restricted Subsidiaries than the terms of the agreements in effect on the Issue Date;
(11) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture;provided,however, that in the reasonable determination of the Board of Directors of the Company or the senior management of the Company, such transactions are on terms not materially less favorable to the Company or the relevant Restricted Subsidiary than those that could reasonably be expected to be obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate of the Company; and
(12) transactions between the Company or any Restricted Subsidiary and any Person, a director of which is also a director of the Company or any direct or indirect parent company of the Company, and such director is the sole cause for such Person to be deemed an Affiliate of the Company or any Restricted Subsidiary; provided, however, that such director shall abstain from voting as a director of the Company or such direct or indirect parent company, as the case may be, on any matter involving such other Person. Provision of Financial Information
The Indenture provides that, the Company, pursuant to section 314(a) of the Trust Indenture Act, shall file with the Trustee, within the time periods specified in the Securities Act with respect to the Company’s filing status, copies of the annual and quarterly reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may from time to time by rules and regulations prescribe) that the Company files with the SEC pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the SEC, in accordance with rules and regulations prescribed from time to time by the SEC, such of the supplementary and periodic information, documents and reports that may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;provided, however, that any such information, documents or reports filed electronically with the SEC pursuant to Section 13 or 15(d) of the Exchange Act shall be deemed filed with, and delivered to, the Trustee;provided, further, that the Company shall notify the Trustee if it shall fail to so file any such information, documents or reports with the SEC. In addition, the Company will make such reports and information available to securities analysts and prospective investors upon request.
If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the financial information required by “—Covenants—Reports” will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. The availability of the foregoing materials on the SEC’s website or on the Company’s website shall be deemed to satisfy the foregoing delivery obligations.
Merger and Consolidation
The Company will not consolidate with or merge with or into (whether or not the Company is the surviving corporation), or convey, transfer or lease all or substantially all the assets of the Company and its Subsidiaries, taken as a whole, in one or more related transactions to, any Person, unless:
(1) the resulting, surviving or transferee Person (the “Successor Company”) is a corporation, partnership, trust or limited liability company organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and the Successor Company (if not the Company) expressly assumes, by supplemental indenture, executed and delivered to the Trustee all the obligations of the Company under the Notes, the Indenture, the Second Lien Security Documents, the Intercreditor Agreement and any other Note Document;
(2) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing;
(3) either (A) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness pursuant to clause (1) of the first paragraph of the covenant described under “—Covenants—Limitation on Indebtedness and Preferred Stock” or (B) immediately after giving effect to such transaction on a pro forma basis and any related financing transactions as if the same had occurred at the beginning of the applicable four quarter period, the Consolidated Coverage Ratio of the Company is equal to or greater than the Consolidated Coverage Ratio of the Company immediately before such transaction;
(4) if the Company is not the Successor Company, each Subsidiary Guarantor (unless it is the other party to the transactions above, in which case clause (1) shall apply) shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to such Person’s obligations in respect of the Indenture and the Notes shall continue to be in effect; and
(5) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture (if any) comply with the Indenture. For purposes of this covenant, the sale, lease, conveyance, assignment, transfer or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the assets of the Company.
Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of all or substantially all of the assets of the Company in accordance with the first paragraph of this caption “—Covenants— Merger and Consolidation” the Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture; and its predecessor Company, except in the case of a lease of all or substantially all its assets, will be released from the obligation to pay the principal of and interest on the Notes and all other covenants and obligations under the Indenture.
Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve “all or substantially all” of the assets of a Person.
Notwithstanding the preceding clause (3) of the first paragraph of this caption “—Covenants—Merger and Consolidation”, (x) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and the Company may consolidate with, merge into or transfer all or part of its properties and assets to a Subsidiary Guarantor and (y) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction; and provided further that, in the case of a Restricted Subsidiary that consolidates with, merges into or transfers all or part of its properties and assets to the Company, the Company will not be required to comply with the preceding clause (5).
In addition, the Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, and will not permit the conveyance, transfer or lease of all or substantially all of the assets of any Subsidiary Guarantor to, any Person (other than the Company or another Subsidiary Guarantor) unless:
(1) (a) the resulting, surviving or transferee Person is a corporation, partnership, trust or limited liability company organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and such Person (if not such Subsidiary Guarantor) expressly assumes, by supplemental indenture, executed and delivered to the Trustee, all the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee, the Second Lien Security Documents and the Intercreditor Agreement; (b) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the resulting, surviving or transferee Person or any Restricted Subsidiary as a result of such transaction as having been Incurred by such Person or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; and (c) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture; or
(2) the transaction will result in the release of the Subsidiary Guarantor from its obligations under the Indenture and its Subsidiary Guarantee after and upon compliance with the provisions described above under “—Security for the Notes”. Future Subsidiary Guarantors
The Company will cause any Restricted Subsidiary that is not already a Subsidiary Guarantor that Guarantees any Indebtedness of the Company or a Subsidiary Guarantor under a Credit Facility or that incurs any Indebtedness under the First Lien Credit Agreement, in each case, to execute and deliver to the Trustee within
30 days of such guarantee or incurrence a supplemental indenture (in the form specified in the Indenture) pursuant to which such Subsidiary will unconditionally Guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any, and interest on the Notes on a senior basis. Such Subsidiary Guarantee will be subject to release provisions and the other terms and limitations set forth in the Indenture.
Business Activities
The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business activity other than the Oil and Gas Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole.
Asset Coverage Ratio
The Company will not permit as of any Test Date, the ratio (the “Asset Coverage Ratio”) of (1) Total Proved PV10% as of such Test Date attributable to the Company’s and its Restricted Subsidiaries’ Proved Reserves to (2) Total Secured Debt (net of any Unrestricted Cash on such date in an amount not to exceed (A) on any Test Date on or prior to March 31, 2018, $10,000,000 and (B) on any Test Date on or after April 1, 2018, $7,500,000, held by the Company and its Restricted Subsidiaries) to be less than (A) for any Test Date on or before March 31, 2017, 1.10 to 1.00, (B) for any Test Date after March 31, 2017, but on or before September 30, 2017, 1.35 to 1.00 and (C) for any Test Date after September 30, 2017, 1.50 to 1.00. Notwithstanding the foregoing, if the First Lien Credit Agreement as in effect on the date hereof is subsequently amended, supplemented, modified, refinanced or replaced such that the First Lien Credit Agreement, the Refinancing Indebtedness in respect thereof, or the Permitted First Lien Replacement Facility either does not contain a financial covenant corresponding to the Asset Coverage Ratio or contains such a corresponding financial covenant but such financial covenant permits $10,000,000 or more of netting of unrestricted cash from the applicable debt calculation, then from and after the date of such applicable amendment, supplement, modification, refinancing or replacement, the Asset Coverage Ratio hereunder shall be calculated by netting Unrestricted Cash in an amount not to exceed $10,000,000 from Total Secured Debt.
On or before the 45th day after each Test Date, a certificate of a financial officer setting forth, as of such Test Date, a calculation in reasonable detail of the Asset Coverage Ratio as of such Test Date shall be delivered to the Trustee.
G&A
The Company and its Restricted Subsidiaries shall not incur general and administrative expenses determined in accordance with GAAP payable in cash in excess of (i) $3,575,000 during each of the third fiscal quarter and the fourth fiscal quarter of fiscal year 2016 and (ii) $2,775,000 during any quarter of fiscal year 2017 or in excess of $10,100,000 in the aggregate for all of fiscal year 2017.
Minimum Liquidity
The Company and its Restricted Subsidiaries shall maintain Liquidity from the Effective Date until April 1, 2018, of at least $7,500,000, and thereafter, of at least $5,000,000.
Exercise of RBL Extension Option
The Company will, to the extent permitted by the terms of the First Lien Credit Agreement, exercise the RBL Extension Option.
Further Assurances
The Company at its sole expense will, and will cause each Restricted Subsidiary to, promptly execute and deliver to the Trustee or the Second Lien Agent all such other documents, agreements and instruments reasonably requested by the Trustee or the Second Lien Agent to comply with, cure any defects or accomplish the covenants and agreements of the Company or any Restricted Subsidiary, as the case may be, in the Indenture or the Second Lien Security Documents, or to further evidence and more fully describe the Second Lien Collateral intended as security for the Notes and the Subsidiary Guarantees, or to correct any omissions in the Indenture or the Second Lien Security Documents, or to state more fully the obligations secured therein, or to perfect, protect or preserve any Liens created pursuant to the Indenture or any of the Second Lien Security Documents or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as may be reasonably necessary or appropriate in connection therewith.
Other Covenants
In addition, the Company and its Restricted Subsidiaries are subject to other covenants of the Indenture, including requirements to comply with environmental laws, ERISA, FCP and Money-Laundering Laws, which, in the case of the listed covenants, are substantially consistent with respective covenants of the First Lien Credit Agreement.
Covenant Termination
From and after the occurrence of an Investment Grade Rating Event, the Company and its Restricted Subsidiaries will no longer be subject to the provisions of the Indenture described above under the following headings:
“—Covenants—Limitation on Indebtedness and Preferred Stock,”“—Limitation on Restricted Payments,”“—Limitation on Liens,”“—Limitation on Sales of Assets and Subsidiary Stock,”“—Limitation on Affiliate Transactions,”“—Business Activities,”“—Asset Coverage Ratio,”“—G&A,”“—Minimum Liquidity,”(collectively, the “Eliminated Covenants”). In addition, the Company will no longer be subject to the financial test set forth in clause (3) of the first paragraph of the covenant described under “—Covenants—Merger and Consolidation”. As a result, after the date on which the Company and its Restricted Subsidiaries are no longer subject to the Eliminated Covenants, the Notes will be entitled to substantially reduced covenant protection.
After the foregoing covenants have been terminated, the Company may not designate any of its Subsidiaries as Unrestricted Subsidiaries pursuant to the second sentence of the definition of “Unrestricted Subsidiary.” The Company shall provide the Trustee and the holders with written notice of each Investment Grade Rating Event within five Business Days of the occurrence thereof. The Trustee shall have no duty to monitor or provide notice to the holders of the Notes of any such Investment Grade Rating Event.
Events of Default
Each of the following is an Event of Default with respect to the Notes:
(1) default in the payment of any interest on any Note when due, continued for 30 days;
(2) default in the payment of principal of or premium, if any, on any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or otherwise;
(3) failure by the Company or any Subsidiary Guarantor to comply with its obligations described under “—Successors—Merger and Consolidation;”
(4) failure by the Company to comply for 30 days after notice (as provided below) with its other agreements contained in the Indenture;
(5) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or Guarantee exists as of the Issue Date, or is created after the date of the Indenture, which default:
(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (and any extensions of any grace period) (“payment default”); or
(b) results in the acceleration of such Indebtedness prior to its Stated Maturity (the “cross acceleration provision”);
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $20.0 million or more;
(6) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary (the “bankruptcy provisions”);
(7) failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $25.0 million (to the extent not covered by insurance by a reputable and creditworthy insurer as to which the insurer has not disclaimed coverage), which judgments are not paid or discharged, and there shall be any period of 60 consecutive days following entry of such final judgment or decree during which a stay of enforcement of such final judgment or decree, by reason of pending appeal or otherwise, shall not be in effect (the “judgment default provision”);
(8) any of the Indenture (including the Subsidiary Guarantees), the Notes, the Second Lien Security Documents and any supplemental indentures pursuant to the Indenture, after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms against the Company or a Subsidiary Guarantor party thereto or shall be repudiated by any of them in writing, or any of the Second Lien Security Documents with respect to any Collateral, individually or in the aggregate, having a fair market value in excess of $25.0 million shall cease to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except to the extent permitted by the terms of the Indenture, or the Company or any Restricted Subsidiary or any of their Affiliates shall so state in writing (“loss of enforceability provision”); or
(9) any event of default under and as defined under the First Lien Credit Agreement that continues unwaived or uncured for 30 days.
However, a default under clause (4) of this paragraph will not constitute an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Notes notify the Company in writing and, in the case of a notice given by the holders, the Trustee of the default and the Company does not cure such default within the time specified in clause (4) of this paragraph after receipt of such notice.
If an Event of Default (other than an Event of Default described in clause (6) above with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Company and the Trustee, may declare the principal of, premium, if any, accrued and unpaid interest, if any, on all the Notes to be due and payable immediately. If an Event of Default described in clause (6) above with respect to the Company occurs and is continuing, the principal of, premium, if any, accrued and unpaid interest, if any, on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders.
Notwithstanding the foregoing, if an Event of Default specified in clause (5) above shall have occurred and be continuing, such Event of Default and any consequential acceleration (to the extent not in violation of any applicable law or in conflict with any judgment or decree of a court of competent jurisdiction) shall be automatically rescinded if (i) the Indebtedness that is the subject of such Event of Default has been repaid or (ii) if the default relating to such Indebtedness is waived by the holders of such Indebtedness or cured and if such Indebtedness has been accelerated, then the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, in each case within 20 days after the declaration of acceleration with respect thereto.
After a declaration of acceleration, the holders of a majority in aggregate principal amount of outstanding Notes by notice to the Company and the Trustee, on behalf of the Holders of Notes, may rescind and annul such declaration with respect to the Notes and its consequences if, among other requirements (1) rescission would not conflict with any judgment or decree of a court of competent jurisdiction, (2) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived, and (3) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes then outstanding, and (B) the principal of, and premium, if any, on any Notes then outstanding which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes.
Subject to the provisions of the Indenture relating to the duties of the Trustee if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense.
Except to enforce (i) the right to receive payment of principal, premium, if any, or interest when due, and (ii) the provisions of the Indenture relating to the duties of the Trustee, no holder may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event of Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the outstanding Notes have requested the Trustee pursue the remedy;
(3) such holders have furnished the Trustee satisfactory security or indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the furnishing of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding Notes have not waived such Event of Default or otherwise given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in aggregate principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Indenture provides that
in the event an Event of Default has occurred and is continuing, the Trustee will be required in the exercise of its powers to use the degree of care that a prudent person would use in the conduct of his own affairs. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holders of Notes or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the Trustee must deliver to each holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold such notice if and so long as a committee of trust officers of the Trustee in good faith determines that withholding notice is in the interests of the holders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers’ Certificate signed by the principal executive officer, the principal financial officer or the principal accounting officer stating that a review of the activities of the Company and its 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 the Indenture and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge, the Company has kept, observed, performed and fulfilled its obligations under the Indenture and is not in default in the performance or observance of any of the material terms, provisions and conditions of the Indenture (or, if a Default or Event of Default shall have occurred and be continuing, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto).
Amendments and Waivers
Subject to certain exceptions, the Indenture, the Notes, the Intercreditor Agreement and the Second Lien Security Documents may be amended by the Company, any Subsidiary Guarantor, the Trustee and the Second Lien Agent with the consent of the holders of a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, the PIK Notes, if any; provided that no consent of the holders of the PIK Notes shall be required for any amendment to provisions set forth in caption “—Conversion”) voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes); and, subject to certain exceptions, any past default or compliance with any provisions may be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
However, without the consent of each holder of each outstanding Note affected, no amendment may, among other things:
(1) reduce the percentage in principal amount of such outstanding Notes whose holders must consent to an amendment or waiver;
(2) reduce the stated rate of or change the stated time for payment of interest on any Note;
(3) reduce the principal of or change the Stated Maturity of any Note;
(4) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed as described above under “—Optional Redemption” and “—Mandatory Redemption; Offers to Purchase; Open Market Purchases” (other than modifications of provisions relating to the covenants described under “—Repurchase at the Option of holders—Change of Control” or “—Covenants— Limitations on Sales of Assets or Subsidiary Stock”);
(5) make any Note payable in money other than that stated in the Note;
(6) waive a Default or Event of Default in the payment of principal of, or interest or premium on, the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal
amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration) or impair the right of any holder to receive payment of the principal of, premium, if any, and interest on such holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes;
(7) modify the Subsidiary Guarantees in any manner adverse to the holders of the Notes;
(8) release all or substantially all of the collateral subject to the Liens created by the Second Lien Security Documents (except with respect to releases permitted under this Indenture);
(9) adversely affect the right of holders to convert the Notes other than as provided in the Indenture; or
(10) make any change to or modify the ranking of the Notes that would adversely affect the holders.
Notwithstanding the foregoing, without the consent of any holder, the Company, the Subsidiary Guarantors and the Trustee and the Second Lien Agent may amend the Indenture, the Notes, the Second Lien Security Documents and the Intercreditor Agreement to:
(1) cure any ambiguity, omission, defect, mistake or inconsistency;
(2) provide for the assumption by a successor of the obligations of the Company or any Subsidiary Guarantor under the Indenture, the Second Lien Security Documents and the Intercreditor Agreement in accordance with the applicable provisions thereof;
(3) provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code);
(4) add Guarantors or Collateral with respect to the Notes, including Subsidiary Guarantors, or release a Subsidiary Guarantor from its Subsidiary Guarantee and terminate such Subsidiary Guarantee or terminate a Lien securing the Notes; provided that the release and termination is in accordance with the applicable provisions of the Indenture;
(5) secure the Notes or Subsidiary Guarantees;
(6) add to the covenants of the Company or a Subsidiary Guarantor for the benefit of the holders or surrender any right or power conferred upon the Company or a Subsidiary Guarantor;
(7) make any change that does not adversely affect the rights of any holder;
(8) comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act;
(9) provide for the succession of a successor Trustee, provided that the successor Trustee is otherwise qualified and eligible to act as such under the Indenture;
(10) make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Second Lien Security Documents;
(11) provide for the issuance of PIK Notes or to increase the outstanding principal amount of the Notes, in each case in accordance with the limitations set forth in the Indenture as of the date hereof;
(12) make any change as provided for in the Intercreditor Agreement; or
(13) provide for conversion adjustments in accordance with provisions described under “—Conversion” in connection with a Reorganization Event.
In addition, the Intercreditor Agreement may be amended in accordance with its terms and without the consent of any holder, the Trustee or the Second Lien Agent with the consent of the parties thereto or otherwise in accordance with its terms; provided, however, that such amendment does not affect the rights, duties, protections, indemnities, immunities or obligations of the Trustee or the Second Lien Agent. The Intercreditor
Agreement will also provide that in certain circumstances the Second Lien Security Documents may be amended automatically without the consent of holders of Notes, the Trustee or the Second Lien Agent in connection with any amendments to corresponding security documents creating Prior Liens; provided, however, that such amendment does not affect the rights, duties, protections, indemnities, immunities or obligations of the Trustee or the Second Lien Agent.
The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment or waiver. It is sufficient if such consent approves the substance of the proposed amendment or waiver. Consent to any amendment or waiver under the Indenture by any holder of Notes given in connection with a tender of such holder’s Notes will not be rendered invalid by such tender. After an amendment or waiver under the Indenture requiring the consent of the holders becomes effective, the Company is required to mail to the holders a notice briefly describing such amendment or waiver. However, the failure to give such notice to all the holders, or any defect in the notice will not impair or affect the validity of the amendment or waiver.
Defeasance
The Company at any time may terminate all its obligations under the Notes, the Indenture and the Second Lien Security Documents (“legal defeasance”), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes.
The Company at any time may terminate its obligations described under “—Repurchase at the Option of holders —Change of Control” and under covenants described under “—Covenants” (subject to certain exceptions), the operation of the cross default upon a payment default, cross acceleration provisions, the bankruptcy provisions with respect to Significant Subsidiaries, the judgment default provision, the loss of enforceability provision described under “—Events of Default” (“covenant defeasance”).
If the Company exercises its legal defeasance option, the Subsidiary Guarantees in effect at such time will terminate.
The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect to the Notes. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (5), (6) (with respect only to Significant Subsidiaries), (4), (7) or (8) under “—Events of Default” above or because of the failure of the Company to comply with clause (3) under “—Covenants—Merger and Consolidation” above.
In order to exercise either defeasance option, the Company must, among other things, irrevocably deposit in trust (the “defeasance trust”) with the Trustee cash in U.S. dollars or U.S. Government Obligations denominated in U.S. dollars, or a combination thereof, for the payment of principal, premium, if any, and interest on the Notes to redemption or Stated Maturity (in each case assuming the payment of interest as Cash Interest through such date), as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel (subject to customary exceptions and exclusions) to the effect that holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. In the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable federal income tax law.
Satisfaction and Discharge
The Indenture and the Second Lien Security Documents will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes and as otherwise expressly provided for in the Indenture) as to all outstanding Notes issued under the Indenture when either:
(1) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation, or
(2) all Notes that have not been delivered to the Trustee for cancellation have become due and payable or will become due and payable within one year by reason of the giving of a notice of redemption or otherwise and the Company or any Subsidiary Guarantor has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust solely for such purpose, cash in U.S. dollars, U.S. Government Obligations denominated in U.S. dollars, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation, including principal of, premium, if any, and accrued interest to the date of Stated Maturity or redemption, and in each case certain other requirements set forth in the Indenture are satisfied. No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, stockholder, member, partner or trustee of the Company or any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company or any Subsidiary Guarantor under the Notes, the Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
Concerning the Trustee
Wilmington Trust, National Association will be the Trustee under the Indenture and has been appointed by the Company as registrar, paying agent and conversion agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in the Trust Indenture Act) while any Default exists it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee with such conflict or resign as Trustee.
Governing Law
The Indenture and the Notes are governed by, and construed in accordance with, the laws of the State of New York.
Certain Definitions
“Acquired Indebtedness” means Indebtedness (i) of a Person or any of its Subsidiaries existing at the time such Person becomes or is merged with and into a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case whether or not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to have been Incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes or is merged with and into a Restricted Subsidiary and, with respect to clause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets.
“Adjusted Consolidated Net Tangible Assets” of the Company means (without duplication), as of the date of determination, the remainder of:
(a) the sum of:
(1) discounted future net revenues 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 the Company in a reserve report prepared as of the end of the Company’s most recently completed fiscal year for which audited financial statements are available, as increased by, as of the date of determination, the estimated discounted future net revenues from
(A) estimated proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and
(B) estimated oil and gas reserves attributable to extensions, discoveries and other additions and upward revisions of estimates of proved oil and gas reserves since such year end due to exploration, development or exploitation, production or other activities, which would, in accordance with standard industry practice, cause such revisions (including the impact to proved reserves and future net revenues from estimated development costs incurred and the accretion of discount since such year end), and decreased by, as of the date of determination, the estimated discounted future net revenues from
(C) estimated proved oil and gas reserves produced or disposed of since such year end, and
(D) estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since such year end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated on a pre-tax basis and in accordance with SEC guidelines,
in the case of clauses (A) through (D) utilizing prices and costs calculated in accordance with SEC guidelines as of such year end;provided, however, 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 petroleum engineers;
(2) the capitalized costs that are attributable to Oil and Gas Properties of the Company and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company’s books and records as of a date no earlier than the date of the Company’s latest available annual or quarterly financial statements;
(3) the Net Working Capital of the Company and its Restricted Subsidiaries on a date no earlier than the date of the Company’s latest annual or quarterly financial statements; and
(4) the greater of
(A) the net book value of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest annual or quarterly financial statements, and
(B) the appraised value, as estimated by independent appraisers, of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest audited financial statements;provided,however that, if no such appraisal has been performed the Company shall not be required to obtain such an appraisal and only clause (4)(A) of this definition shall apply;
minus
(b) the sum of:
(1) Minority Interests;
(2) any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company’s latest annual or quarterly balance sheet (to the extent not deducted in calculating Net Working Capital of the Company in accordance with clause (a)(3) above of this definition);
(3) to the extent included in (a)(1) above, the discounted future net revenues, calculated in accordance with SEC guidelines (utilizing prices and costs calculated in accordance with SEC guidelines as of such year end), 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 (determined, if applicable, using the schedules specified with respect thereto); and
(4) to the extent included in (a)(1) above, the discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted future net revenues specified in (a)(1) above, would be necessary to fully satisfy the payment obligations of the Company and its Subsidiaries with respect to such Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).
If the Company changes its method of accounting from the successful efforts method of accounting to the full cost or a similar method, “Adjusted Consolidated Net Tangible Assets” will continue to be calculated as if the Company were still using the successful efforts method of accounting.
“Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Average Life” means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments.
“Bank Product” means each and any of the following bank services and products provided to the Company or any other Grantor by any lender under the First Lien Credit Agreement or any Priority Substitute Credit Facility or any Affiliate of any such lender: (a) commercial credit cards; (b) stored value cards; and (c) Treasury Management Arrangements (including controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).
“Bank Product Obligations” means any and all obligations of the Company or any other Grantor, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with any Bank Product.
“Bankruptcy Code” means Title 11 of the United States Code.
“Bankruptcy Law” means the Bankruptcy Code and any similar United States federal or state law or foreign law relating to bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law.
“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all
securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.
“Beneficial Ownership Limitation” means 9.9% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Common Stock as set forth in the applicable notice of conversion.
“Bloomberg” means Bloomberg Financial Markets.
“Board” means the Board of Governors of the Federal Reserve System of the United States of America or any successor governmental authority.
“Board of Directors” means, as to any Person that is a corporation, the board of directors of such Person or any duly authorized committee thereof or as to any Person that is not a corporation, the board of managers or such other individual or group serving a similar function.
“Business Day” means each day that is not a Saturday, Sunday or other day on which commercial banking institutions in New York, New York, Houston, Texas or a place of payment are authorized or required by law to close.
“Capital Stock” of any Person means any and all shares, units, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into, or exchangeable for, such equity.
“Capitalized Lease Obligations” means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation at the time any determination thereof is to be made as determined in accordance with GAAP, and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty.
“Cash Equivalents” means:
(1) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality of the United States (provided,however that the full faith and credit of the United States is pledged in support thereof), having maturities of not more than one year from the date of acquisition;
(2) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition and, at the time of acquisition, having a credit rating of “A” (or the equivalent thereof) or better from either S&P or Moody’s;
(3) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers’ acceptances having maturities of not more than one year from the date of acquisition thereof issued by any commercial bank the short-term deposit of which is rated at the time of acquisition thereof at least “A2” or the equivalent thereof by S&P, or “P-2” or the equivalent thereof by Moody’s, and having combined capital and surplus in excess of $100.0 million;
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (1), (2) and (3) entered into with any bank meeting the qualifications specified in clause (3) above;
(5) commercial paper rated at the time of acquisition thereof at least “A-2” or the equivalent thereof by S&P or “P-2” or the equivalent thereof by Moody’s, or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named Rating Agencies cease publishing ratings of investments, and in any case maturing within one year after the date of acquisition thereof; and
(6) interests in any investment company or money market fund which invests 95% or more of its assets in instruments of the type specified in clauses (1) through (5) above.
“Cash Interest” means any interest on the Notes payable in cash.
“Cash Management Obligations” means obligations under any facilities or services related to cash management, including treasury, depository, overdraft, credit or debit card, automated clearing house fund transfer services, purchase card, electronic funds transfer (including non-card e-payables services) and other cash management arrangements and commercial credit card and merchant card services.
“Casualty Event” means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Property of the Borrower or any of its Subsidiaries having a fair market value in excess of $1,000,000.
“Change of Control” means:
(1) any “person” or “group” of related persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of
thosethe total voting power of the Voting Stock of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets) other than as a result of any merger or consolidation in which the holders of the Voting Stock of the Company immediately prior to such transaction will, immediately after such transaction, hold or own Voting Stock of the surviving or successor entity or any parent thereof representing a majority of the voting power of the Voting Stock of such entity (for the purposes of this clause (1), such person or group shall be deemed to Beneficially Own any Voting Stock of the Company held by a parent entity, if such person or group Beneficially Owns, directly or indirectly, more than 50% of the total voting power of the Voting Stock of such parent entity);(2) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act);
(3) the first day on which a majority of the members of the Board of Directors of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets) are not Continuing Directors; or
(4) the adoption by the shareholders of the Company of a plan or proposal for the liquidation or dissolution of the Company.
“Code” means the Internal Revenue Code of 1986, as amended.
“Closing Price” means, for any security as of any date, the closing price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market is not the principal securities
can requestexchange or trading market for such security, the closing price, respectively, of such security on the principalsecurities exchange or trading market where such security is listed or traded as reported by Bloomberg. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.“Collateral” means all of the assets and property of any Grantor, whether real, personal or mixed, constituting the Priority Lien Collateral, or the Second Lien Collateral, or both.
“Commodity Agreements” means, in respect of any Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement in respect of Hydrocarbons used, produced, processed or sold by such Person that
we register theirare customary in the Oil and Gas Business and designed to protect such Person against fluctuation in Hydrocarbon prices.“Common Stock” means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of the Company’s common stock whether or not outstanding on the Issue Date, and includes, without limitation, all series and classes of such common stock.
“Consolidated Coverage Ratio” means as of any date of determination, the ratio of (x) the aggregate amount of Consolidated EBITDAX of such Person for
resalethe period of the most recent four consecutive fiscal quarters (as adjusted for the fiscal quarters ending on December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017 in accordance with the terms set forth in the definition of “Consolidated EBITDAX”) ending prior to the date of such determination for which financial statements are in existence to (y) Consolidated Interest Expense for such four fiscal quarters,provided, however, that:(1) if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness and the use of proceeds thereof as if such Indebtedness had been Incurred on the first day of such period and such proceeds had been applied as of such date;
(2) if the Company or any Restricted Subsidiary has Incurred, repaid, repurchased, defeased or otherwise discharged any Indebtedness (other than Indebtedness described in clause (1) above) since the beginning of the period, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Incurrence, repayment, repurchase, defeasement or other discharge of Indebtedness as if such Incurrence, repayment, repurchase, defeasement or other discharge had occurred on the first day of such period (except that, in making such computation, the amount of Indebtedness under any revolving Credit Facility shall be computed based upon the average daily balance of such Indebtedness during such period);
(3) if, since the beginning of such period, the Company or any Restricted Subsidiary has made any sale, assignment or other transfer of Property or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is such a sale, assignment or other transfer of Property, the Consolidated EBITDAX for such period will be reduced by
filingan amount equal to the Consolidated EBITDAX (if positive) directly attributable to the assets which are the subject of such sale, assignment or other transfer of Property for such period or increased by an amount equal to the Consolidated EBITDAX (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with or with the proceeds from such sale, assignment or other transfer of Property for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale);(4) if, since the beginning of such period, the Company or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a
shelf registration statementRestricted Subsidiary or is merged with or into the Company or a Restricted Subsidiary) or an acquisition (or will have received a contribution) of assets, including any acquisition or contribution of assets occurring in connection witha transaction causing a calculation to be made under the Indenture, which constitutes all or substantially all of a company, division, operating unit, segment, business, group of related assets or line of business, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition or contribution had occurred on
their behalf. Wethe first day of such period; and(5) if, since the beginning of such period, any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) made any sale, assignment or other transfer of Property or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto as if such sale, assignment or other transfer of Property or Investment or acquisition of assets had occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to any calculation under this definition, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of the Company;provided, however that such officer may in his or her discretion include any reasonably identifiable and factually supportable pro forma changes to Consolidated EBITDAX, including any pro forma expenses and cost reductions, that have occurred or in the judgment of such officer are reasonably expected to occur within 12 months of the date of the applicable transaction (regardless of whether such expense or cost reduction or any other operating improvements could then be reflected properly in pro forma financial statements prepared in accordance with Regulation S-X under the Securities Act or any other regulation or policy of the Commission);provided, however that the aggregate amount of pro forma expense and cost reductions to be included in calculating Consolidated EBITDAX pursuant to this sentence shall not exceed 10% of Consolidated EBITDAX (determined before giving effect to this sentence) for such period. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness will be calculated as if the average rate in effect from the beginning of such period to the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness, but if the remaining term of such Interest Rate Agreement is less than 12 months, then such Interest Rate Agreement shall only be taken into account for that portion of the period equal to the remaining term thereof). If any Indebtedness that is being given pro forma effect bears an interest rate at the option of the Company, the interest rate shall be calculated by applying such optional rate chosen by the Company. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate.
“Consolidated EBITDAX” for any period means, without duplication, the Consolidated Net Income for such period, plus the following, without duplication and to the extent deducted (and not added back) in calculating such Consolidated Net Income:
(1) Consolidated Interest Expense;
(2) Consolidated Income Tax Expense;
(3) consolidated depletion and depreciation expense of the Company and its Restricted Subsidiaries;
(4) consolidated amortization expense or asset impairment charges of the Company and its Restricted Subsidiaries;
(5) other non-cash charges of the Company and its Restricted Subsidiaries (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation); and
(6) consolidated exploration and abandonment expense of the Company and its Restricted Subsidiaries,
if applicable for such period; and less, to the extent included in calculating such Consolidated Net Income and in excess of any costs or expenses attributable thereto that were deducted (and not added back) in calculating such Consolidated Net Income, the sum of (x) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments, (y) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments and (z) other non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Consolidated EBITDAX in any prior period).
Notwithstanding the preceding sentence, clauses (1) through (6) relating to amounts of a Restricted Subsidiary of the referent Person will be added to Consolidated Net Income to compute Consolidated EBITDAX of such Person only in the same proportion that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person.
For purposes of computing the amount of Consolidated EBITDAX for (I) the fiscal quarter ended December 31, 2016, Consolidated EBITDA shall be an amount (such amount, the “First Quarter Deemed Amount”) equal to (a) fourmultiplied by (b) the actual amount of Consolidated EBITDAX for the period from the date hereof to the end of such fiscal quartermultiplied by (c) a fraction the numerator of which is 90 and the denominator of which is the number of days for such period from the date hereof to the end of such fiscal quarter, (II) the fiscal quarter ended March 31, 2017, Consolidated EBITDAX shall be an amount equal to (a) twomultiplied by (b) Consolidated EBITDAX for such fiscal quarterplus the First Quarter Deemed Amount, (III) the fiscal quarter ended June 30, 2017, Consolidated EBITDAX shall be an amount equal to (a) four-thirdsmultiplied by (b) the sum of Consolidated EBITDAX for such fiscal quarter and the immediately preceding fiscal quarterplus the First Quarter Deemed Amount and (IV) the fiscal quarter ended September 30, 2017, Consolidated EBITDAX shall be an amount equal to the sum of Consolidated EBITDAX for such fiscal quarter and the immediately preceding two fiscal quartersplus the First Quarter Deemed Amount.
“Consolidated Income Tax Expense” means, with respect to any period, the provision for federal, state, local and foreign income taxes (including state franchise taxes accounted for as income taxes in accordance with GAAP) of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP.
“Consolidated Interest Expense” means, for any period, the total consolidated interest expense (less interest income) of the Company and its Restricted Subsidiaries, whether paid or accrued, plus, to the extent not included in such interest expense and without duplication:
(1) interest expense attributable to Capitalized Lease Obligations;
(2) amortization of debt discount and debt issuance cost (provided,however that any amortization of bond premium will be credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Interest Expense);
(3) non-cash interest expense (to the extent deducted in the calculation of Consolidated Net Income);
(4) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;
(5) the interest expense on Indebtedness of another Person that is Guaranteed by the Company or one of its Restricted Subsidiaries or secured by a Lien on assets of the Company or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon;
(6) cash costs associated with Interest Rate Agreements (including amortization of fees);provided,however, that if Interest Rate Agreements result in net cash benefits rather than costs, such benefits shall be
credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income;
(7) the consolidated interest expense of the Company and its Restricted Subsidiaries that was capitalized during such period; and
(8) all dividends paid or payable in cash, Cash Equivalents or Indebtedness or accrued during such period on any series of Disqualified Stock of the Company or on Preferred Stock of its Restricted Subsidiaries payable to a party other than the Company or a Wholly-Owned Subsidiary,
minus, to the extent included above, any interest attributable to Dollar-Denominated Production Payments;provided,howeverthat for the purposes of calculating Consolidated Interest Expense, no effect shall be given to the discount and/or premium resulting from the bifurcation of derivatives under FASB ASC 815 and related interpretations as a result of the terms of Indebtedness to which such Consolidated Interest Expense relates.
For the purpose of calculating the Consolidated Coverage Ratio in connection with the Incurrence of any Indebtedness described in clause (d) of the definition of “Indebtedness,” the calculation of Consolidated Interest Expense shall include all interest expense (including any amounts described in clauses (1) through (8) above) relating to any Indebtedness of the Company or any Restricted Subsidiary described in clause (d) of the definition of “Indebtedness.”
Notwithstanding anything to the contrary contained herein, for purposes of determining Consolidated Interest Expense for any period ending prior to the first anniversary of the date hereof, Consolidated Interest Expense shall be an amount equal to actual Consolidated Interest Expense from the date hereof through the date of determination multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days from the date hereof through the date of determination.
“Consolidated Net Income” means, for any period, the aggregate net income (loss) of the Company and its consolidated Restricted Subsidiaries determined in accordance with GAAP and after any reduction in respect of Preferred Stock dividends of such Person;provided,however, that there will not be included (to the extent otherwise included therein) in such Consolidated Net Income:
(1) any net income (loss) of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that:
(a) subject to the limitations contained in clauses (3) and (4) below, the Company’s equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash 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 (2) below); and
(b) the Company’s equity in a net loss of any such Person for such period will be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary during such period;
(2) any net income (but not loss) of any Restricted Subsidiary (other than a Subsidiary Guarantor) if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that:
(a) subject to the limitations contained in clauses (3), (4) and (5) below, the Company’s equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and
(b) the Company’s equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income;
(3) any gain or loss realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person;
(4) any nonrecurring gains or losses, together with any related provision for taxes on such gains or losses and all related fees and expenses;
(5) the cumulative effect of a change in accounting principles;
(6) any “ceiling limitation” or other asset impairment writedowns on Oil and Gas Properties under GAAP or Commission guidelines;
(7) any unrealized non-cash gains or losses or charges in respect of Hedging Obligations;
(8) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and
(9) any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards;
provided further, for the purposes of calculating Consolidated Net Income, no effect shall be given to the discount and/or premium resulting from the bifurcation of derivatives under FASB ASC 815 and related interpretations as a result of the terms of Indebtedness.
“Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets) who: (1) was a member of such Board of Directors on the Issue Date; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.
“Conversion Agent” means the office or agency appointed by the Company where Notes may be presented for conversion. The Conversion Agent appointed by the Company shall initially be the Trustee.
“Conversion Amount” means the sum of (A) the portion of the outstanding principal amount of the Initial Note to be converted, with respect to which this determination is being made, and (B) any accrued and unpaid interest on the outstanding principal amount of such Note as at the Conversion Date, if any.
“Conversion Date” means any date on which any Holder shall convert any Conversion Amount into shares of Common Stock.
“Conversion Price” means $21.3333, subject to adjustment from time to time as set forth herein.
“Conversion Rate” means the number of shares of Common Stock issuable upon conversion of any Conversion Amount, which shall be determined by dividing (x) such Conversion Amount by (y) the then applicable Conversion Price.
“Credit Agreement Debt” means the indebtedness under the First Lien Credit Agreement (including letters of credit and reimbursement obligations with respect thereto) that was permitted to be incurred and secured under
the Priority Credit Agreement, the Indenture and any Second Lien Substitute Facility (or as to which the lendersunder the First Lien Credit Agreement obtained an Officers’ Certificate at the time of incurrence to the effect that such indebtedness was permitted to be incurred and secured by all applicable Secured Debt Documents) andadditional indebtedness under any Priority Substitute Credit Facility. For purposes of the Intercreditor Agreement, indebtedness under the First Lien Credit Agreement is permitted to be incurred under the Indenture.
“Credit Agreement Obligations” means the Credit Agreement Debt and all other Obligations in respect of or in connection with Credit Agreement Debt together with Hedging Obligations and Bank Product Obligations. For the avoidance of doubt, Hedging Obligations and Bank Product Obligations shall only constitute Credit Agreement Obligations to the extent that such Hedging Obligations or Bank Product Obligations are secured under the terms of the Priority Lien Documents. Notwithstanding any other provision hereof, the term “Credit Agreement Obligations” will include accrued interest, fees, costs, and other charges incurred under the First Lien Credit Agreement and the other Priority Lien Documents, whether incurred before or after commencement of an Insolvency or Liquidation Proceeding, and whether or not allowable in an Insolvency or Liquidation Proceeding. To the extent that any payment with respect to the Credit Agreement Obligations (whether by or on behalf of the Company, as proceeds of security, enforcement of any right of set-off, or otherwise) is declared to be fraudulent or preferential in any respect, set aside, or required to be paid to a debtor in possession, trustee, receiver, or similar Person, then the obligation or part thereof originally intended to be satisfied will be deemed to be reinstated and outstanding as if such payment had not occurred.
“Credit Facility” means, with respect to the Company or any Restricted Subsidiary, one or more debt facilities (including, without limitation, the First Lien Credit Agreement), indentures or commercial paper facilities providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), capital market transactions or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time (and whether or not with the original administrative agent and lenders or another administrative agent or agents or other lenders and whether provided under the original First Lien Credit Agreement or any other credit or other agreement or indenture).
“Currency Agreement” means in respect of a Person any foreign exchange contract, currency swap agreement, futures contract, option contract or other similar agreement as to which such Person is a party or a beneficiary.
“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.
“Discharge of Priority Lien Obligations” means the occurrence of all of the following:
(1) termination or expiration of all commitments to extend credit that would constitute Priority Lien Debt;
(2) payment in full in cash of the principal of and interest and premium (if any) on all Priority Lien Debt (other than any undrawn letters of credit);
(3) discharge or cash collateralization (at the lower of (i) 105% of the aggregate undrawn amount and (ii) the percentage of the aggregate undrawn amount required for release of Liens under the terms of the applicable Priority Lien Document) of all outstanding letters of credit constituting Priority Lien Obligations;
(4) payment in full in cash of obligations in respect of Hedging Obligations constituting Priority Lien Obligations (and, with respect to any particular agreement regarding Hedging Obligations, termination of such agreement and payment in full in cash of all obligations thereunder or such other arrangements as have been made by the counterparty thereto (and communicated to the Priority Lien Agent) pursuant to the terms of the First Lien Credit Agreement); and
(5) payment in full in cash of all other Priority Lien Obligations, including without limitation, Bank Product Obligations, that are outstanding and unpaid at the time the Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at or prior to such time);
provided that, if, at any time after the Discharge of Priority Lien Obligations has occurred, the Company or any Subsidiary Guarantor enters into any Priority Lien Document evidencing a Priority Lien Obligation which incurrence is not prohibited by the applicable Secured Debt Documents, then such Discharge of Priority Lien Obligations shall automatically be deemed not to have occurred for all purposes of the Intercreditor Agreement with respect to such new Priority Lien Obligations (other than with respect to any actions taken as a result of the occurrence of such first Discharge of Priority Lien Obligations), and, from and after the date on which the Company designates such indebtedness as Priority Lien Debt in accordance with the Intercreditor Agreement, the obligations under such Priority Lien Document shall automatically and without any further action be treated as Priority Lien Obligations for all purposes of the Intercreditor Agreement, including for purposes of the Lien priorities and rights in respect of Collateral set forth in the Intercreditor Agreement, any Second Lien Obligations shall be deemed to have been at all times Second Lien Obligations and at no time Priority Lien Obligations.
“Disposition” or “Dispose” means the sale, transfer, license, lease, abandonment, or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith and any assignment, termination, close out, or restructuring of any swap agreement outside of the ordinary course of business.
“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) at the option of the holder of the Capital Stock or upon the happening of any event:
(1) matures or is mandatorily redeemable (other than redeemable only for Capital Stock of such Person which is not itself Disqualified Stock) pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable for Disqualified Stock or other Indebtedness (excluding Capital Stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary); or
(3) is redeemable at the option of the holder of the Capital Stock in whole or in part (other than, including at the issuer’s election, solely in exchange for Capital Stock which is not Disqualified Stock),
in each case on or prior to the date that is 91 days after the earlier of the date (a) of the Stated Maturity of the Notes or (b) on which there are no Notes outstanding;provided, however that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date will be deemed to be Disqualified Stock;provided further, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to
delayrequire the Company to repurchase such Capital Stock upon the occurrence of a change of control or asset sale (each defined in a substantially similar manner to the corresponding definitions in the Indenture) shall not constitute Disqualified Stock if the terms of such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provide that (i) the Company may not repurchase or redeem any suchrequestCapital Stock (and all such securities into which it is convertible or forregistrationwhich it is ratable or exchangeable)pursuant to such provision prior to compliance by the Company with “—Covenants—Limitation of Sales of Assets and Subsidiary Stock” and “—Repurchase at the Option of holders—Change of Control” and (ii) such repurchase or redemption will be permitted solely to the extent also permitted in accordance with “—Covenants—Limitation on Restricted Payments”.“Dollar-Denominated Production Payments” means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.
“Effective Date” means October 12, 2016.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“Excess Priority Lien Obligations” means Obligations constituting Priority Lien Obligations for the principal amount of loans, letters of credit and letter of credit reimbursement obligations under the First Lien Credit Agreement and/or any other Credit Facility pursuant to which Priority Lien Debt has been issued to the extent that such Obligations for principal, letters of credit and reimbursement obligations are in excess of the amount inclause (a) of the definition of “Priority Lien Cap.”
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
“Existing First Lien Credit Agreement” means the Second Amended and Restated Credit Agreement, dated as of May 5, 2009 among the Company, the initial Subsidiary Guarantor, as borrower, the Priority Lien Agent, and the other lenders parties thereto from time to time, as amended or supplemented from time to time prior to the date hereof.
“Fair Market Value” means, with respect to any asset or property, the sale value that would be obtained in an arm’s-length free market transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy.
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended, and any rules or regulations promulgated pursuant thereto.
“First Lien Credit Agreement” means the Exit Credit Agreement, dated as of October 12, 2016 among the Company, as Parent Guarantor, the initial Subsidiary Guarantor, as borrower, the Priority Lien Agent, and the other lenders parties thereto from time to time, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements, refundings or refinancings thereof and any indentures or credit facilities or commercial paper facilities with banks or other institutional lenders or investors that replace, refund or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility or indenture that increases the amount borrowable thereunder or alters the maturity thereof (provided, however that such increase in borrowings is permitted under caption “—Covenants—Limitation on Indebtedness and Preferred Stock”).
“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.
“Grantors” means the Company, each other Subsidiary of the Company that shall have granted any Lien in favor of any of the Priority Lien Agent or the Second Lien Agent on any of its assets or properties to secure any of the Secured Obligations.
“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term “Guarantee” will not include endorsements for collection or deposit in the ordinary course of business or any obligation to the extent it is payable only in Capital Stock of the Guarantor that is not Disqualified Stock. The term “Guarantee” used as a verb has a corresponding meaning.
“Guarantor Subordinated Obligation” means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement.
“Hedging Obligations” of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Agreement.
“holder” means a Person in whose name a Note is registered on the registrar’s books.
“Hydrocarbons” means oil, natural gas, casing head gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.
“Incur” means issue, create, assume, Guarantee, incur or otherwise become directly or indirectly liable for, contingently or otherwise;provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “Incurred” and “Incurrence” have meanings correlative to the foregoing.
“Indebtedness” means,
with respect to any Person on any date of determination (without duplication, whether or not contingent):
(1) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(3) the principal component of all obligations of such Person in respect of letters of credit, bankers’ acceptances or other similar instruments (including reimbursement obligations with respect thereto except to the extent such reimbursement obligation relates to a trade payable and except to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such obligation is satisfied within 30 days of payment on the letter of credit);
(4) the principal component of all obligations of such Person (other than obligations payable solely in Capital Stock that is not Disqualified Stock) to pay the deferred and unpaid purchase price of property (except as described in clause (8) of the penultimate paragraph of this definition of “Indebtedness”), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto to the extent such obligations would appear as a liabilities upon the consolidated balance sheet of such Person in accordance with GAAP;
(5) Capitalized Lease Obligations of such Person to the extent such Capitalized Lease Obligations would appear as liabilities on the consolidated balance sheet of such Person in accordance with GAAP;
(6) the principal component or liquidation preference of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary that is not a Subsidiary Guarantor, any Preferred Stock (but excluding, in each case, any accrued dividends);
(7) the principal component of all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;provided,however, that the amount of such Indebtedness will be the lesser of (a) the Fair Market Value of such asset at such date of determination and (b) the amount of such Indebtedness of such other Persons;
(8) the principal component of Indebtedness of other Persons to the extent Guaranteed by such Person; and
(9) to the extent not otherwise included in this definition, net Hedging Obligations of such Person (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time);
provided, however, that any indebtedness which has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all such indebtedness obligations at maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such indebtedness, and subject to no other Liens, shall not constitute “Indebtedness.”
The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date.
Notwithstanding the preceding, “Indebtedness” shall not include:
(1) Production Payments and Reserve Sales;
(2) any obligation of a Person in respect of a farm-in agreement or similar arrangement whereby such Person agrees to pay all or a share of the drilling, completion or other expenses of an exploratory or development well (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interest therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well in exchange for an ownership interest in an oil or gas property;
(3) any Hedging Obligations;provided,however that such Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Company, whether or not accounted for as a hedge in accordance with GAAP) and, in the case of Currency Agreements or Commodity Agreements, such Currency Agreements or Commodity Agreements are designed to offset changes in currency or commodity prices and are entered into in the ordinary course of business and, in the case of Interest Rate Agreements, such Interest Rate Agreements substantially correspond in terms of notional amount, duration and interest rates, as applicable, to Indebtedness of the Company or its Restricted Subsidiaries Incurred without violation of the Indenture;
(4) any obligation arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, Guarantees, adjustment of purchase price, holdbacks, contingency payment obligations or similar obligations, in each case, Incurred or assumed in connection with the acquisition or disposition of any
business, assets or Capital Stock of a Restricted Subsidiary;provided, however that such Indebtedness is not reflected on the face of the balance sheet of the Company or any Restricted Subsidiary;
(5) any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business;provided, however that such Indebtedness is extinguished within five Business Days of Incurrence;
(6) in-kind obligations relating to net oil or natural gas balancing positions arising in the ordinary course of business;
(7) all contracts and other obligations, agreements, instruments or arrangements described in clauses (19), (20), (21) or (27)(a) of the definition of “Permitted Liens;” and
(8) accrued expenses and trade payables and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days past the invoice or billing date or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted.
In addition, “Indebtedness” of any Person shall include Indebtedness described in the first paragraph of this definition of “Indebtedness” that would not appear as a liability on the balance sheet of such Person if:
(1) such Indebtedness is the obligation of a partnership or joint venture that is not a Restricted Subsidiary (a “Joint Venture”);
(2) such Person or a Restricted Subsidiary of such Person is a general partner of the Joint Venture or otherwise liable for all or a portion of the Joint Venture’s liabilities (a “General Partner”); and
(3) there is recourse, by contract or operation of law, with respect to the payment of such Indebtedness to property or assets of such Person or a Restricted Subsidiary of such Person; and then such Indebtedness shall be included in an amount not to exceed:
(a) the lesser of (i) the net assets of the General Partner and (ii) the amount of such obligations to the extent that there is recourse, by contract or operation of law, to the property or assets of such Person or a Restricted Subsidiary of such Person; or
(b) if less than the amount determined pursuant to clause (a) immediately above, the actual amount of such Indebtedness that is with recourse to such Person or a Restricted Subsidiary of such Person,
if the Indebtedness is evidenced by a writing and is for a determinable amount and the related interest expense shall be included in Consolidated Interest Expense to the extent actually paid by such Person and its Restricted Subsidiaries.
“Insolvency or Liquidation Proceeding” means:
(1) any case commenced by or against the Company or any other Grantor under the Bankruptcy Code or any other Bankruptcy Law, any other proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Company or any other Grantor, any receivership or assignment for the benefit of creditors relating to the Company or any other Grantor or any similar case or proceeding relative to the Company or any other Grantor or its creditors, as such, in each case whether or not voluntary;
(2) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Company or any other Grantor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or
(3) any other proceeding of any type or nature in which substantially all claims of creditors of the Company or any other Grantor are determined and any payment or distribution is or may be made on account of such claims.
“Initial Notes” means Notes issued on the Issue Date.
“Interest Rate Agreement” means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary.
“Investment” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of any direct or indirect advance, loan or other extensions of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit and advances or extensions of credit to customers in the ordinary course of business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments (excluding any interest in an oil or natural gas leasehold to the extent constituting a security under applicable law) issued by, such other Person and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP;provided, however that none of the following will be deemed to be an Investment:
(1) Hedging Obligations entered into in the
effectivenessordinary course of business, not for speculative purposes and in compliance with the Indenture;(2) endorsements of negotiable instruments and documents in the ordinary course of business; and
(3) an acquisition of assets, Capital Stock or other securities by the Company or a Subsidiary for consideration to the extent such consideration consists of Capital Stock (other than Disqualified Stock) of the Company.
The amount of any Investment shall not be adjusted for increases or decreases in value, write-ups, write-downs or write-offs with respect to such Investment.
For purposes of the definition of “Unrestricted Subsidiary” and “—Covenants—Limitation on Restricted Payments”:
(1) “Investment” will include the portion (proportionate to the Company’s equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the Fair Market Value of the net assets of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary;provided,however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to:
(a) the Company’s “Investment” in such Subsidiary at the time of such redesignation less,
(b) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary will be valued at its Fair Market Value at the time of such transfer.
“Investment Grade Rating” means a rating equal to or higher than:
(1) Baa3 (or the equivalent) by Moody’s; and
(2) BBB- (or the equivalent) by S&P,
or, if either such Rating Agency ceases to make a rating on the Notes publicly available for reasons outside of the Company’s control, the equivalent investment grade credit rating from any other Rating Agency.
“Investment Grade Rating Event” means the first day on which the Notes have an Investment Grade Rating from each Rating Agency, and no Default has occurred and is then continuing under the Indenture.
“Issue Date” means the first date on which the Notes are issued under the Indenture.
“Lien” means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the UCC;provided, however that in no event shall an operating lease be deemed to constitute a Lien.
“Liquidity” means, as of any date, the sum of (i) Unrestricted Cash of the Company and its Restricted Subsidiaries as of such date and (ii) the aggregate amount of undrawn commitments to extend credit to the Company under the First Lien Credit Agreement as of such date, the conditions for the availability of which (including compliance with any borrowing base) have been satisfied other than with respect to the delivery of a borrowing request or similar funding notice, which the Company is permitted to deliver.
“Material Acquisition” means any acquisition of Property or series of related acquisitions of Property that involves the payment of consideration by the Company and its Subsidiaries in excess of $1,000,000 for any single acquisition or series of related acquisitions of Property.
“Material Disposition” means any Disposition of Property or series of related Dispositions of Property that yields gross proceeds to the Company or any of its Subsidiaries in excess of $1,000,000 for any single Disposition or series of related Dispositions of Property.
“Minority Interest” means the percentage interest represented by any class of Capital Stock of a Restricted Subsidiary that are not owned by the Company or a Restricted Subsidiary.
“Money-Laundering Laws” means, collectively, the Currency and Foreign Transactions Reporting Act of 1970, as amended, the rules and regulations thereunder, and any related or similar laws, regulations or guidelines, issued, administered or enforced by any governmental agency of the United States (including, without limitation, the USA Patriot Act, the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended), and the executive orders).
“Moody’s” means Moody’s Investors Service, Inc., or any successor to the rating agency business thereof.
“Net Cash Proceeds,” with respect to any issuance or sale of Capital Stock or any contribution to equity capital, means the cash proceeds of such issuance, sale or contribution net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually Incurred in connection with such issuance, sale or contribution and net of taxes paid or payable as a result of such issuance or sale (after taking into account any available tax credit or deductions and any tax sharing arrangements).
“Net Working Capital” means (a) all current assets of the Company and its Restricted Subsidiaries, except current assets from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, less (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities (i) associated with asset retirement obligations relating to Oil and Gas Properties, (ii) included in Indebtedness and (iii) any current liabilities from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, in each case as set forth in the consolidated financial statements of the Company prepared in accordance with GAAP.
“Non-Recourse Debt” means Indebtedness of a Person:
(1) as to which neither the Company nor any Restricted Subsidiary (a) provides any Guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise);
(2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and
(3) the explicit terms of which provide there is no recourse against any of the assets of the Company or its Restricted Subsidiaries.
“Note Documents” means the Indenture, the Notes, the Intercreditor Agreement, the Second Lien Security Documents, the Registration Rights Agreements, the Purchase Agreement, the Warrant Agreement, the Warrants and all other note documents, guarantees, instruments and agreements governing or evidencing the Second Lien Obligations or any Second Lien Substitute Facility.
“Obligations” means any principal (including reimbursement obligations and obligations to provide cash collateral with respect to letters of credit whether or not drawn), interest (including, to the extent legally permitted, all interest accrued thereon after the commencement of any Insolvency or Liquidation Proceeding at the rate, including any applicable post-default rate even if such interest is not enforceable, allowable or allowed as a claim in such proceeding), premium (if any), fees, indemnifications, reimbursements, expenses and other liabilities payable under the documentation governing any indebtedness.
“Notes” means 13.50% Convertible Senior Secured Second Lien Notes issued pursuant to the Plan, including, unless the context otherwise requires, the Initial Notes and PIK Notes.
“Notes Registration Rights Agreement” means that certain registration rights agreement with respect to the Notes dated as of the Issue Date by and among the Company and the other parties thereto, as such agreement may be amended from time to time.
“Officer” means the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer or the Secretary of the Company. Officer of any Subsidiary Guarantor has a correlative meaning.
“Officers’ Certificate” means a certificate signed by two Officers of the Company.
“Oil and Gas Business” means:
(1) the business of acquiring, exploring, exploiting, developing, producing, operating and disposing of interests in oil, natural gas, liquefied natural gas and other Hydrocarbon, mineral and renewable energy properties or products produced in association with any of the foregoing;
(2) the business of gathering, marketing, distributing, treating, processing, storing, refining, selling and transporting of any production from such interests or properties and products produced in association therewith and the marketing of oil, natural gas, other Hydrocarbons, minerals and renewable energy obtained from unrelated Persons;
(3) any other related energy business, including power generation and electrical transmission business, directly or indirectly, from oil, natural gas and other Hydrocarbons, minerals and renewable energy produced substantially from properties in which the Company or its Restricted Subsidiaries, directly or indirectly, participate;
(4) any business relating to oil field sales and service or drilling rigs; and
(5) any business or activity relating to, arising from, or necessary, appropriate or incidental to the activities described in the foregoing clauses (1) through (4) of this definition.
“Oil and Gas Properties” means all properties, including equity or other ownership interests therein, owned by a Person which contain or are believed to contain oil and gas reserves.
“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company.
“Permitted Acquisition Indebtedness” means Indebtedness (including Disqualified Stock) of the Company or any of the Restricted Subsidiaries to the extent such Indebtedness was Indebtedness:
(1) of an acquired Person prior to the date on which such Person became a Restricted Subsidiary as a result of having been acquired and not incurred in contemplation of such acquisition; or
(2) of a Person that was merged, consolidated or amalgamated with or into the Company or a Restricted Subsidiary that was not incurred in contemplation of such merger, consolidation or amalgamation,
provided, however that on the date such Person became a Restricted Subsidiary or the date such Person was merged, consolidated and amalgamated with or into the Company or a Restricted Subsidiary, as applicable, after giving pro forma effect thereto, the Restricted Subsidiary or the Company, as applicable, would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in clause (1) of the first paragraph of the covenant described under “—Covenants—Limitation on Indebtedness and Preferred Stock.
“Permitted Business Investment” means any Investment made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business including investments or expenditures for actively exploiting, exploring for, acquiring, developing, producing, processing, gathering, marketing or transporting oil, natural gas or other Hydrocarbons and minerals through agreements, transactions, interests or arrangements which permit one to share risks or costs, comply with regulatory requirements regarding localownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties including:
(1) ownership interests in oil, natural gas, other Hydrocarbons and minerals properties, liquefied natural gas facilities, processing facilities, gathering systems, pipelines, storage facilities or related systems or ancillary real property interests;
(2) Investments in the form of or pursuant to operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-in agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil, natural gas, other Hydrocarbons and minerals, production sharing agreements,
participation agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling agreements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), subscription agreements, stock purchase agreements, stockholder agreements and other similar agreements (including for limited liability companies) with third parties; and
(3) direct or indirect ownership interests in drilling rigs and related equipment, including, without limitation, transportation equipment.
“Permitted First Lien Replacement Facility” means, with respect to the First Lien Credit Agreement, a reserve based credit facility which (a) shall refinance or replace the First Lien Credit Agreement in full with lenders holding a majority in principal amount of the commitments thereunder that are (i) commercial bank lenders, (ii) investment banks or (iii) Affiliates of Persons described in clauses (i) and (ii), which, in each case, regularly participate in reserve based credit facilities and (b) includes a customary borrowing base for reserve based loans provided by commercial banks.
“Permitted Holder” means each Person that directly or indirectly owns Voting Stock of the Company on the date hereof and any Affiliate of such Person.
“Permitted Investment” means an Investment by the Company or any Restricted Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary;
(2) another Person if as a result of such Investment such other Person becomes a Restricted Subsidiary or is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary and, in each case, any Investment held by such Person;provided,however that such Investment was not acquired by such Person in contemplation of such acquisition, merger, consolidation or transfer;
(3) cash and Cash Equivalents;
(4) receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;provided,however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances;
(5) payroll, commission, travel, relocation and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;
(6) loans or advances to employees (other than executive officers) made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary;
(7) Capital Stock, obligations or securities received in settlement of debts (x) created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments or (y) pursuant to any plan of reorganization or similar arrangement in a bankruptcy or insolvency proceeding;
(8) any Person as a result of the receipt of non-cash consideration from a sale, assignment or other transfer of Property that was made pursuant to and in compliance with the covenant described under “—Covenants—Limitation on Sales of Assets and Subsidiary Stock”;
(9) Commodity Agreements, Currency Agreements, Interest Rate Agreements and related Hedging Obligations, which transactions or obligations are Incurred in compliance with “—Covenants—Limitation on Indebtedness and Preferred Stock”;
(10) Guarantees issued in accordance with Section “—Covenants—Limitation on Indebtedness and Preferred Stock”;
(11) Permitted Business Investments;
(12) any Person where such Investment was acquired by the Company or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (b) as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;
(13) any Person to the extent such Investments consist of prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business by the Company or any Restricted Subsidiary;
(14) Guarantees of performance or other obligations (other than Indebtedness) arising in the ordinary course in the Oil and Gas Business, including obligations under oil and natural gas exploration, development, joint operating, and related agreements and licenses, concessions or operating leases related to the Oil and Gas Business;
(15) Investments in the Notes;
(16) Investments in existence on the Issue Date; and
(17) Investments by the Company or any of its Restricted Subsidiaries (other than Investments in any Unrestricted Subsidiary), together with all other Investments pursuant to this clause (17), in an aggregate amount outstanding at the time of such Investment not to exceed the greater of $7.5 million and 1.0% of the Company’s Adjusted Consolidated Net Tangible Assets (with the Fair Market Value of such Investment being measured at the time such Investment is made and without giving effect to subsequent changes in value).
“Permitted Liens” means, with respect to any Person:
(1) Liens on the Collateral securing Indebtedness and related obligations Incurred under clause (1) of the second paragraph of the covenant described under “—Covenants—Limitation on Indebtedness and Preferred Stock,” but only to the extent such Indebtedness is Indebtedness under the First Lien Credit Agreement or another Credit Facility that is secured by Prior Liens or any Refinancing Indebtedness in respect thereof;provided,however that the collateral agent, trustee or other security representative for the holders of such Indebtedness shall have become a party to the Intercreditor Agreement;
(2) pledges or deposits by such Person under workers’ compensation laws, unemployment insurance laws, social security or old age pension laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits (which may be secured by a Lien) to secure public or statutory obligations of such Person including letters of credit and bank guarantees required or requested by the United States, any State thereof or any foreign government or any subdivision, department, agency, organization or instrumentality of any of the foregoing in connection with any contract or statute (including lessee or operator obligations under statutes, governmental regulations, contracts or instruments related to the ownership, exploration and production of oil, natural gas, other hydrocarbons and minerals on State, Federal or foreign lands or waters), or deposits of cash or United States government bonds to secure indemnity performance, surety or appeal bonds or other similar bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case Incurred in the ordinary course of business;
(3) statutory and contractual Liens of landlords and Liens imposed by law, including carriers’, warehousemen’s, mechanics’, materialmen’s and repairmen’s Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof;
(4) Liens for taxes, assessments or other governmental charges or claims not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings;provided,however that appropriate reserves, if any, required pursuant to GAAP have been made in respect thereof;
(5) Liens in favor of issuers of surety or performance bonds or bankers’ acceptances issued pursuant to the request of and for the account of such Person in the ordinary course of its business;
(6) survey exceptions, encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning, building codes or other restrictions (including, without limitation, minor defects or irregularities in title and similar encumbrances) as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of the assets of such Person and its Restricted Subsidiaries, taken as a whole, or materially impair their use in the operation of the business of such Person;
(7) Liens securing Hedging Obligations permitted from time to time under the Indenture which are not included in the definition of Indebtedness pursuant to clause (3) of the penultimate paragraph of the definition thereof;
(8) leases, licenses, subleases and sublicenses of assets (including, without limitation, real property and intellectual property rights) which do not materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries;
(9) prejudgment Liens and judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired;
(10) Liens for the purpose of securing the payment of all or a part of the purchase price of, or Capitalized Lease Obligations, purchase money obligations or other payments Incurred to finance the acquisition, lease, improvement or construction of or repairs or additions to, assets or property acquired or constructed in the ordinary course of business;provided,however that:
(A) the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under the Indenture and does not exceed the cost of the assets or property so acquired or constructed; and
(B) such Liens are created within 180 days of the later of the acquisition, lease, completion of improvements, construction, repairs or additions or commencement of full operation of the assets or property subject to such Lien and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto;
(11) Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution;provided, however that:
(A) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Board; and
(B) such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution;
(12) Liens arising from UCC financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business;
(13) Liens (other than for borrowed money) existing on the Issue Date;
(14) Liens on property or shares of Capital Stock of a Person at the time such Person becomes a Subsidiary; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming a Subsidiary;provided further that any such Lien may not extend to any other property owned by the Company or any Restricted Subsidiary (other than assets or property affixed or appurtenant thereto);
(15) Liens on property at the time the Company or any of its Subsidiaries acquired the property, including any acquisition by means of a merger or consolidation with or into the Company or any of its Subsidiaries;provided,however, that such Liens are not created or Incurred in connection with, or in contemplation of, such acquisition;provided further that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary (other than assets or property affixed or appurtenant thereto);
(16) Liens securing the Notes, any increase in principal amount as the result of a payment of all or any portion of interest in kind on the then outstanding principal amount of the Notes and any PIK Notes in respect thereof and the Subsidiary Guarantees;
(17) Liens securing Refinancing Indebtedness Incurred to refinance Indebtedness that was previously so secured and that is being refinanced pursuant to clause (4)(c) of the second paragraph of the covenants described under “—Covenants—Limitation on Indebtedness and Preferred Stock”;provided,however that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced or is in respect of property or assets that is the security for a Permitted Lien hereunder;
(18) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease;provided,however that such Liens do not extend to any property or asset that is not leased property subject to such Capitalized Lease Obligation or operating lease;
(19) Liens in respect of Production Payments and Reserve Sales, which Liens shall be limited to the property that is the subject of such Production Payments and Reserve Sales;
(20) Liens arising under farm-out agreements, farm-in agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of Hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, joint venture agreements, partnership agreements, operating agreements, royalties, working interests, net profits interests, joint interest billing arrangements, participation agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, and other agreements which are customary in the Oil and Gas Business;provided,however, in all instances that such Liens are limited to the assets that are the subject of the relevant agreement, program, order or contract;
(21) Liens on pipelines or pipeline facilities that arise by operation of law;
(22) Liens in favor of the Company or any Subsidiary Guarantor;
(23) deposits made in the ordinary course of business to secure liability to insurance carriers;
(24) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(25) Liens deemed to exist in connection with Investments in repurchase agreements permitted under the covenant described under “Covenants—Limitation on Indebtedness and Preferred Stock”;provided,however that such Liens do not extend to any assets other than those that are the subject of such repurchase agreement;
(26) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(27) any (a) interest or title of a lessor or sublessor under any lease, liens reserved in oil, gas or other Hydrocarbons, minerals, leases for bonus, royalty or rental payments and for compliance with the terms of such leases; (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to (including, without limitation, ground leases or other prior leases of the demised premises, mortgages, mechanics’ liens, tax liens, and easements); or (c) subordination of the interest of the lessee or sublessee under such lease to any restrictions or encumbrance referred to in the preceding clause (b);
(28) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(29) Liens arising under the Indenture in favor of the Trustee for its own benefit and similar Liens in favor of other trustees, agents and representatives arising under instruments governing Indebtedness permitted to be incurred under the Indenture,provided,however, that such Liens are solely for the benefit of the trustees, agents or representatives in their capacities as such and not for the benefit of the holders of such Indebtedness;
(30) Liens arising from the deposit of funds or securities in trust for the purpose of decreasing or defeasing Indebtedness so long as such deposit of funds or securities and such decreasing or defeasing of Indebtedness are permitted under “—Covenants—Limitation on Restricted Payments”;
(31) Liens in favor of collecting or payer banks having a right of setoff, revocation, or charge back with respect to money or instruments of the Company or any Subsidiary of the Company on deposit with or in possession of such bank;
(32) Liens on any cash, Cash Equivalents or other securities to secure Cash Management Obligations owing to the banks or other financial entities holding such cash, Cash Equivalents or securities; and
(33) Liens securing Indebtedness in an aggregate principal amount outstanding at any one time, added together with all other Indebtedness secured by Liens Incurred pursuant to this clause (33), not to exceed $5.0 million.
In each case set forth above, notwithstanding any stated limitation on the assets that may be subject to such Lien, a Permitted Lien on a specified asset or group or type of assets may include Liens on all improvements, additions and accessions thereto and all products and proceeds thereof (including dividends, distributions and increases in respect thereof).
“Person” means any individual, corporation, partnership, joint venture, association,joint-stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity.
“Petroleum Industry Standards” means the Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.
“PIK Notes” means additional Notes to be issued as payment in kind interest on the outstanding Notes.
“Plan” means that certain Debtors’ First Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code, dated August 18, 2016 (together with all exhibits and schedules thereto) filed by the Company and the Subsidiary Guarantor with the United States Bankruptcy Court for the Southern District of Texas.
“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 as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation.
“Premium Amount” means, with respect to any tender or exchange offer, (i) the Tender Consideration paid in such tender or exchange offer minus (ii) the product of the Current Market Price on the date of expiration of such tender or exchange offer and the number of shares of Common Stock acquired pursuant to such tender or exchange offer.
“Prepayment Premium” means, with respect to any Note on any applicable redemption date (whether voluntary, mandatory or otherwise) the Applicable Premium or applicable redemption price for such Note as set forth under the caption “Optional Redemption”.
“Principal Market” means NYSE MKT LLC.
“Prior Lien” means a Lien on any Collateral that has priority (whether by law or pursuant to any agreement) over the Liens of the Second Lien Security Documents.
“Priority Lien” means a Lien granted by the Company or any other Grantor in favor of the Priority Lien Agent, at any time, upon any Property of such Person to secure Priority Lien Obligations (including Liens on such Collateral under the security documents associated with any Priority Substitute Credit Facility).
“Priority Lien Agent” means Wells Fargo Bank, National Association, as “Administrative Agent” under the First Lien Credit Agreement (together with its successors in such capacity), and, from and after the date of execution and delivery of a Priority Substitute Credit Facility, the agent, collateral agent, trustee, collateral trustee or other representative of the lenders or holders of the indebtedness and other Obligations evidenced thereunder or governed thereby, in each case, together with its successors in such capacity.
“Priority Lien Cap” means, as of any date, (a) the aggregate principal amount of all indebtedness outstanding at any time under any Priority Lien Debt (with outstanding letters of credit being deemed to have a principal amount equal to the stated amount thereof) not in excess of the greater of $50,000,000, plus (b) the amount of all Hedging Obligations, to the extent such Hedging Obligations are secured by the Priority Liens, plus (c) the amount of all Bank Product Obligations, to the extent such Bank Product Obligations are secured by the Priority Liens, plus (d) the amount of accrued and unpaid interest (excluding any interest paid-in-kind) and outstanding fees, to the extent such Obligations are secured by the Priority Liens, plus (e) fees, indemnifications, reimbursements and expenses as may be due pursuant to the terms of any Priority Lien Debt;provided that any Priority Lien Debt of the type described in the foregoing clause (a) (other than in respect of the $250,000 letter of credit outstanding on the Effective Date under the Priority Credit Agreement (or any renewal or replacement of such letter of credit)) in excess of $20,000,000 shall be incurred solely in compliance with the borrowing base in a Priority Lien Substitute Facility that is a reserve-based loan and includes a customary borrowing base for a reserve-based loans provided by commercial banks.
“Priority Lien Collateral” shall mean all “Collateral”, as defined in the First Lien Credit Agreement or any other Priority Lien Document, and any other assets of any Grantor now or at any time hereafter subject to Liens which secure, but only to the extent securing, any Priority Lien Obligation.
“Priority Lien Debt” means the Credit Agreement Debt and all indebtedness incurred under any Priority Substitute Credit Facility.
“Priority Lien Documents” means the First Lien Credit Agreement, the Priority Lien Security Documents, the other “Loan Documents” (as defined in the First Lien Credit Agreement) and all other loan documents, Notes, guarantees, instruments and agreements governing or evidencing, or executed or delivered in connection with, any Priority Substitute Credit Facility.
“Priority Lien Obligations” means the Credit Agreement Obligations and, all other Obligations in respect thereof. Notwithstanding any other provision hereof, the term “Priority Lien Obligations” will include accrued interest, fees, costs and other charges incurred under the Priority Lien Documents, whether incurred before or after commencement of an Insolvency or Liquidation Proceeding.
“Priority Lien Secured Parties” means, at any time, (a) the Priority Lien Agent, (b) each lender or issuing bank under the First Lien Credit Agreement, (c) each holder, provider or obligee of any Hedging Obligations or Bank Product Obligation that is a lender under the First Lien Credit Agreement or an Affiliate (as defined herein or in the First Lien Credit Agreement) thereof at the time such Hedging Obligation or Bank Product Obligation is entered into, or is a secured party (or a party entitled to the benefits of the security) under any Credit Agreement Document, (d) the beneficiaries of each indemnification obligation undertaken by any Grantor under any Credit Agreement Document, (e) each other Person that provides letters of credit, guarantees or other credit support related thereto under any Credit Agreement Document and (f) each other holder of, or obligee in respect of, any Credit Agreement Obligations (including pursuant to a Priority Substitute Credit Facility), in each case to the extent designated as a secured party (or a party entitled to the benefits of the security) under any Credit Agreement Document outstanding at such time.
“Priority Lien Security Documents” means the First Lien Credit Agreement (insofar as the same grants a Lien on the Collateral), each agreement listed in Part A of Exhibit B to the Intercreditor Agreement, and any other security agreements, pledge agreements, collateral assignments, mortgages, deeds of trust, control agreements, or grants or transfers for security, now existing or entered into after the date hereof, executed and delivered by the Company or any Subsidiary Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Priority Lien Agent (including any such agreements, assignments, mortgages, deeds of trust and other documents or instruments associated with any Priority Substitute Credit Facility).
“Priority Substitute Credit Facility” means any Credit Facility with respect to which the requirements contained in Section 4.04(a) of the Intercreditor Agreement have been satisfied and that replaces the First LienCredit Agreement then in existence. For the avoidance of doubt, no Priority Substitute Credit Facility shall be required to be a revolving or asset-based loan facility and may be a facility evidenced or governed by a credit agreement, loan agreement, note agreement, promissory note, indenture or any other agreement or instrument; provided that any Priority Lien securing such Priority Substitute Credit Facility shall be subject to the terms of the Intercreditor Agreement for all purposes (including the lien priorities as set forth herein as of the date thereof).
“Production Payments and Reserve Sales” means the grant or transfer by the Company or a Restricted Subsidiary to any Person of a royalty, overriding royalty, net profits interest, production payment (whether volumetric or dollar denominated), partnership or other interest in Oil and Gas Properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such production or proceeds of production, subject to the obligation of the grantor or transferor to operate and maintain, or cause the subject interests to be
operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business, including any such grants or transfers pursuant to incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists or other providers of technical services to the Company or a Restricted Subsidiary.
“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and contract rights.
“Proved Developed Producing Properties” means Oil and Gas Properties which are categorized as “Proved Reserves” that are both “Developed” and “Producing”, as such terms are defined in the Definitions for Oil and Gas Reserves as promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.
“Proved Reserves” means reserves that, in accordance with Petroleum Industry Standards, are classified as both “Proved Reserves” and one of the following: (a) “Developed Producing Reserves”; (b) “Developed Non-Producing Reserves”; or (c) “Undeveloped Reserves”.
“Purchase Agreement” means that certain purchase agreement with respect to the Notes dated as of the Issue Date by and among the Company and the other parties thereto, as such agreement may be amended from time to time.
“Rating Agency” means each of S&P and Moody’s, or if S&P or Moody’s or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company which shall be substituted for S&P or Moody’s, or both, as the case may be.
“RBL Extension Option” means the option for the Company to extend the Stated Maturity of the First Lien Credit Agreement (i) from March 30, 2018 to September 30, 2018 by making a one-time payment of a fee equal to 3.0% of the aggregate principal amount of Indebtedness outstanding under the First Lien Credit Agreement on March 30, 2018 and (ii) from September 30, 2018 to September 30, 2019 by making a one-time payment of a feeequal to 2.0% of the aggregate principal amount of Indebtedness outstanding under the First Lien Credit Agreement on September 30, 2018,provided, however, that the aggregate principal amount of Indebtedness outstanding under the First Lien Credit Agreement on September 30, 2018 does not exceed the lesser of (x) three times the Total Proved PV10% as of such date and (y) $15 million.
“Refinancing Indebtedness” means Indebtedness that is Incurred to refund, refinance, replace, exchange, renew, repay, extend, prepay, redeem or retire (including pursuant to any defeasance or discharge mechanism) (collectively, “refinance” and “refinances” and “refinanced” shall have correlative meanings) any Indebtedness (including Indebtedness of the Company that refinances Indebtedness of any Subsidiary Guarantor andIndebtedness of any Subsidiary Guarantor that refinances Indebtedness of another Subsidiary Guarantor, but excluding Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness of the Company or a Subsidiary Guarantor), including Indebtedness that refinances Refinancing Indebtedness,provided, however, that:
(1) (a) if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity at least 91 days later than the Stated Maturity of the Notes;
(2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced (plus, without duplication, any additional Indebtedness Incurred to pay interest, premiums or defeasance costs required by the instruments governing such existing Indebtedness and fees and expenses Incurred in connection therewith); and
(4) if the Indebtedness being refinanced is subordinated in right of payment to the Notes or the Subsidiary Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Notes or the Subsidiary Guarantee on terms at least as favorable to the Holders as those contained in the documentation governing the Indebtedness being refinanced.
“Registration Rights Agreements” means the Notes Registration Rights Agreement and the Warrants Registration Rights Agreement.
“Required Second Lien Debtholders” means, at any time, the holders of a majority in aggregate principal amount of all Second Lien Debt then outstanding. For purposes of this definition, Second Lien Debt registered in the name of, or beneficially owned by, the Company or any Subsidiary of the Company will be deemed not to be outstanding.
“Restricted Investment” means any Investment other than a Permitted Investment.
“Restricted Subsidiary” means any Subsidiary of the Company other than an Unrestricted Subsidiary.
“S&P” means Standard & Poor’s Rating Services, a division of S&P Global Inc., or any successor to the rating agency business thereof.
“Sale/Leaseback Transaction” means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person.
“SEC” means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if, at any time, such Commission is not existing and performing the duties assigned to it as of the Issue Date under the Securities Act and the Exchange Act, then the body performing such duties at such time.
“Sanctioned Country” means, at any time, a country or territory which is itself or whose government is, the subject or target of any Sanctions (at the time of the Indenture, Cuba, Iran, North Korea, Sudan and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, or by the United Nations Security Council, the European Union or any European Union member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).
“Sanctions” means, collectively, any economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Union member state or her Majesty’s Treasury of the United Kingdom.
“Second Lien Agent” means Wilmington Trust, National Association, in its capacity as collateral agent under the Indenture, together with its successors in such capacity appointed pursuant to the terms of the Indenture.
“Second Lien” means a Lien granted by a Note Document to the Second Lien Agent, at any time, upon any Collateral by any Grantor to secure Second Lien Obligations (including Liens on such Collateral under the security documents associated with any Second Lien Substitute Facility).
“Second Lien Collateral” shall mean all “Collateral”, as defined in any Note Document, and any other assets of any Grantor now or at any time hereafter subject to Liens which secure, but only to the extent securing, any Second Lien Obligations.
“Second Lien Debt” means the indebtedness under the Notes issued as of the date of the Intercreditor Agreement and Guarantees thereof, and all indebtedness incurred under any Second Lien Substitute Facility.
“Second Lien Obligations” means Second Lien Debt and all other Obligations in respect thereof. Notwithstanding any other provision hereof, the term “Second Lien Obligations” will include accrued interest, fees, costs and other charges incurred under the Indenture and the other Note Documents, whether incurred before or after commencement of an Insolvency or Liquidation Proceeding and whether or not allowable in an Insolvency or Liquidation Proceeding.
“Second Lien Secured Parties” means, at any time, the Second Lien Agent, the trustees, agents and other representatives of the holders of the Notes who maintain the transfer register for such Notes, the beneficiaries of each indemnification obligation undertaken by any Grantor under any Note Document and each other holder of, or obligee in respect of, any Second Lien Obligations (including pursuant to a Second Lien Substitute Facility), in each case to the extent designated as a secured party (or a party entitled to the benefits of the security) under any Note Document outstanding at any time.
“Second Lien Security Documents” means the Indenture (insofar as the same grants a Lien on the Collateral), each agreement listed in Part B of Exhibit B to the Intercreditor Agreement and any other security agreements, pledge agreements, collateral assignments, mortgages, deeds of trust, collateral agency agreements, control agreements, or grants or transfers for security, now existing or entered into after the date hereof, executed and delivered by the Company or any other Grantor creating (or purporting to create) a Lien upon Collateral in favor of the Second Lien Agent (including any such agreements, assignments, mortgages, deeds of trust and other documents or instruments associated with any Second Lien Substitute Facility).
“Second Lien Substitute Facility” means any facility with respect to which the requirements contained in Section 4.04(a) of the Intercreditor Agreement have been satisfied and that is permitted to be incurred pursuant to the Note Documents, the proceeds of which are used to, among other things, replace the Indenture then in existence. For the avoidance of doubt, no Second Lien Substitute Facility shall be required to be evidenced bynotes or other instruments and may be a facility evidenced or governed by a credit agreement, loan agreement, note agreement, promissory note, indenture or any other agreement or instrument; provided that any such Second Lien Substitute Facility shall be subject to the terms of the Intercreditor Agreement for all purposes (including the lien priority as setforth herein as of the date thereof) as the other Liens securing the Second Lien Obligations are subject to under the Intercreditor Agreement.
“Secured Debt Documents” means the Priority Lien Documents and the Notes Documents.
“Secured Obligations” means the Priority Lien Obligations and the Second Lien Obligations.
“Securities Act” means the Securities Act of 1933, as amended and the rules and regulations of the SEC promulgated thereunder.
“Security Documents” means the Priority Lien Security Documents and the Second Lien Security Documents.
“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC, as in effect on the Issue Date, measured as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries.
“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision, but shall not include any contingent obligations to repay, redeem or repurchase any such principal prior to the date originally scheduled for the payment thereof.
“Subordinated Obligation” means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the Notes pursuant to a written agreement.
“Subsidiary” of any Person means (a) any corporation, association or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50% of the total ordinary voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof (or Persons performing similar functions) or (b) any partnership, joint venture, limited liability company or similar entity of which more than 50% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, is, in the case of clauses (a) and (b), at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless otherwise specified herein, each reference to a Subsidiary (other than in this definition) will refer to a Subsidiary of the Company.
“Subsidiary Guarantee” means, individually, any Guarantee of payment of the Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture and any supplemental indenture thereto, and, collectively, all such Guarantees.
“Subsidiary Guarantors” means Goodrich Petroleum Company, L.L.C., as the initial guarantor of the Notes, and any Person that after the Issue Date guarantees the Notes pursuant to the covenant described under “—Covenants—Future Subsidiary Guarantors” or otherwise, in each case until a successor replaces such Person pursuant to the applicable provisions of the Indenture and, thereafter, means such successor, in each case until such Person is released from its guarantee of the Notes in accordance with the Indenture.
“Tender Consideration” means, with respect to any tender or exchange offer, the aggregate of the cash plus the Fair Market Value of all non-Cash consideration paid in respect of such tender or exchange offer.
“Test Date” means (A) each January 1 and July 1 of each year commencing with January 1, 2017 and (B) the date of any Material Acquisition or Material Disposition by the Company or its Restricted Subsidiaries of the Oil and Gas Properties (and after giving effect thereto, including any change in Indebtedness of the Company and its Restricted Subsidiaries as a result thereof).
“Total Proved PV10%” means, as of any date of determination thereof with respect to the Oil and Gas Properties described in the most recently prepared reserve report, the net present value, determined using a discount rate of ten percent (10%) per annum, of the future net revenues expected to accrue to the Company’s and the Subsidiary Guarantors’ collective interest in such Oil and Gas Properties during the remaining expected economic lives of such Oil and Gas Properties. Each calculation of such expected future net revenues shall be made by the Company in accordance with the then existing standards of the Society of Petroleum Engineers; provided, however that in any event (a) appropriate deductions shall be made for severance and ad valorem taxes and for operating, gathering, transportation and marketing costs, required for the production and sale of Hydrocarbons from such Oil and Gas Properties, (b) the pricing assumptions used in determining Total Proved
PV10% for any Oil and Gas Properties shall be based upon the Strip Price on such date, adjusted in a reasonable manner to reflect the Company’s and the Subsidiary Guarantors’ Commodity Agreements in respect of forecasted production from Proved Developed Producing Properties and (c) the cash-flows derived from the pricing assumptions set forth in clause (b) above shall be further adjusted to account for the historical basis differential in a reasonable manner. The amount of Total Proved PV10% at any time shall be calculated on a pro forma basis for dispositions and acquisitions of Oil and Gas Properties consummated since the date of the most recently prepared reserve report (provided, however that, in the case of any such acquisition or disposition, as the case may be, the Company shall have prepared a reserve report evaluating all categories of Proved Reserves attributable to the Oil and Gas Properties subject thereto).
“Total Secured Debt” means, at any time, the aggregate principal amount of Indebtedness in respect of the First Lien Credit Agreement outstanding at such time plus the aggregate principal amount of Indebtedness in respect of the Notes outstanding at such time.
“Treasury Management Arrangement” means any agreement or other arrangement governing the provision of treasury or cash management services, including deposit accounts, overdraft, credit or debit card, funds transfer, automated clearinghouse, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services and other cash management services.
“Trust Indenture Act” or “TIA” means the Trust Indenture Act of 1939, as amended, or any successor statute.
“Trustee” means Wilmington Trust, National Association until a successor replaces it in accordance with the applicable provisions of the Indenture and thereafter means the successor serving hereunder.
“UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect from time to time in any applicable jurisdiction.
“Unrestricted Cash” means cash and cash equivalents that satisfy each of the following criteria: (A) are held in a bank account subject to the “control” as defined in Article 9 of the UCC of the Trustee, (B) are not subject to any Lien other than the Liens in respect of the Notes and Permitted Liens described in either clause (1) or clause (11) of the definition thereof and (C) are not held in a restricted account, payroll account, tax account, trust account, pension account, royalty account or other similar type of account.
“Unrestricted Subsidiary” means:
(1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Company in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if:
(1) such Subsidiary or any of its Subsidiaries does not own any Capital Stock or Indebtedness of or have any Investment in, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary;
(2) all the Indebtedness of such Subsidiary and its Subsidiaries shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt;
(3) on the date of such designation, such designation and the Investment of the Company or a Restricted Subsidiary in such Subsidiary complies with the covenant descried under “—Covenants—Limitation on Restricted Payments”;
(4) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation:
(A) to subscribe for additional Capital Stock of such Person; or
(B) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and
(5) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company or such Restricted Subsidiary than those that might have been obtained from Persons who are not Affiliates of the Company.
Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officers’ Certificate certifying that such designation complies with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be Incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided, however that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could Incur at least $1.00 of additional Indebtedness under clause (1) of the first paragraph of the covenant described under “—Covenants—Limitation on Indebtedness and Preferred Stock” on a pro forma basis taking into account such designation.
“Unsecured Debt” of any Person means Indebtedness that is not secured by a Lien on any property or asset now owned or hereafter owned by such Person, or on any income or profits therefrom, or any assignment or conveyance of any right to receive income therefrom.
“U.S. Government Obligations” means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depositary receipt;provided, however that (except as required by law) such custodian is not authorized to make anydeduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depositary receipt.
“USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001).
“Volumetric Production Payments” means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith.
“Voting Stock” of an entity means all classes of Capital Stock of such entity then outstanding and normally entitled to vote in the election of members of such entity’s Board of Directors.
“Warrant Agreement” means that certain agreement with respect to the Warrants dated as of the Issue Date by and among the Company and the Holders as of the Issue Date, as such agreement may be amended from time to time.
“Warrants Registration Rights Agreement” means that certain registration rights agreement with respect to the Warrants dated as of the Issue Date by and among the Company and the other parties thereto, as such agreement may be amended from time to time.
“Warrants” means those warrants issued to the holders as of the Issue Date to purchase shares of Common Stock representing an aggregate total of 20% of the total number of shares of the Company.
“Wholly-Owned Subsidiary” means a Restricted Subsidiary, all of the Capital Stock of which (other than directors’ qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary.
On the Effective Date and pursuant to the Plan, the Company issued to the Purchasers 2,499,999 Warrants to purchase 2,499,999 shares of the Company’s common stock, subject to certain adjustments as described below. The Warrants were issued pursuant to a warrant agreement between the Company and American Stock Transfer & Trust Company, LLC, as warrant agent (the “Warrant Agreement”). The Warrants are not redeemable.
Exercise Price
Each Warrant shall entitle the holder, subject to the provisions of the Warrant Agreement, the right to purchase from the Company one share of common stock, at the price of $0.01 per share.
Exercise Period
Warrants may be exercised by the holder thereof, in whole or in part (but not as to a fractional share of common stock), at any time and from time to time prior to 5:00 P.M., New York time on October 12, 2026 (the “Exercise Period”). To the extent that a Warrant or portion thereof is not exercised prior to the expiration of the Exercise Period, it shall be automatically cancelled with no further rights thereunder, upon such expiration.
Adjustments to the Number of Exercise Shares
Issuance of Common Stock
Subject to certain exceptions, if the Company shall, at any time or from time to time after the Effective Date, issue or sell, or is deemed to have issued or sold in accordance with certain provisions, any shares of common stock without consideration or for consideration per share less than the Fair Market Value (as defined in the Warrant Agreement) of each such share of common stock, then immediately upon such issuance or sale (or deemed issuance or sale), the number of the Warrant Exercise Shares issuable upon exercise of the Warrants immediately prior to any such issuance or sale (or deemed issuance or sale) shall be increased to a number of Warrant Exercise Shares equal to the product obtained by multiplying the number of Warrant Exercise Shares issuable upon exercise of the Warrants immediately prior to such issuance or sale (or deemed issuance or sale) by a fraction (which shall in no event be less than one), (i) the numerator of which shall be the number of shares of common stock deemed outstanding immediately after such issuance or sale (or deemed issuance or sale) and (ii) the denominator of which shall be the sum of (A) the number of shares of common stock deemed outstanding immediately prior to such issuance or sale (or deemed issuance or sale) plus (B) the aggregate number of shares of common stock which the aggregate amount of consideration, if any, received by the Company upon such issuance or sale (or deemed issuance or sale) would purchase at the Fair Market Value of each such share of common stock.
The adjustments due to the issuance of common stock by the Company shall not apply to the following:
(a) shares of common stock issued upon the exercise of the Warrants;
(b) shares of common stock issued upon the exercise of the UCC Warrants;
(c) shares of common stock issued upon the conversion of the Convertible Notes;
(d) shares of common stock issued directly pursuant to a broadly distributed, registered public offering that is underwritten on a firm commitment basis;
(e) shares of Common Stock issued upon the exercise of options to directors, officers, employees, or consultants of the Company in connection with their service as directors of the Company, their employment by the Company or their retention as consultants by the Company, in each case authorized by the Board and issued pursuant to the Company’s long term incentive plan (including all such shares of Common Stock and options outstanding prior to the Effective Date);
(f) shares of common stock issued upon the conversion or exercise of options (other than options covered by clause (e) above) or convertible securities issued prior to the Date of Issuance, provided that such securities are not amended after the date hereof to increase the number of shares of common stock issuable thereunder or to lower the exercise or conversion price thereof; or
(g) shares of common stock issued as bona fide “equity kickers”
Dividend, Subdivision or Combination of Common Stock
If the Company shall, at any time or from time to time after the Effective Date, (i) pay a dividend or make any other distribution upon the common stock or any other capital stock of the Company payable in shares of common stock or in options or convertible securities, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of common stock into a greater number of shares, the number of Warrant Exercise Shares issuable upon exercise of the Warrants immediately prior to any such dividend, distribution or subdivision shall be proportionately increased. If the Company at any time combines (by combination, reverse stock split or otherwise) its outstanding shares of common stock into a smaller number of shares, the number of Warrant Exercise Shares issuable upon exercise of the Warrants immediately prior to such combination shall be proportionately decreased.
Reorganization, Reclassification, Consolidation or Merger
In the event of any (i) capital reorganization of the Company, (ii) reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Company with or into another entity, (iv) sale of all or substantially all of the Company’s assets or (v) other similar transaction (other than as described under “Dividend, Subdivision or Combination of Common Stock”), in each case which entitles the holders of common stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for common stock, the Warrants shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Exercise Shares then exercisable under the Warrants, be exercisable for the kind and number of shares of stock or other securities or assets of the Company or of the successor Person resulting from such transaction to which the holders would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the holders had exercised the Warrants in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Warrant Exercise Shares then issuable upon exercise of the Warrants as a result of such exercise (without taking into account any limitations or restrictions on the exercisability of the Warrants); and, in such case, appropriate adjustment (in form and substance satisfactory to the holders) shall be made with respect to the holders’ rights under the Warrants to insure that the provisions described above thereafter be applicable, as nearly as possible, to the Warrants in relation to any shares of stock, securities or assets thereafter acquirable upon exercise of the Warrants.
Other Dividends and Distributions
If the Company shall, at any time or from time to time after the Effective Date, make or declare, or fix a record date for a dividend or any other distribution payable in securities of the Company (other than a dividend or distribution of shares of common stock, options or convertible securities in respect of outstanding shares of common stock), cash or other property, then, and in each such event, provision shall be made so that each holder shall receive upon exercise of the Warrants held by such holder, in addition to the number of Warrant Exercise Shares receivable thereupon, the kind and amount of securities of the company, cash or other property which such holder would have been entitled to receive had the Warrants held by such holder been exercised in full into Warrant Exercise Shares on the date of such event and had such Holder thereafter, during the period from the
date of such event to and including the Exercise Date, retained such securities, cash or other property receivable by them as aforesaid during such period, giving application to all adjustments called for during such period with respect to the rights of such holder; provided, that no such provision shall be made if the holders receive, simultaneously with the distribution to the holders of common stock, a dividend or other distribution of such securities, cash or other property in an amount equal to the amount of such securities, cash or other property as the holders would have received if the Warrants had been exercised in full into Warrant Exercise Shares on the date of such event.
The summaries above of selected provisions of our warrants are qualified entirely by the provisions of the Warrant Agreement and Warrant Registration Rights Agreement, which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part.
60UNDERWRITING UnderYou should read thetermsWarrant Agreement andsubject to the conditions contained in the underwriting agreement dated , 2000, we have agreed to sell to the underwriters named below, for whom Jefferies & Company, Inc. is acting as representative, the following respective numbersWarrant Registration Rights Agreement.We are registering 2,499,999 Warrants, any and all Convertible Notes, any and all PIK Notes and an aggregate of
shares of our common stock:
Number Underwriter of Shares ----------- ---------Jefferies & Company, Inc........................................... --------- Total............................................................ 4,500,000 =========The underwriting agreement provides that the underwriters are obligated to purchase all the4,374,998 shares of common stockin this offering if anyunderlying the Convertible Securities. Our registered common stock will trade on the OTC Markets under the symbol “GDPP.”The Securities being registered are
purchased, other than those shares coveredcurrently owned by theover-allotment option described below.selling security holders. Theunderwriting agreement also provides that if an underwriter defaults, then the purchase commitments of non-defaulting underwriters may be increasedselling security holders, which as used herein, includes donees, pledgees, transferees orthe offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase, on a pro rata basis, up to 675,000 additional shares of our common stock at the public offering price less the underwriting discounts and commissions. The option may only be exercised to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock to the public initially at the public offering price on the cover page of this prospectus and to dealers at that price less a concession of $ per share. The underwriters and such dealers may allow a discount of $ per share on sales tootherbroker/dealers. After the public offering, the public offering price and concession and discount to broker/dealers may be changed by the representative. The following summarizes the compensation and estimated expenses that we will pay.
Total ----------------------------- Per Without With Share Over-Allotment Over-Allotment ----- -------------- --------------Underwriting discounts and commissions.......................... $ $ $ Expenses payable by us................ $ $ $In connection with our recent $5 million private placement completed in October 2000, Jefferies & Company, Inc. received an advisory feesuccessors-in-interest selling Securities or interests in theamount of $100,000 for the provision of financial advisory and structuring services to Goodrich, and for the rendering of financial advice to our board of directors. We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with theSecuritiesand Exchange Commission a registration statement under the Securities Act of 1933 relating to any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Jefferies & Company, Inc. for a period of 180 daysreceived after the date of this prospectusexceptfrom a selling security holder aspreviously consenteda gift, pledge, partnership distribution or other transfer, may, from time toby Jefferies & Company, Inc. Our executive officers and directors and certain of our shareholders have agreed that they will not offer,time, sell,contract to sell, pledgetransfer or otherwise dispose ofdirectlyany orindirectly,all of their Securities or interests in Securities on anysharesstock exchange, market or trading facility on which the Securities are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time ofoursale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.The selling security holders may use any one or more of the following methods when disposing of the Securities or interests therein:
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;block trades in which the broker-dealer will attempt to sell the Securities as agent, but may position and resell a portion of the block as principal to facilitate the transaction;purchases by a broker-dealer as principal and resale by the broker-dealer for its account;an exchange distribution in accordance with the rules of the applicable exchange;privately negotiated transactions;short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC;through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;broker-dealers may agree with the selling security holders to sell a specified number of Securities at a stipulated price per security; anda combination of any such methods of sale.The selling security holders may, from time to time, pledge or grant a security interest in some or all of the Securities owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the Securities, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus. The selling security holders also may transfer the Securities in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of the Securities or interests therein, the selling security holders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Securities in the course of hedging the positions they assume. The selling security holders may also sell the Securities short and deliver these Securities to close out their short positions, or loan or pledge the common stock
or securities convertible into or exchangeable or exercisable for any shares of our common stock,to broker-dealers that in turn may sell these Securities. The selling security holders may also enter intoa 61transaction which would have the same effect, or enter into any swap, hedgeoption or otherarrangement that transfers,transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of the Securities offeredby this prospectus, which Securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling security holders from the Securities offered by them will be the purchase price of the Securities less discounts or commissions, if any. The selling security holders reserve the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of Securities to be made directly or through agents. We will not receive any of the
economic consequences of ownership of our common stock, whether any such aforementioned transaction is to be settled by delivery of our common stockproceeds from this offering.The selling security holders also may resell all or
such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Jefferies & Company, Inc. foraperiod of 180 days after the date of this prospectus. Although it has no intent or understanding to do so, Jefferies & Company, Inc., in its sole discretion, may permit early releaseportion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act,provided that they meet the criteria and conform to the requirements ofour common stockthat rule.The selling security holders and any underwriters, broker-dealers or agents that participate in the sale of the Securities or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the Securities may be underwriting discounts and commissions under the Securities Act. Selling security holders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the
restrictions detailed above priorprospectus delivery requirements of the Securities Act.To the extent required, the Securities to be sold, the names of the selling security holders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the
expirationregistration statement that includes this prospectus.In order to comply with the securities laws of some states, if applicable, the Securities may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states, the Securities may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
We have advised the selling security holders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of the
180-day lock up period. Jefferies & Company, Inc. has advised us that, priorSecurities in the market and togranting an early release of our common stock, it would consider factors including need, market conditions,theperformance of our common stock price, trading liquidity, prior trading habitsactivities of theshareholder,selling security holders andother relevant considerations. Pursuantits affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time toSEC short-swing trading rules, H&Q Guaranty is restricted fromtime) available to the sellingits directly-owned sharessecurity holders for the purpose ofour common stock prior to February 2001.satisfying the prospectus delivery requirements of the Securities Act. The selling security holders may indemnify any broker-dealer that participates in transactions involving the sale of the Securities against certain liabilities, including liabilities arising under the Securities Act.We have agreed to indemnify the
underwritersselling security holders againstcertainliabilities, including liabilities under the Securities Actor contributeand state securities laws, relating topayments thattheunderwriters may be required to make in respect thereof. In connection with the offering the underwriters may engage in over- allotment transactions, stabilizing transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M underregistration of the SecuritiesExchange Act of 1934 such as the following: . Over-allotment involves salesoffered bythe underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares, which they may purchase in the over- allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option and/or purchasing shares in the open market. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option--a naked short position--that position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. . In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of the common stock until the time, if any, at which a stabilizing bid is made. These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of the common stock may be higher than the price that might 62otherwise exist in the open market. These transactions may be effected on The New York Stock Exchange or otherwise and, if commenced, may be discontinued without notice at any time.this prospectus.The validity of the
securitiesSecurities offeredherebyby this prospectus will be passed upon for us by Vinson & ElkinsL.L.P,L.L.P., Houston, Texas. Theunderwriters have been representedvalidity of the Securities offered bySkadden, Arps, Slate, Meagherthis prospectus and other matters arising under Louisiana law are being passed upon by Cook, Yancey, King &Flom LLP, Los Angeles, California. INDEPENDENT ACCOUNTANTSGalloway, APLC, Shreveport, Louisiana.The consolidated financial statements of Goodrich Petroleum Corporation and
subsidiariessubsidiary incorporated by reference in Goodrich Petroleum Corporation’s Annual Report (Form 10-K) for the year ended December 31, 2015, and the effectiveness of Goodrich Petroleum Corporation and subsidiary’s internal control over financial reporting as of December 31,1999 and 1998, and for each of the years in the three-year period ended December 31, 1999,2015 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about the Company’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements), included therein, and incorporated hereinand in the registration statementby reference. Such financial statements are incorporated herein by reference in reliance uponthe report of KPMG, LLP, independent public accountants, appearing elsewhere herein, and uponsuch reports given on the authority ofsaidsuch firm as experts in accounting and auditing.INDEPENDENT PETROLEUM ENGINEERS Information relating toEstimates of the
estimated provedoil and gas reserves ofoilthe Company andnatural gas and therelatedstatements offuture net cash flows and the present valuesof future net revenuesthereofand other related calculations as of January 1, 2000 and June 30, 2000 included herein andincorporated by reference inthe notes to our financial statements have beenthis prospectus were based upon reserve reports prepared byCoutretNetherland, Sewell & Associates, Inc., independent petroleum engineers.as of December 31, 2015, and Ryder Scott Company as of December 31, 2015. We have incorporated these estimates in reliance on the authority of such firm as an expert in such matters.WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part ofWe have filed with the SEC a registration statement on Form S-1
that we have filed with(including theSECexhibits, schedules and amendments thereto) under the Securities Act, with respect to thecommon stockSecurities offeredin this prospectus.hereby. This prospectus does not contain all of the informationthat isset forth in the registrationstatement. Certain parts ofstatement and theregistration statement are omitted as allowed byexhibits and schedules thereto. For further information with respect to us and therules and regulations of the SEC. WeSecurities offered hereby, we refer you to the registration statementfor further information about our companyand thesecurities offeredexhibits and schedules filed therewith. Statements contained in thisprospectus. We file annual, quarterlyprospectus as to the contents of any contract, agreement or any other document are summaries of the material terms of this contract, agreement or other document andspecial reports, proxy statements andare not necessarily complete. With respect to each of these contracts, agreements or otherinformation with the Securities and Exchange Commission. Those reports, proxy statements and other information,documents filed aswell asan exhibit to the registration statement, reference is made to the exhibits for a more complete description ofwhich this prospectus forms a part, canthe matter involved. A copy of the registration statement, and the exhibits and schedules thereto, may be inspectedand copiedwithout charge at thePublic Reference Roompublic reference facilities maintained by the SEC atRoom 1024, 450 Fifth100 F StreetN.W.,NE, Washington,DCD.C. 20549.YouCopies of these materials mayobtainbe obtained, upon payment of a duplicating fee, from the Public Reference Section of the SEC at 100 F Street NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of thePublic Reference Room by calling the SEC at 1-800-SEC-0330.public reference facility. The SEC maintains aWorld Wide Web site on the Internet at http://www.sec.govwebsite that contains reports, proxy and information statements and other information regardingus,registrants that file electronically with the SEC. The address of the SEC’s website iswww.sec.gov.We also make available free of charge on our internet website atwww.goodrichpetroleum.com our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports, as
wellsoon as reasonably practicable after we electronically file such material with, or furnish it to, theregistration statement of whichSEC. Information contained on our website is not incorporated by reference into this prospectusforms a part. The reports, proxyand you should not consider information
statements and other information concerning us also can be inspected and copied at the officescontained on our website as part ofthe New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which our common stock is listed. 63GLOSSARY OF TECHNICAL TERMS The definitions below apply to the technical terms used inthis prospectus.All volumes of natural gas referredINCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to
herein are stated at“incorporate by reference” thelegal pressure base of the state or area where the reserves exist and at 60 degrees Fahrenheit and in most instances are rounded to the nearest major multiple. After payout. With respect to an oil or gas interest in a property, refers to the time period after which the costs to drill and equip a wellinformation we havebeen recovered. Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons. Bcf. Billion cubic feet. Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. Boe. Barrels of oil equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. Btu or British Thermal Unit. The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit. Completion. The installation of permanent equipment for the production of oil or gas or, in the case of a dry hole, the reporting of abandonment to the appropriate agency. Developed acreage. The number of acres which are allocated or assignable to producing wells or wells capable of production. Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon believed to be productive. Dry hole. A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes. Exploratory well. A well drilled to find and produce oil or gas reserves not classified as proved, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir or to extend a known reservoir. Farm-in or farm-out. An agreement whereunder the owner of a working interest in an oil and natural gas lease assigns the working interest or a portion thereof to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a "farm-in" while the interest transferred by the assignor is a "farm-out." Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. Finding costs. Costs associated with acquiring exploring for and developing proved oil and natural gas reserves, including all costs involved in acquiring acreage, geological and geophysical work and the cost of drilling and completing wells. Gross acres or gross wells. The total acres or wells, as the case may be, in which a working interest is owned. MBbls. One thousand barrels of crude oil or other liquid hydrocarbons. 64Mcf. One thousand cubic feet. Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. MMBbls. One million barrels of crude oil or other liquid hydrocarbons. MMBtu. One million British Thermal Units. MMcf. One million cubic feet. MMcf/d. One million cubic feet per day. MMcfe. One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. Net acres or net wells. The sum of the fractional working interests owned in gross acres or gross wells. Normally pressured reservoirs. Reservoirs with a formation-fluid pressure equivalent to 0.465 psi per foot of depth from the surface. For example, if the formation pressure is 4,650 psi at 10,000 feet, then the pressure is considered to be normal. Over-pressured reservoirs. Reservoirs subject to abnormally high pressure as a result of certain types of subsurface formations. Present value. When used with respect to oil and natural gas reserves, the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development costs, using prices and costs in effect as of the date indicated, without giving effect to nonproperty-related expenses such as general and administrative expenses, debt service and future income tax expense or to depreciation, depletion and amortization, discounted using an annual discount rate of 10%. Productive well. A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes. Proved developed non-producing reserves. Proved developed reserves expected to be recovered from zones behind casing in existing wells. Proved developed producing reserves. Proved developed reserves that are expected to be recovered from completion intervals currently open in existing wells and able to produce to market. Proved developed reserves. Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods. Proved reserves. The estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved undeveloped location. A site on which a development well can be drilled consistent with spacing rules for purposes of recovering proved undeveloped reserves. Proved undeveloped reserves. Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. 65PV-10 Value. The present value of estimated future revenues to be generated from the production of proved reserves, calculated in accordance with Commission guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation, without giving effect to non-property related expenses such as general and administrative expenses, debt service, future income tax expense and depreciation, depletion and amortization, and discounted using an annual discount rate of 10%. Recompletion. The completion for production of an existing well bore in another formation from that in which the well has been previously completed. Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs. Royalty interest. An interest in an oil and natural gas property entitling the owner to a share of oil or gas production free of costs of production. Standardized Measure. The present value, discounted at 10%, at future net cash flows from estimated proved reserves after income taxes calculated holding prices and costs constant at amounts in effect on the date of the report (unless such prices or costs are subject to change pursuant to contractual provisions) and otherwise in accordance with the SEC's rules for inclusion of oil and gas reserve information in financial statementsfiled with the SEC.3-D seismic data. Three-dimensional picturesThis means we can disclose important information to you without actually including the specific information in this prospectus by referring to those documents. The information incorporated by reference is an important part ofthe subsurface created by collecting and measuring the intensity and timing of sound waves transmitted into the earth as they reflect back to the surface. Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves. Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activitiesthis prospectus.If information in incorporated documents conflicts with information in this prospectus, you should rely on the
property and a share of production. Workover. Operationsmost recent information. If information in an incorporated document conflicts with information in another incorporated document, you should rely ona producing well to restore or increase production. 66INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2000 (Unaudited) and December 31, 1999....................................................... F-2 Consolidated Statements of Operations (Unaudited) Nine Months Ended September 30, 2000 and 1999............................................. F-3 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2000 and 1999............................................. F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Unaudited) Nine Months Ended September 30, 2000 and 1999............... F-5 Notes to Consolidated Financial Statements September 30, 2000 and 1999 (Unaudited)............................................................. F-6 Independent Auditors' Report............................................. F-9 Consolidated Balance Sheets at December 31, 1999 and 1998................ F-10 Consolidated Statements of Operations Years Ended December 31, 1999, 1998 and 1997................................................................ F-11 Consolidated Statements of Cash Flows Years Ended December 31, 1999, 1998 and 1997................................................................ F-12 Consolidated Statements of Stockholders' Equity and Comprehensive Income Year Ended December 31, 1999, 1998 and 1997............................. F-13 Notes to Consolidated Financial Statements December 31, 1999............. F-14F-1GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2000 1999 ------------- ------------ (Unaudited)ASSETS CURRENT ASSETS Cash and cash equivalents......................... $ 2,030,396 $ 5,929,229 Accounts receivable Trade and other, net of allowance............... 1,107,992 669,741 Accrued oil and gas revenue..................... 4,796,421 1,937,711 Prepaid insurance and other....................... 147,990 53,806 ----------- ----------- Total current assets............................ 8,082,799 8,590,487 ----------- ----------- PROPERTY AND EQUIPMENT Oil and gas properties (successful efforts method).......................................... 76,030,100 65,401,168 Furniture, fixtures and equipment................. 229,162 213,524 ----------- ----------- 76,259,262 65,614,692 Less accumulated depletion, depreciation and amortization..................................... (24,097,747) (19,566,835) ----------- ----------- Net property and equipment...................... 52,161,515 46,047,857 ----------- ----------- OTHER ASSETS Restricted Cash................................... 1,030,000 -- Deferred taxes.................................... 1,655,032 -- Other............................................. 329,384 1,620,208 ----------- ----------- Total Other Assets.............................. 3,014,416 1,620,208 ----------- ----------- TOTAL ASSETS.................................. $63,258,730 $56,258,552 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long term debt................. $ 3,600,000 $ 3,600,000 Accounts payable.................................. 5,063,377 2,711,746 Accrued liabilities............................... 1,241,862 1,326,995 Current portion other non-current liabilities..... 1,240,454 1,182,306 ----------- ----------- Total current liabilities....................... 11,145,693 8,821,047 ----------- ----------- LONG TERM DEBT...................................... 20,265,000 33,353,117 OTHER NON-CURRENT LIABILITIES Production payment payable........................ 697,902 1,630,784 Accrued abandonment costs......................... 3,452,855 3,108,281 Accrued interest long term debt................... -- 251,154 PREFERRED STOCKHOLDERS EQUITY IN A SUBSIDIARY COMPANY............................................ -- 2,683,125 STOCKHOLDERS' EQUITY Preferred stock; authorized 10,000,000 shares: Series A convertible preferred stock, par value $1.00 per share; issued and outstanding 796,318 shares (liquidation preference $10 per share).... 796,318 796,318 Series B convertible preferred stock, par value $1.00 per share; issued and outstanding 660,839 and 665,759 shares, respectively (liquidation preference $10 per share)........................ 660,839 665,759 Common stock, par value $0.20 per share; authorized 25,000,000 shares; issued and outstanding 12,315,522 and 5,417,171 shares, respectively..................................... 2,463,104 1,083,434 Additional paid-in capital........................ 34,894,343 18,156,114 Accumulated deficit............................... (11,117,324) (14,290,581) ----------- ----------- Total stockholders' equity.................... 27,697,280 6,411,044 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $63,258,730 $56,258,552 =========== ===========See notes to consolidated financial statements. F-2GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended September 30, ------------------------ 2000 1999 ----------- -----------REVENUES Oil and gas sales................................... $19,656,078 $ 9,198,913 Other............................................... 382,229 204,074 ----------- ----------- Total revenues.................................... 20,038,307 9,402,987 ----------- ----------- EXPENSES Lease operating expense and production taxes........ 5,000,863 2,007,520 Depletion, depreciation and amortization............ 4,227,460 3,549,541 Exploration......................................... 2,084,469 1,295,032 Interest expense.................................... 3,696,048 1,678,186 General and administrative.......................... 1,711,525 1,617,350 Preferred dividend requirements of a subsidiary..... 38,364 -- ----------- ----------- Total costs and expenses.......................... 16,758,729 10,147,629 ----------- ----------- GAIN (LOSS) ON SALE OF ASSETS......................... 307,299 (519,495) ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES..................... 3,586,877 (1,264,137) Income tax benefit.................................. (1,655,032) -- ----------- ----------- NET INCOME (LOSS)..................................... 5,241,909 (1,264,137) Preferred stock dividends........................... 886,685 941,736 ----------- ----------- INCOME (LOSS) APPLICABLE TO COMMON STOCK.............. $ 4,355,224 $(2,205,873) =========== =========== BASIC INCOME (LOSS) PER AVERAGE COMMON SHARE.......... $ .49 $ (.42) =========== =========== DILUTED INCOME (LOSS) PER AVERAGE COMMON SHARE........ .35 (.42) =========== =========== AVERAGE COMMON SHARES OUTSTANDING--BASIC.............. 8,873,159 5,262,320 =========== =========== AVERAGE COMMON SHARES OUTSTANDING--DILUTED............ 15,050,900 5,262,320 =========== ===========See notes to consolidated financial statements. F-3GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------------------ 2000 1999 ----------- -----------OPERATING ACTIVITIES Net income (loss).................................. $ 5,241,909 $(1,264,137) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depletion, depreciation and amortization.......... 4,227,460 3,549,541 Amortization of leasehold costs................... 762,914 841,321 Amortization of deferred debt-financing........... 300,292 -- Deferred tax benefit.............................. (1,655,032) -- Accrued interest and other charges on private placement borrowings............................. 973,631 -- Amortization of detachable stock purchase warrants......................................... 357,016 -- Amortization of production payment discount....... 177,999 -- Preferred dividends of subsidiary................. 38,364 -- (Gain) Loss on sale of asset...................... (307,299) 519,495 Director stock grant.............................. 30,000 30,000 Capital expenditures charged to income............ 954,640 119,800 Payment of contingent liability................... -- (68,636) Net change in: Accounts receivable............................... (3,296,961) 1,032,251 Prepaid insurance and other....................... (107,103) 159,344 Accounts payable.................................. 2,321,635 (5,124,999) Accrued liabilities............................... (55,133) (868,960) Other Liabilities................................. (484,525) -- ----------- ----------- Net cash provided by operating activities........ 9,479,807 (1,074,980) ----------- ----------- INVESTING ACTIVITIES Proceeds from sales of assets...................... 459,526 240,105 Acquisition of oil and gas properties.............. (1,198,631) (3,719,021) Capital expenditures............................... (10,783,174) (1,861,980) ----------- ----------- Net cash used in investing activities............ (11,522,279) (5,340,896) ----------- ----------- FINANCING ACTIVITIES Proceeds from private placement of common stock.... 4,500,000 -- Principal payments of bank borrowings.............. (3,225,617) (1,500,000) Preferred stock dividends.......................... (2,068,652) -- Proceeds from private placement borrowings......... -- 12,000,000 Proceeds from preferred stock issue................ -- 3,000,000 Payment of private placement of financing costs.... -- (1,133,612) Exercise of stock purchase warrants................ 249,322 -- Exercise of employee stock options................. 191,444 -- Exercise of director stock options................. 9,875 -- Net change in restricted cash...................... (1,030,000) -- Production payments................................ (452,733) -- Payment of debt restructure costs.................. (30,000) -- ----------- ----------- Net cash provided by (used in) financing activities...................................... (1,856,361) 12,366,388 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... (3,898,833) 5,950,512 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 5,929,229 95,630 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 2,030,396 $ 6,046,142 =========== =========== NON-CASH ACTIVITIES Conversion of net carrying amount of notes payable and accrued interest.............................. 10,130,349 -- Acquisition of oil and gas properties and assumption of related liabilities................. -- 6,036,342 Costs of private placement......................... -- 355,800 Accrued capital expenditures and financing costs... -- 576,536See notes to consolidated financial statements. F-4GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Nine Months Ended September 30, 2000 and 1999 (Unaudited)
Accumulated Other Series A* Series B* Comprehensive Preferred Stock Preferred Stock Common Stock Loss Unrealized ------------------ ------------------ --------------------- Additional Gain (Loss) on Number Par Number Par Number Paid-In Accumulated Marketable of Shares Value of Shares Value of Shares Par Value Capital Deficit Equity Securities --------- -------- --------- -------- ---------- ---------- ----------- ------------ -----------------Balance at December 31, 1998............ 796,318 $796,318 750,000 $750,000 5,247,705 $1,049,541 $15,226,027 $(12,461,598) $(400,900) Net loss........ -- -- -- -- -- -- -- (1,612,265) -- Realized loss on sale of marketable securities...... -- -- -- -- -- -- -- -- 400,900 Total Comprehensive Income (Loss)... -- -- -- -- -- -- -- -- -- Directors stock grant........... -- -- -- -- 30,000 6,000 24,000 -- -- ------- -------- ------- -------- ---------- ---------- ----------- ------------ --------- Balance at September 30, 1999............ 796,318 $796,318 750,000 $750,000 5,277,705 $1,055,541 $15,250,027 $(14,073,863) -- ======= ======== ======= ======== ========== ========== =========== ============ ========= Balance at December 31, 1999............ 796,318 $796,318 665,759 $665,759 5,417,171 $1,083,434 $18,156,114 $(14,290,581) -- Net Income...... -- -- -- -- -- -- -- 5,241,909 -- Total Comprehensive Income ......... -- -- -- -- -- -- -- -- -- Issuance of common stock.... -- -- -- -- 1,533,333 306,667 4,193,333 -- -- Conversion of preferred stock of subsidiary to common stock.... -- -- -- -- 1,547,665 309,533 2,411,956 -- -- Exercise of director stock option.......... -- -- -- -- 12,500 2,500 7,375 -- -- Conversion of notes payable... -- -- -- -- 3,295,647 659,130 9,751,719 -- -- Preferred stock dividends....... -- -- -- -- -- -- -- (2,068,652) -- Exercise of common stock purchase warrants........ -- -- -- -- 252,022 50,403 198,919 -- -- Exercise of employee stock option.......... -- -- -- -- 245,698 49,140 142,304 -- -- Director stock grant........... -- -- -- -- 6,000 1,200 28,800 -- -- Conversion of Series B preferred stock to common stock........... -- -- (4,920) (4,920) 5,486 1,097 3,823 -- -- ------- -------- ------- -------- ---------- ---------- ----------- ------------ --------- Balance at September 30, 2000............ 796,318 $796,318 660,839 $660,839 12,315,522 $2,463,104 $34,894,343 $(11,117,324) -- ======= ======== ======= ======== ========== ========== =========== ============ =========Total Stockholders' Equity -------------Balance at December 31, 1998............ $ 4,959,388 Net loss........ (1,612,265) Realized loss on sale of marketable securities...... 400,900 ------------- Total Comprehensive Income (Loss)... (1,211,365) Directors stock grant........... 30,000 ------------- Balance at September 30, 1999............ $ 3,778,023 ============= Balance at December 31, 1999............ $ 6,411,044 Net Income...... 5,241,909 ------------- Total Comprehensive Income ......... 5,241,909 Issuance of common stock.... 4,500,000 Conversion of preferred stock of subsidiary to common stock.... 2,721,489 Exercise of director stock option.......... 9,875 Conversion of notes payable... 10,410,849 Preferred stock dividends....... (2,068,652) Exercise of common stock purchase warrants........ 249,322 Exercise of employee stock option.......... 191,444 Director stock grant........... 30,000 Conversion of Series B preferred stock to common stock........... -- ------------- Balance at September 30, 2000............ $27,697,280 =============- ----- * Dividends are cumulative and arrearages amounted to $941,726 or $.12 per share at September 30, 1999. See notes to consolidated financial statements. F-5GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) NOTE A--Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to rules and regulations oftheSecurities and Exchange Commission; however,most recent incorporated document. We incorporate by reference theCompany believes the disclosures which are made are adequate to make the information presented not misleading. The financial statements and footnotes included in this registration statement should be read in conjunction with the financial statements and notes thereto included in the Company's annual reportdocuments listed below.our Annual Report on Form 10-K for the year ended December 31,1999. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary2015, filed on March 30, 2016, and Amendment No. 1 topresent fairly the financial position of the Company as of September 30, 2000 and the results of its operations for the nine months ended September 30, 2000 and 1999. The results of operations for the nine month period ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. NOTE B--Conversion of Convertible Notes In August 2000, the holders of approximately $12,943,000 of principle and accrued interest on convertible notes issued by two of the Company's subsidiaries in a private placement in September 1999 converted their notes into 3,235,647 shares of the Company's common stock. The conversion of the notes increased stockholders equity by approximately $10,130,000, inclusive of approximately $1,033,000 in remaining deferred loan financing costs which have been eliminated. The Company arranged a stand-by underwriting to finance the purchase of the convertible notes from noteholders that elected not to convert their notes into the Company's common stock. Notes purchased by the underwriters were subsequently converted into shares of the Company's common stock on the same terms as the notes originally tendered for conversion. Two of the underwriters are, or are affiliates of, members of the Company's board of directors. Each underwriter received 15,000 shares of the Company's common stock as compensation for their services. In addition, one of the underwriters received an additional 15,000 shares of common stock for their role as agent for the noteholders. The Company issued 60,000 shares of common stock as consideration for underwriting and noteholder agent assistance relative to the conversion of the notes, which resulted in a charge to interest expense of $280,500. NOTE C--Acquisition of Oil and Gas Properties On March 2, 2000, the Company completed its acquisition of working interests in the Burrwood and West Delta 83 Fields, comprising, approximately 8,600 acres, in Plaquemines Parish, Louisiana for a net purchase price of $1,198,000 and the assumption of the fields' plugging and abandonment obligation estimated at $5,000,000. The Company acquired an approximate 95% working interest of all rights from the surface to approximately 10,600' and an approximate 47.5% working interest in the deep rights below 10,600'. In connection with the acquisition the Company secured a performance bond and established an escrow account to be used for the payment of obligations associated with the plugging and abandonment of the wells, salvage and removal of platforms and related equipment, and the site restoration of the fields. Required escrowed outlays include an initial cash payment of $750,000 and monthly cash payments of $70,000 beginning June 1, 2000 and continuing until June 1, 2005. In addition, as part of the purchase agreement, the Company has agreed to F-6GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) shoot a 3-D seismic survey over the fields by June 30, 2001 or remit payment to the seller in the amount of $3,500,000. The 3-D seismic survey began in July and is approximately 40% complete at September 30, 2000. The Company anticipates that the seismic survey will be completed on or before June 30, 2001. The cost of the seismic survey is expected to be approximately $2,500,000 and the Company has incurred seismic survey costs of approximately $1,250,000 through September 30, 2000. NOTE D--Private Placement On February 18, 2000, the Company completed a private placement of shares of its common stock resulting in net proceeds to the Company of $4,500,000. The Company issued 1,533,333 shares of common stock in an offering, which began on January 28, 2000. The $4,500,000 in offering proceeds, in addition to the Company's existing working capital and anticipated cash flow from operations, have been used to assist in the acquisition of and will be used in the development of the Burrwood and West Delta 83 fields, and to further develop the Lafitte field purchased in 1999. The Company owns an approximate 49% working interest in the Lafitte field in Jefferson Parish, Louisiana, which was acquired in September 1999. NOTE E--Conversion of Preferred Units On January 28, 2000, the Company notified holders of Goodrich Petroleum Company, LLC's Series A Preferred Units that it intended to call for redemption all the outstanding units which were convertible into the Company's common stock at $2.00 per share. On February 17, 2000, all of the holders of the Preferred Units, representing one hundred percent of the 300,000 of outstanding Units, converted the Units into approximately 1,550,000 shares of the common stock of Goodrich Petroleum Corporation. The conversion of the preferred units and private placement increased the Company's stockholders equity by approximately $7,200,000. NOTE F--Income (Loss) Per Share Net income (loss) was used as the numerator in computing both basic and diluted income (loss) per Common share for the nine months ended September 30, 2000 and 1999. The following table reconciles the weighted-average shares outstanding used for these computations.
Reconciliation of Shares Outstanding -------------------- Nine Months Ended September 30, -------------------- 2000 1999 ---------- ---------Basic Method............................................... 8,873,159 5,262,320 Dilutive Stock Warrants.................................... 2,757,535 -- Dilutive Stock Options..................................... 653,787 -- Convertible Debt........................................... 2,766,419 -- ---------- --------- Diluted Method............................................. 15,050,900 5,262,320 ========== =========Net Income applicable to common stock has been adjusted by interest expense associated with the convertible notes of $877,785 net of related tax expense, for purposes of calculating diluted earnings per share for the nine months ended September 30, 2000. The computations of earnings per share in the consolidated statements of operations did not consider outstanding convertible preferred stock convertible into 1,068,661 shares of common stock for the nine months ended September 30, 2000 because the effects of these convertible securities would have improved the Company's earnings per share. F-7GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On September 29, 2000, the Company paid an aggregate of approximately $1.8 million of dividend arrearages and $296,000 of regular quarterly dividends on its outstanding series of preferred stock. These payments brought the Company current on both series of preferred stock. During 1999 cash dividend payments on its Series A and Series B convertible preferred stock were suspended. Dividends in arrears amounted to $942,000 for the nine months ended September 30, 1999. NOTE G--Commitments and Contingencies The U.S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company has estimated that the remaining cost of long-term clean up of the site will be approximately $3.5 million with the Company's percentage of responsibility to be approximately 3.05%. As of September 30, 2000, the Company has paid approximately $321,000 in costs related to this matter and $122,500 accrued for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean up of the site. There can be no assurance that the cost of clean up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. NOTE H--Income Taxes The Company recorded a net deferred tax asset of approximately $1.6 million in the nine months ended September 30, 2000 based on projections for generating sufficient taxable income prior to expiration of net operating loss carryforwards. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, net of valuation allowance provided will be realized. No provision for income taxes has been recorded by the Company for the nine months ended September 30, 1999 due to its incurring a net operating loss for the 1999 period. A valuation allowance was provided for the amount of net operating losses incurred in 1999. NOTE I--Subsequent Event On September 29, 2000, the Company filed a registration statementour Annual Report on FormS- 1 with the Securities and Exchange Commission for a public offering of its common stock. On October 23, 2000, the Company completed a private placement of 1,000,000 shares of common stock at $5.00 per share. Net proceeds from the private placement amounted to $4,650,000 and will be used primarily to accelerate the development of the Company's Burrwood and West Delta 83 fields. An affiliate of a member of the Company's board of directors received $250,000 in compensation for its service in placing the shares in the private placement. On October 17, 2000, the Company reached an agreement with all of the holders of its Series B preferred stock to exchange each share of Series B preferred stock for 1.8 shares of the Company's common stock. The exchange offer is contingent upon, and is expected to close concurrently with, the Company's public offering. The exchange will result in the issuance of 1,189,510 shares of the Company's common stock. F-8INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Goodrich Petroleum Corporation: We have audited the accompanying consolidated balance sheets of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for each of the years in the three year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP Shreveport, Louisiana March 29, 2000 F-9GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1999 1998 ------------ ------------ASSETS CURRENT ASSETS Cash and cash equivalents.......................... $ 5,929,229 $ 95,630 Marketable equity securities....................... -- 358,700 Accounts receivable Trade and other, net of allowance................ 669,741 2,197,179 Accrued oil and gas revenue...................... 1,937,711 1,089,226 Prepaid insurance.................................. 53,806 184,898 ----------- ----------- Total current assets............................. 8,590,487 3,925,633 ----------- ----------- PROPERTY AND EQUIPMENT Oil and gas properties............................. 65,401,168 53,320,832 Furniture, fixtures and equipment.................. 213,524 195,279 ----------- ----------- 65,614,692 53,516,111 Less accumulated depletion, depreciation and amortization...................................... (19,566,835) (13,720,009) ----------- ----------- Net property and equipment....................... 46,047,857 39,796,102 ----------- ----------- OTHER ASSETS......................................... 1,620,208 314,853 ----------- ----------- TOTAL ASSETS..................................... $56,258,552 $44,036,588 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long term debt.................. $ 3,600,000 $29,500,000 Accounts payable................................... 2,711,746 7,763,507 Accrued liabilities................................ 1,326,995 1,813,693 Current portion other noncurrent liabilities....... 1,182,306 -- ----------- ----------- Total current liabilities........................ 8,821,047 39,077,200 ----------- ----------- LONG TERM DEBT....................................... 33,353,117 -- OTHER NONCURRENT LIABILITIES Production payment payable......................... 1,630,784 -- Accrued abandonment costs.......................... 3,108,281 -- Accrued interest on long term debt................. 251,154 -- ----------- ----------- Total liabilities................................ 47,164,383 39,077,200 ----------- ----------- PREFERRED STOCKHOLDERS EQUITY IN10-K/ASUBSIDIARY COMPANY............................................. 2,683,125 -- STOCKHOLDERS' EQUITY Preferred stock; authorized 10,000,000 shares: Series A convertible preferred stock, par value $1 per share; issued and outstanding 796,318 shares (liquidating preference $10 per share, aggregating to $7,963,180)...................... 796,318 796,318 Series B convertible preferred stock, par value $1 per share; issued and outstanding 665,759 and 750,000 shares (liquidation preference $10 per share, aggregating to $6,657,590)............... 665,759 750,000 Common stock, par value $0.20 per share; authorized 25,000,000 shares; issued and outstanding 5,417,171 and 5,247,703 shares.................... 1,083,434 1,049,541 Additional paid-in capital......................... 18,156,114 15,226,027 Accumulated deficit................................ (14,290,581) (12,461,598) Accumulated other comprehensive income............. -- (400,900) ----------- ----------- Total stockholders' equity....................... 6,411,044 4,959,388 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $56,258,552 $44,036,588 =========== ===========See notes to consolidated financial statements. F-10GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ------------------------------------- 1999 1998 1997 ----------- ----------- -----------REVENUES Oil and gas sales..................... $13,734,691 $ 9,836,863 $11,351,586 Pipeline joint venture................ -- -- 1,078,397 Other................................. 285,883 755,010 471,378 ----------- ----------- ----------- Total revenues...................... 14,020,574 10,591,873 12,901,361 ----------- ----------- ----------- COSTS AND EXPENSES Lease operating expense and production taxes................................ 3,591,427 2,821,515 2,316,006 Depletion, depreciation and amortization......................... 4,743,608 4,094,447 4,862,754 Exploration........................... 1,656,158 6,010,425 3,205,730 Impairment of oil and gas properties.. 465,465 1,075,853 549,792 Interest expense...................... 2,810,576 1,909,849 1,416,675 General and administrative............ 1,989,703 2,399,332 2,627,672 Preferred dividend requirements of subsidiary........................... 73,125 -- -- ----------- ----------- ----------- Total costs and expenses............ 15,330,062 18,311,421 14,978,629 ----------- ----------- ----------- GAIN (LOSS) ON SALES OF ASSETS.......... (519,495) 4,206 688,304 ----------- ----------- ----------- LOSS BEFORE INCOME TAXES................ (1,828,983) (7,715,342) (1,388,964) Income Taxes.......................... -- -- -- ----------- ----------- ----------- NET LOSS................................ (1,828,983) (7,715,342) (1,388,964) Preferred stock dividends (1999 amounts in arrears).................. 1,249,343 1,255,638 1,205,210 ----------- ----------- ----------- LOSS APPLICABLE TO COMMON STOCK......... $(3,078,326) $(8,970,980) $(2,594,174) =========== =========== =========== BASIC LOSS PER AVERAGE COMMON SHARE..... $ (.58) $ (1.71) $ (.50) =========== =========== =========== DILUTED LOSS PER AVERAGE COMMON SHARE... $ (.58) $ (1.71) $ (.50) =========== =========== =========== AVERAGE COMMON SHARES OUTSTANDING....... 5,288,011 5,243,105 5,229,307 =========== =========== ===========See notes to consolidated financial statements. F-11GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------- 1999 1998 1997 ----------- ----------- -----------OPERATING ACTIVITIES Net loss............................... $(1,828,983) $(7,715,342) $(1,388,964) Adjustments to reconcile net loss to net cash provided by operating activities: Depletion, depreciation and amortization......................... 4,743,607 4,094,447 4,862,754 Amortization of leasehold costs....... 1,103,219 1,016,649 288,037 Amortization of deferred debt financing costs...................... 109,088 -- 27,694 (Gain) Loss on sale of assets......... 519,495 (4,206) (688,304) Capital expenditures charged to income............................... 119,800 4,382,514 2,341,954 Impairment of oil and gas properties.. 465,465 1,075,853 549,792 Accrued interest on private placement borrowings........................... 251,154 -- -- Amortization of detachable stock purchase warrants.................... 142,500 -- -- Preferred stock dividends of subsidiary........................... 73,125 -- -- Payment of other liabilities.......... -- (107,625) (321,040) Director stock grant.................. 30,000 -- -- Other................................. (68,636) (160,518) (87,357) Net change in (exclusive of acquisition): Accounts receivable................... 678,953 (289,660) 520,391 Prepaid insurance and other........... 195,975 (71,550) 73,933 Accounts payable...................... (5,051,761) 2,975,821 (157,334) Accrued liabilities................... (418,092) (679,620) 611,069 ----------- ----------- ----------- Net cash provided by operating activities.......................... 1,064,909 4,516,763 6,632,625 ----------- ----------- ----------- INVESTING ACTIVITIES Proceeds from sale of pipeline joint venture............................... -- -- 3,564,000 Proceeds from sales of assets.......... 249,487 49,091 370,000 Acquisition of oil and gas properties.. (4,099,956) (129,325) (2,074,866) Capital expenditures................... (2,556,901) (14,878,619) (7,866,173) ----------- ----------- ----------- Net cash used in investing activities.......................... (6,407,370) (14,958,853) (6,007,039) ----------- ----------- ----------- FINANCING ACTIVITIES Proceeds from bank borrowings.......... -- 11,500,000 12,000,000 Principal payments of bank borrowings.. (2,409,383) (500,000) (10,963,919) Proceeds from Private Placement borrowings............................ 12,000,000 -- -- Proceeds from preferred stock issue.... 3,000,000 -- -- Preferred stock dividends.............. -- (1,255,638) (1,205,210) Production payments.................... (114,970) -- -- Retirement of preferred stock.......... -- -- (7,650) Payment of debt financing costs........ (1,303,496) -- -- Exercise of employee stock options..... 3,909 -- -- ----------- ----------- ----------- Net cash provided by (used in) financing activities................ 11,176,060 9,744,362 (176,779) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 5,833,599 (697,728) 448,807 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 95,630 793,358 344,551 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 5,929,229 $ 95,630 $ 793,358 =========== =========== =========== NON CASH INVESTING ACTIVITIES Costs of private placement............. 355,800 -- -- Acquisition of oil and gas properties and assumption of related liabilities........................... 6,036,342 -- -- Accrued Capital Expenditures and Financing Costs....................... -- 1,981,276 1,290,658See notes to consolidated financial statements. F-12GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years Ended December 31, 1999, 1998, and 1997
Accumulated Other Series A Series B Comprehensive Preferred Stock* Preferred Stock* Common Stock Income-Unrealized ------------------ ------------------ -------------------- Additional Gain (Loss) on Number Par Number Par Number Paid-In Accumulated Marketable of Shares Value of Shares Value of Shares Par Value Capital Deficit Equity Securities --------- -------- --------- -------- --------- ---------- ----------- ------------ -----------------Balance at January 1, 1997........... 801,149 $801,149 -- $ -- 5,225,564 $1,045,113 $ 8,375,282 $ (896,444) $(189,900) Net loss.......... -- -- -- -- -- -- -- (1,388,964) -- Unrealized Change in Marketable Securities........ -- -- -- -- -- -- -- -- 274,300 Total Comprehensive Income (Loss)..... Issuance of Series B Preferred Stock............. -- -- 750,000 750,000 -- -- 6,750,000 -- -- Preferred stock dividends Series A ($.80 per share)...... -- -- -- -- -- -- -- (638,023) -- Series B ($.76 per share)...... -- -- -- -- -- -- -- (567,187) -- Conversion of preferred stock to Common Stock...... (3,831) (3,831) -- -- 2,993 599 3,232 -- -- Employee Stock grants............ -- -- -- -- 3,846 769 24,231 -- -- Retirement of Series A Preferred Stock............. (1,000) (1,000) -- -- -- -- (6,650) -- -- ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Balance at December 31, 1997.............. 796,318 796,318 750,000 750,000 5,232,403 1,046,481 15,146,095 (3, 490,618) 84,400 ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Net loss.......... -- -- -- -- -- -- -- (7,715,342) -- Unrealized Change in Marketable Securities........ -- -- -- -- -- -- -- (485,300) Total Comprehensive Income (Loss)..... -- -- -- -- -- -- -- -- -- Preferred stock dividends......... -- -- -- -- -- -- -- (1,255,638) -- Employee and director stock grants............ -- -- -- -- 15,302 3,060 79,932 -- -- ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Balance at December 31, 1998.............. 796,318 796,318 750,000 750,000 5,247,705 1,049,541 15,226,027 (12,461,598) (400,900) ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Net loss.......... -- -- -- -- -- -- -- (1,828,983) -- Realized loss on sale of marketable Securities........ -- -- -- -- -- -- -- -- 400,900 Total Comprehensive Income (Loss)..... -- -- -- -- -- -- -- -- -- Issuance of Common Stock Purchase Warrants with Preferred Stock... -- -- -- -- -- -- 210,000 -- -- Issuance of Common Stock Purchase Warrants for services.......... -- -- -- -- 40,000 8,000 113,800 -- -- Issuance of Common Stock Purchase Warrants as transaction fee... -- -- -- -- -- -- 234,000 -- -- Issuance of Common Stock Purchase Warrants with debt.............. -- -- -- -- -- -- 2,280,000 -- -- Director Stock Grants............ -- -- -- -- 30,000 6,000 24,000 -- -- Exercise of Employee Stock Options........... -- -- -- -- 5,250 1,050 2,889 -- -- Conversion of Series B Preferred Stock to Common Stock............. -- -- (84,241) (84,241) 94,216 18,843 65,398 -- -- ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Balance at December 31, 1999.............. 796,318 $796,318 665,759 $665,759 5,417,171 $1,083,434 $18,156,114 $(14,290,581) -- ======= ======== ======= ======== ========= ========== =========== ============ =========Total Stockholders' Equity -------------Balance at January 1, 1997........... $ 9,135,200 Net loss.......... (1,388,964) Unrealized Change in Marketable Securities........ 274,300 ------------- Total Comprehensive Income (Loss)..... (1,114,664) Issuance of Series B Preferred Stock............. 7,500,000 Preferred stock dividends Series A ($.80 per share)...... (638,023) Series B ($.76 per share)...... (567,187) Conversion of preferred stock to Common Stock...... -- Employee Stock grants............ 25,000 Retirement of Series A Preferred Stock............. (7,650) ------------- Balance at December 31, 1997.............. 14,332,676 ------------- Net loss.......... (7,715,342) Unrealized Change in Marketable Securities........ (485,300) ------------- Total Comprehensive Income (Loss)..... (8,200,642) Preferred stock dividends......... (1,255,638) Employee and director stock grants............ 82,992 ------------- Balance at December 31, 1998.............. 4,959,388 ------------- Net loss.......... (1,828,983) Realized loss on sale of marketable Securities........ 400,900 ------------- Total Comprehensive Income (Loss)..... (1,428,083) Issuance of Common Stock Purchase Warrants with Preferred Stock... 210,000 Issuance of Common Stock Purchase Warrants for services.......... 121,800 Issuance of Common Stock Purchase Warrants as transaction fee... 234,000 Issuance of Common Stock Purchase Warrants with debt.............. 2,280,000 Director Stock Grants............ 30,000 Exercise of Employee Stock Options........... 3,939 Conversion of Series B Preferred Stock to Common Stock............. -- ------------- Balance at December 31, 1999.............. $ 6,411,044 =============* dividends are cumulative and arrearages amounted to $1,249,343 or $0.23 per share at December 31, 1999 See notes to consolidated financial statements. F-13GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 NOTE A--Description of Business The Company is in the primary business of the exploration and production of crude oil and natural gas. The subsidiaries have interests in such operations in seven states, primarily in Louisiana and Texas. Two of the Company's subsidiaries also had a minority interest in a natural gas pipeline joint venture located in the state of Texas until such interest was sold in 1997. NOTE B--Summary of Significant Accounting Policies Principles of Consolidation--The consolidated financial statements include the financial statements of Goodrich Petroleum Corporation, its wholly-owned subsidiaries, and one of its wholly-owned subsidiary's three wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition--Revenues from the production of natural gas properties in which the Company has an interest with other producers are recognized on the entitlements method. Differences between actual production and net working interest volumes are routinely adjusted. These differences are not significant. Property and Equipment--The Company uses the successful effort method of accounting for exploration and development expenditures. Leasehold acquisition costs are capitalized. When proved reserves are found on an undeveloped property, leasehold cost is reclassified to proved properties. Significant undeveloped leases are reviewed periodically, and a valuation allowance is provided for any estimated decline in value. Cost of all other undeveloped leases is amortized over the estimated average holding period of the leases. Costs of exploratory drilling are initially capitalized, but if proved reserves are not found, the costs are subsequently expensed. All other exploratory costs are charged to expense as incurred. Development costs are capitalized, including the cost of unsuccessful development wells. The Company follows SFAS No. 121 and recognizes an impairment when the net of future cash inflows expected to be generated by an identifiable long-lived asset and cash outflows expected to be required to obtain those cash inflows is less than the carrying value of the asset. The Company performs this comparison for its oil and gas properties on a field-by-field basis using the company's estimates of future commodity prices. The amount of such loss is measured based on the difference between the discounted value of such net future cash flows and the carrying value of the asset. The Company recorded such impairments in 1999, 1998 and 1997 in the amounts of $465,000, $1,076,000 and $550,000 respectively. The impairments were generally the result of certain fields depleting earlier than anticipated. Depreciation and depletion of producing oil and gas properties are provided under the unit-of-production method. Proved developed reserves are used to compute unit rates for unamortized tangible and intangible development costs, and proved reserves are used for unamortized leasehold costs. Estimated dismantlement, abandonment, and site restoration costs, net of salvage value, are considered in determining depreciation and depletion provisions. Gains and losses on disposals or retirements that are significant or include an entire depreciable or depletable property unit are included in income. All other dispositions, retirements, or abandonments are reflected in accumulated depreciation, depletion, and amortization. F-14GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Cash and Cash Equivalents--Cash and cash equivalents include cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at date of purchase. Marketable Equity Securities--The Company has classified its investment in marketable equity securities as available for sale. Accordingly, unrealized holding gains and losses are excluded from earnings and are reported as other comprehensive income until realized. The Company sold its marketable equity securities in January 1999. Investment in Pipeline Joint Venture--Prior to its sale in October 1997, the Company's investment consisted of a 20% interest in an intrastate natural gas pipeline joint venture. The Company's carrying basis in the investment was established at August 15, 1995 (fair value) and was being amortized on a basis which matched the amortization with the monthly maximum average contract quantities over the estimated remaining term of the joint venture. Amortization amounted to $741,000for the year ended December 31,1997. The Company recorded its equity in joint venture earnings as revenues in the statement of operations in the periods when the contract payments were earned. Income Taxes--The Company follows the provisions of SFAS No. 109, Accounting for Income Taxes which requires income taxes be accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized2015, filed on April 29, 2016;our Quarterly Reports on Form 10-Q for thefuture tax consequences attributable to differences between the financial statement carrying amounts of existing assetsquarters ended March 31, 2016, June 30, 2016 andliabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share--Basic income per Common share is computed by dividing net income available for common stockholders, for each reporting period by the weighted average number of Common shares outstanding during the period. Diluted income per Common share is computed by dividing net income available for common stockholders for each reporting period by the weighted average number of Common shares outstanding during the period, plus the effects of potentially dilutive Common shares. Derivative Financial Instruments--The Company utilizes derivative instruments such as futures, forwards, options, collars and swaps for purposes of hedging its exposure to fluctuations in the price of crude oil and natural gas. Gains and losses from derivatives designated as hedges of sales are reported on the statement of income as an increase or reduction of oil and gas sales in the period related to the actual sale of product. Premiums paid on hedging contracts are amortized over the life of the contracts as a reduction to oil and gas sales. Accounting Matters--The Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in June 1997. This statement established accounting and reporting standards for derivative instruments and hedging activities. Effective January 1, 2001, the Company must recognize the fair value of all derivative instruments as either assets or liabilities in its Consolidated Balance Sheet. A derivative instrument meeting certain conditions may be designated as a hedge of a specific exposure; accounting for changes in a derivative's fair value will depend on the intended use of the derivative and the resulting designation. Any transition adjustments resulting from adopting this statement will be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle. The Company makes use of derivative instruments to hedge specific market risks. The Company has not yet determined the effects that SFAS No. 133 will have on its future consolidated financial statements or the amount of the cumulative adjustment that will be made upon adopting this new standard. F-15GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock Based Compensation--The Company uses SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and provide pro forma net income and pro forma earnings per share and other disclosures for employee stock options grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the disclosure provisions of SFAS No. 123. Commitments and Contingencies--Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties, which are probable of realization, are separately recorded, and are not offset against the related environmental liability. Use of Estimates--Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. NOTE C--Private Placement OnSeptember23, 1999, the Company and two of its subsidiaries, Goodrich Petroleum Company, L.L.C. ("Goodrich-Louisiana") and Goodrich Petroleum Company-Lafitte, L.L.C. ("Goodrich-Lafitte"), completed a private placement of $15 million of convertible securities. As described below the private placement transaction accomplished the objectives of management's plan as set forth in the Liquidity and Capital Resources section of the Company's 1998 Annual Report30, 2016;our current reports on Form10-K. Goodrich-Louisiana issued convertible notes in8-K filed with theamountSEC on December 22, 2016, November 14, 2016, October 17, 2016, October 14, 2016, October 3, 2016, July 29, 2016, May 26, 2016, April 15, 2016, April 11, 2016, April 6, 2016, April 1, 2016 (two reports), March 17, 2016, March 16, 2016, March 8, 2016, March 3, 2016, February 25, 2016, February 5, 2016, January 26, 2016, January 25, 2016 and January 14, 2016; andthe description of$6,000,000 that will accrue interest monthly at 8% per annum in arrears until October 1, 2002. Unless extended or converted, the principal and accrued interest will be repayable in 24 monthly installments, beginning October 1, 2002. Principal and accrued interest may be converted by the holder at any time into theour common stock contained in our Registration Statement on Form S-8, filed on October 12, 2016, including any amendments or reports filed for the purpose of updating theCompany at the rate of $4 per share. These convertible notes are secured by various collateral, includingdescription.We will provide a
mortgage on Goodrich-Louisiana's oil and gas properties. The purchaserscopy of thesenotes received one warrantfilings (including certain exhibits that are specifically incorporated by reference therein) topurchaseeach person, including any beneficial owner, to whom ashareprospectus is delivered. You may request a copy ofthe common stock of the Company at $.9375 (the closing price on the date the transaction was negotiated) for every $4 of notes issued. The warrants may be exercised atanytime before their expiration on September 30, 2006. Goodrich-Lafitte is a newly formed Louisiana limited liability company and is the entity which owns a 49% interest in the Lafitte Field. Goodrich-Lafitte also issued convertible notes in the amount of $6,000,000 that will accrue interest at 8% per annum, monthly in arrears, until October 1, 2002. Unless extended or converted, the principal and accrued interest will be repayable in 24 monthly installments, beginning October 1, 2002. Principal and accrued interest may be converted by the holder at any time into the common stock of the Company at the rate of $4 per share. As an alternative conversion right, the principal and accrued interest under these notes may be converted into common equity interests in Goodrich-Lafitte, after October 1, 2002, if neither the common stock of the Company has a closing price of at least $3 per share nor the net asset value per share of the Company is at least $3. These convertible notes are secured by various collateral, including a mortgage on Goodrich-Lafitte's oil and gas properties. The purchasers of these notes received one warrant to purchase a share of the common stock of the Company at $.9375 (the closing price on the date the transaction was negotiated) for every $4 of notes issued. The warrants may be exercised at any time before their expiration on September 30, 2006. F-16GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Approximately $3.7 million of the proceeds from the Goodrich-Lafitte convertible notes were used to purchase the aforementioned interest in the Lafitte Field. The remaining proceeds are being used for development capital expenditures and for general corporate and working capital purposes. Additionally, Goodrich-Louisiana issued $3,000,000 of preferred interests consisting of 300,000 preferred units with a par value and liquidation preference of $10 per share. The fair value of the preferred units is recorded as preferred stockholders' equity in a subsidiary company in the accompanying financial statements. Distributions on the preferred units will accrue quarterly in arrears at 8% per annum through September 30, 2002 at which time the rate increases 2% per year, not to exceed 20%. Goodrich-Louisiana has the right to redeem the units at any time. The preference amount and accrued distributions may be converted by the holder at any time into the common stock of the Company at $2 per share. On February 17, 2000 the holders of the preferred units exercised their conversion privileges (See Note D). Each preferred unit holder was also issued one warrant to purchase a share of common stock of the Company for every $10 of preference value. The warrants are exercisable at $1.50 per share at any time before their expiration on September 30, 2006. Approximately $2,500,000 of the proceeds from issuance of the convertible notes and preferred units was allocated to additional paid in capital as the fair value of the warrants issued in connection with the securities, based on the relative fair value of the two securities. $2,300,000 of the proceeds allocable to additional paid in capital will be amortized as additional interest cost over the original term of the related notes. The remaining adjustment to additional paid in capital related to the preferred units will be recorded as accretion in the value of the preferred stockholders' equity in a subsidiary company. Transaction costs related to the private placement amounted to approximately $1,500,000. The transaction costs allocable to the debt issue of $1,320,000 will be amortized over the life of the convertible debt. The balance at December 31, 1999 net of amortization was $1,370,000. The remaining costs of $180,000 were allocated to, and offset against the carrying value of the preferred units. Under the terms of the Goodrich-Louisiana Operating Agreement, the holders of preferred units have no voting rights unless the payment of distributions is six months or more in arrears, in which event the holders of preferred units may participate in the election of company managers. Goodrich-Louisiana is precluded from issuing any new units having preference or priority over the preferred units as to distributions, liquidation or redemption. This transaction would normally have required approval of the Company's shareholders according to the Shareholder Approval Policy of the New York Stock Exchange (the "Exchange"). Pursuant to an exception to this policy, and based on a determination by the Company's Audit Committee that the delay necessary in securing shareholder approval prior to the transaction would seriously jeopardize the financial viability of the Company, the Company's Audit Committee approved the Company's omission to seek shareholder approval. The Exchange accepted the Company's application for use of the exception. NOTE D--Subsequent Events Acquisition of Oil and Gas Properties On March 2, 2000, the Company completed its acquisition of working interests in the Burrwood and West Delta 83 Fields, comprising approximately 8,600 acres, in Plaquemine Parish, Louisiana for $1,650,000 and the assumption of the fields plugging and abandonment obligation estimated at $5,000,000. The Company acquired an approximate 95% working interest of all rights from the surface to approximately 10,600 feet and an approximate 47.5% working interest in the deep rights below 10,600 feet. In connection with the acquisition the Company secured a performance bond and established an escrow account to be used for the payment of obligations associated with the plugging and abandonment of the wells, salvage and removal of platforms and F-17GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) related equipment, and the site restoration of the fields. Required escrowed outlays include an initial cash payment of $750,000 and monthly cash payments of $70,000 until June 1, 2005. In addition, as part of the purchase agreement, the Company is required to shoot a 3-D seismic survey over the fields by June 30, 2001 or remit payment to the seller in the amount of $3,500,000. The cost of the seismic study is expected to be approximately $2,500,000 and the Company has escrowed cash compensating balances of $500,000 with Compass Bank to be used solely for payments or reimbursements of amounts expended in satisfaction of the seismic requirement. The Company has identified a number of development opportunities in the fields which it plans to begin exploiting in the year 2000. Private Placement On February 18, 2000, the Company completed a private placement of shares of its common stock resulting in net proceeds to the Company of $4,500,000. The Company issued 1,500,000 shares of common stock in an offering, which began on January 28, 2000. The $4,500,000 in offering proceeds, in addition to the Company's existing working capital and anticipated cash flow from operations, will be used to assist in the acquisition and development of the Burrwood and West Delta 83 fields, and to further develop the Lafitte field purchased in 1999. The Company owns an approximate 49% working interest in the Lafitte field in Jefferson Parish, Louisiana, which was acquired in September 1999. Conversion of Preferred Units On January 28, 2000, the Company notified holders of Goodrich Petroleum Company, LLC's Series A Preferred Units that it intended to call for redemption all the outstanding units which were convertible into the Company's common stock at $2 per share. On February 17, 2000, all of the holders of the Preferred Units, representing 100% of the $3,000,000 of outstanding Units, converted the Units into approximately 1,550,000 shares of the common stock of Goodrich Petroleum Corporation. The conversion of the preferred units and private placement increased the number of common shares outstanding to approximately 8,416,000 and increased the Company's stockholders equity by approximately $7,200,000. NOTE E--Lafitte Field Acquisition On September 23, 1999 the Company acquired an approximate 49% working interest in the Lafitte Field located in Jefferson Parish, Louisiana for $2,940,000. The field encompasses over 8,000 acres and is located approximately thirty miles south of New Orleans. The Company commenced development activities in the fourth quarter of 1999. The consideration granted to seller included a production payment to be satisfied through the delivery of production from the property. In connection with the transaction, the Company recorded a production payment liability of approximately $2,200,000, representing the discounted present value of the estimated production payments necessary to satisfy the obligation. Additionally, the Company recorded a $3,800,000 liability for its interest in the estimated plugging and abandonment costs assumed in connection with the purchase. It is expected that approximately $700,000 of the costs will be funded in 2000. F-18GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE F--Indebtedness Indebtedness at December 31, 1999 and 1998 consists of the following:
1999 1998 ----------- -----------Bank Debt Borrowings under credit facility, interest, at Compass Prime plus 5/8% (see below) (weighted average rate at December 31, 1999--8.1%); principal due July 1, 2001.. $27,090,617 $29,500,000 Convertible Notes Payable at the Subsidiary Level Goodrich Petroleum Company, LLC $6,000,000 face amount, interest at 8% maturing in 2004; (effective interest rate of 13.0%)........................................ 4,931,250 -- Goodrich Petroleum--Lafitte LLC $6,000,000 face amount, interest at 8% maturing in 2004; (effective interest rate of 13.0%)........................................ 4,931,250 -- ----------- ----------- 36,953,117 29,500,000 Less current portion................................... 3,600,000 29,500,000 ----------- ----------- Long-term debt, excluding current portion.............. $33,353,117 $ -- =========== ===========Compass Credit Facility On March 2, 2000 the Company amended its credit agreement with Compass Bank. The amended facility provides for a Borrowing Base of $27,100,000 with continued monthly reductions of $300,000, until July 1, 2001. The maturity date for amounts drawn under the bank credit facility is July 1, 2001 with no borrowing base redeterminations conducted prior to that date. Interest on the credit facility is the Compass Bank Index Rate plus 5/8%. Based on these revised terms, $23,490,000 of the bank debt is classified as long-term debt as of December 31, 1999. Substantially all of the Company's assets are pledged to secure this credit facility. Interest paid during 1999, 1998 and 1997 amounted to $2,338,840, $1,904,809 and $1,038,221, respectively. The revised credit facility requires the net proceeds of asset sales be used to extinguish outstanding principal and interest under the borrowing base. Additionally, under the terms of the credit facility, the Company may not make any distributions or pay dividends, including dividends on any class of its preferred stock without lender approval. Convertible Notes Payable Goodrich-Louisiana issued convertible notes in the amount of $6,000,000 that will accrue interest monthly at 8% in arrears until October 1, 2002. Unless extended or converted, the principal and accrued interest will be repayable in 24 monthly installments, beginning October 1, 2002. Principal and accrued interest may be converted by the holder at any time into the common stock of the Company at the rate of $4 per share. These convertible notes are secured by various collateral, including a mortgage on Goodrich-Louisiana's oil and gas properties. The purchasers of these notes received one warrant to purchase a share of the common stock of the Company at $.9375 (the closing price on the date the transaction was negotiated) for every $4 of notes issued. The warrants may be exercised at any time before their expiration on September 30, 2006. The Company has the right to prepay the Goodrich-Louisiana notes. F-19GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Goodrich-Lafitte also issued convertible notes in the amount of $6,000,000 that will accrue interest at 8% per annum accruing monthly in arrears until October 1, 2002. Unless extended or converted, the principal and accrued interest will be repayable in 24 monthly installments, beginning October 1, 2002. Principal and accrued interest may be converted by the holder at any time into the common stock of the Company at the rate of $4 per share. As an alternative conversion right, the principal and accrued interest under the notes may be converted into common equity interests in Goodrich-Lafitte, after October 1, 2002, if neither the common stock of the Company has a closing price of at least $3 per share nor the net asset value per share of the Company is at least $3. These convertible notes are secured by various collateral, including a mortgage on Goodrich-Lafitte's oil and gas properties. The purchasers of these notes received one warrant to purchase a share of the common stock of the Company at $.9375 (the closing price on the date the transaction was negotiated) for every $4 of notes issued. The warrants may be exercised at any time before their expiration on September 30, 2006. The Company can prepay the Goodrich-Lafitte Convertible notes with a 10% prepayment penalty. Approximately $2,300,000 of the proceeds from issuance of the convertible notes was allocated to additional paid in capital as the fair value of the warrants issued in connection with the securities based on the relative fair value of the two securities. This amount is being amortized as additional interest cost over the original term of the notes and amounted to $142,500 for the period ended December 31, 1999. The aggregate maturities of indebtedness for each of the five years subsequent to December 31, 1999 are as follows: 2000, $3,600,000; 2001, $23,500,000; 2002, $1,907,000; 2003, $7,627,000 and 2004, $5,721,000. NOTE G--Income Taxes Income tax expense for the years ending December 31, 1999, 1998 and 1997 consists of:
Current Deferred Total ------- -------- -----Year Ended December 31, 1999: U.S. Federal.......................................... $ -- $ -- $-- State................................................. -- -- -- ------- -------- --- -- -- -- ======= ======== === Year Ended December 31, 1998: U.S. Federal.......................................... $ -- $ -- $-- State................................................. -- -- -- ------- -------- --- -- -- -- ======= ======== === Year Ended December 31, 1997: U.S. Federal.......................................... $14,643 $(14,643) $-- State................................................. -- -- -- ------- -------- --- $14,643 $(14,643) $-- ======= ======== ===F-20GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following is a reconciliation of the U.S. statutory income tax rate to the Company's effective rate on income (loss) before income taxes for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 ----- ----- -----U.S. Statutory Income Tax Rate......................... (35.0)% (35.0)% (35.0)% Increase in deductible temporary differences for which no benefit recorded................................... 35.0 34.6 34.9 Change in the beginning of the year balance of the valuation allowance allocated to income tax income expense............................................... -- -- -- Nondeductible expenses................................. -- .4 .1 ----- ----- ----- -- -- -- ===== ===== =====The significant components of deferred income tax expense for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ---- ---- -----------Deferred tax benefit (exclusive of utilization of net operating loss carryforwards)......................... -- -- (1,023,016) Utilization of net operating loss carryforward......... $ -- $-- $ 1,008,373 ---- --- ----------- $ -- $-- $ (14,643) ==== === ===========The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1999 and 1998 are presented below.
December 31, December 31, 1999 1998 ------------ ------------Deferred tax assets: Differences between book and tax basis of: Marketable equity securities...................... $ -- $ 280,471 Contingent liabilities............................ 132,349 158,873 Other............................................... 8,750 65,199 Operating loss carryforwards........................ 13,384,419 13,109,624 Statutory depletion carryforward.................... 5,974,726 5,657,865 AMT Tax credit carryforward......................... 1,477,872 1,477,872 Investment tax credit carryforward.................. 2,108 98,574 ------------ ------------ Total gross deferred tax assets..................... 20,980,224 20,848,478 Less valuation allowance............................ (19,784,669) (19,104,959) ------------ ------------ Net deferred tax assets............................. 1,195,555 1,743,519 ------------ ------------ Deferred tax liability: Differences between book and tax basis of: Property and equipment............................ (1,155,912) (1,703,876) ------------ ------------ Total gross deferred liability...................... (1,155,912) (1,703,876) ------------ ------------ Net deferred tax asset.............................. $ 39,643 $ 39,643 ============ ============The valuation allowance for deferred tax assets increased $680,000 and decreased $2,221,000 for the years ended December 31, 1999 and 1998, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portionor all of these filings at no cost, by writing or calling us at:Goodrich Petroleum Corporation
Attention: Corporate Secretary
801 Louisiana, Suite 700
Houston, Texas 77002
(713) 780-9494
Copies of certain information filed by us with the
deferred tax assets willSEC, including our Annual Report and Quarterly Reports, are also available on our website atwww.goodrichpetroleum.com. Information contained on our website or that can be accessed through our website is not incorporated by reference herein.You should read the information relating to us in this prospectus together with the information in the documents incorporated by reference. Nothing contained herein shall be
realized. The ultimate realization of deferred tax assets is dependent upondeemed to incorporate information furnished to, but not filed with, thegeneration of future F-21SEC. GOODRICH PETROLEUM CORPORATION
AND SUBSIDIARIES2,499,999 WARRANTS FOR COMMON STOCK
2,499,999 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF THE WARRANTS
13.50% CONVERTIBLE SECOND LIEN SENIOR SECURED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based primarily upon the level of projections for future taxable income generated primarily by the reversal of future taxable temporary differences over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 1999. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The following table summarizes the amounts and expiration dates of operating loss and investment tax credit carryforwards:
Investment tax credit Operating loss carryforwards carryforwards ---------------------------- --------------------- Amount Expires Amount Expires ------ ------- ------ -------$ 973,053 2005 $2,108 2001 7,093,823 2006 8,860,622 2007 4,285,746 2008 3,247,494 2009 5,480,870 2010 600,706 2011 1,939,496 2012 4,530,029 2018 1,229,359 2019 ----------- $38,241,198 ===========As a result of the August 15, 1995 business combination, the Company's annual utilization of its net operating and statutory depletion carryforwards generated prior to the business combination are limited under Internal Revenue Code Section 382. Such limitation is determined annually and is comprised of a base amount of $1,682,797 plus any recognized "built in gains" existing at August 15, 1995. Such limitation amounted to $19,282,000 in 1998 and is estimated to be $22,194,000 in 1999. As a result of the conversion of the preferred units and private placement (See Note D) in February 2000, the annual limitation of the Company's existing net operating losses and statutory depletion carryforwards will be approximately $2,200,000 in 2000 and beyond. The Company's statutory depletion carryforwards and AMT credit carryovers have no expiration date. The Company paid income taxes of $4,344 in 1998. NOTE H--Production Payment Obligation A production payment was entered into by the Company to assist in the financing of the Lafitte Field acquisition in September 1999. The original amount of the production payment obligation was $2,940,000, which was recorded as a production payment liability of $2,228,000 after a discount to reflect an effective rate of interest of 11.25%. At December 31, 1999 the remaining principle amount was $2,825,000 and the recorded liability was $2,113,000. Under the terms of the production payment the Company must make monthly cash payments which approximates the Company's 49% share of 10% of monthly gross oil and gas revenue of the Lafitte Field. F-22GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIESDUE 20191,874,999 SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION OF THE
13.50% CONVERTIBLE SECOND LIEN SENIOR SECURED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's estimate as of December 31, 1999, based on expected production and prices and expected discount amortization is that projected payments will decrease the recorded liability as follows: 2000, $482,000; 2001, $817,000 and 2003, $814,000. NOTE I--Stockholders' Equity Common Stock--At December 31, 1999 unissued shares of Goodrich common stock were reserved in the amount of 1,074,147 shares for the conversion of convertible preferred stock and 463,134 shares for stock option plans. The Company also has 9,500,000 shares of its common stock reserved for the conversion of convertible debt, convertible preferred stock and stock warrants issued in connect with the Private Placement transaction of September 23, 1999 (See Note C). Preferred Stock The Series A Convertible Preferred Stock has a par value of $1 per share with a liquidation preference of $10 per share, and is convertible at the option of the holder at any time, unless earlier redeemed, into shares of Common Stock of the Company at an initial conversion rate of .417 shares of Common stock per share of Series A Preferred. The Series A Preferred Stock also will automatically convert to Common Stock if the closing price for the Series A Preferred Stock exceeds $15 per share for ten consecutive trading days. The Series A Preferred Stock is redeemable in whole or in part, at $12 per share, plus accrued and unpaid dividends. Dividends on the Series A Preferred Stock accrue at an annual rate of 8% and are cumulative. The Company issued 750,000 shares of Series B Convertible Preferred Stock in connection with its acquisition of the La/Cal II properties on January 31, 1997. The Series B Convertible Preferred Stock has a par value of $1 per share with a liquidation preference of $10 per share and rank junior to the Series A Preferred Stock. The shares of Series B Preferred Stock are convertible at the option of the holder at any time, unless earlier redeemed, into shares of Common Stock of the Company at the conversion rate of 1.12 shares of Common Stock per share of Series B Preferred Stock. During 1999 holders of 84,241 shares of Series B preferred stock opted to convert their shares into 94,216 shares of common stock of the Company. The Series B Preferred Stock are not redeemable by the Company prior to January 31, 2001, and subsequently, are redeemable at $10 per share. Dividends on the Series B Preferred Stock accrue at an annual rate of 8.25% and are cumulative. Stock Option and Incentive Programs--Goodrich currently has two plans, which provide for stock option and other incentive awards for the Company's key employees, consultants and directors. The Goodrich Petroleum Corporation 1995 Stock Option Plan allows the board of directors to grant stock options, restricted stock awards, stock appreciation rights, long-term incentive awards and phantom stock awards, or any combination thereof to key employees and consultants. The Goodrich Petroleum Corporation 1997 Director Compensation Plan provides for the grant of stock and options to each director who is not and has never been an employee of the Company. Additionally, Goodrich assumed certain outstanding stock options of Patrick as a result of the business combination in 1995. The Goodrich plans authorize grants of options to purchase up to a combined total of 437,500 shares of authorized but unissued common stock. Stock options are generally granted with an exercise price equal to the stock's fair market value at the date of grant and all stock options granted under the 1995 Stock Option Plan generally have ten year terms and three year pro rata vesting. The per share weighted-average fair value of stock options granted during 1999, 1998 and 1997 was $1.59, $2.17 and $2.57 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1999--expected dividend yield 0%DUE 201913.50% SECOND LIEN SENIOR SECURED NOTES DUE 2019
Prospectus
,
risk-free interest rate of 7.5%, and an expected life of six years; 1998--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of six years; 1997--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of six years; expected volatility of stock over expected life of the options--35%. F-23GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ----------- ----------- -----------Net loss..................... As reported $(1,828,983) $(7,715,342) $(1,388,964) Pro forma (2,109,357) (7,906,618) (1,452,644) Loss applicable to........... As reported (3,078,326) (8,970,980) (2,594,174) common stock................ Pro forma (3,358,700) (9,162,256) (2,657,854) Basic and diluted loss per average................. As reported (.58) (1.71) (.50) common share................ Pro forma (.64) (1.75) (.51)Earnings Per Share--Both series of the Company's convertible preferred stock and its stock options are considered to be potential common stock. Additionally convertible debt, convertible preferred stock and stock purchase warrants issued in conjunction with the aforementioned private placement (See Note C) are also considered potential common stock. No potential common stock amounts have not been included in the computation of diluted earnings per share because to do so would have been antidillutive for all periods presented. Stock option transactions during 1999, 1998 and 1997 were as follows:
Weighted Weighted Average Number of Average Remaining Options Exercise Price Range of Exercise Price Contractual Life ----------------- -------------- ----------------------- ----------------- Patrick Patrick Patrick Patrick Total Only Total Only Total Only Total Only -------- ------- ------ ------- ------------ ---------- -------- --------Outstanding January 1, 1997................... 353,942 157,067 12.48 18.70 $ 6 to $ 24 $16 to $24 5.4 yrs. 2.0 yrs. Granted--1995 Stock Option Plan........... 67,500 -- 6.48 -- Granted--1995 Non- Employee Director Stock Option Plan..... 6,250 -- 5.52 -- Expiration of Options.. (86,250) (86,250) 18.80 18.78 -------- ------- Outstanding December 31, 1997................... 341,442 70,817 9.60 18.60 $5.50 to $24 $16 to $24 7.4 yrs. 4.2 yrs. ======== ======= Granted--1995 Stock Option Plan........... 144,000 -- 5.98 -- Granted--1997 Director Compensation Plan..... 10,000 -- 5.98 -- Expiration of Options.. (62,190) (5,625) 7.88 19.33 -------- ------- Outstanding December 31, 1998................... 433,252 65,192 $5.50 to $24 $16 to $24 7.0 yrs. 3.4 yrs. ======== ======= Granted--1995 Stock Option................ 374,196 -- 1.37 -- Granted--1997 Director Stock Option.......... 37,063 -- .80 -- Expiration/Surrender of Options............... (381,377) (29,567) 7.61 18.00 -------- ------- ------ ----- Outstanding December 31, 1999................... 463,134 35,625 $0.75 to $24 $16 to $24 8.5 yrs. 2.9 yrs. ======== ======= Exercisable December 31, 1997................... 172,317 70,817 $12.13 18.60 Exercisable December 31, 1998................... 208,379 65,192 $10.86 18.54 Exercisable December 31, 1999................... 71,438 35,625 $ 9.95 19.00At the February 25, 1999 board of directors meeting, the Compensation Committee voted to institute a stock option surrender/re-grant program whereby employees and directors of the Company were able to surrender their present options and be re-granted a number of options equal to 75% of their previous number of options. Vesting periods for the re-granted options began with the re-grant date and the options have a strike price equal to the closing stock price of the date of declaration by the board of directors. F-24GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE J--Series A Preferred Stock The terms of the Company's Series A Preferred Stock provides that the Company will not incur additional debt at the parent company level after such time as it reports financial results which show the Company's stockholders' equity to be less than the liquidation preference of the Series A Preferred Stock. As of December 31, 1999, the Company's stockholders' equity was approximately $6.4 million and the liquidation preference on the outstanding shares of the Series A Preferred Stock was approximately $7.9 million. As a result, the Company was unable to incur additional debt at the parent company level under its credit facility or from other sources. On February 17, 2000, the Company completed a $4,500,000 private placement transaction of 1,500,000 shares of common stock, and effected the conversion of all the outstanding Goodrich Petroleum Company, LLC Series A Preferred Units, which converted into 1,533,333 shares of the Company's common stock. The conversion of the preferred units and private placement increased stockholders equity by approximately $7,200,000, which makes total stockholders equity exceed the liquidation preference on the Series A Preferred Stock. As a result, the Company's restriction on funds at the parent Company level has been eliminated. NOTE K--Hedging Activities The Company engages in futures contracts ("Agreements") with certain of its production. The Company considers these to be hedging activities and, as such, monthly settlements on these contracts are reflected in oil and gas sales. In order to consider these futures contracts as hedges, (i) the Company must designate the futures contract as a hedge of future production and (ii) the contract must reduce the Company's exposure to the risk of changes in prices. Changes in the market value of futures contracts treated as hedges are not recognized in income until the hedged item is also recognized in income. If the above criteria are not met, the Company will record the market value of the contract at the end of each month and recognize a related gain or loss. Proceeds received or paid relating to terminated contracts or contracts that have been sold are amortized over the original contract period and reflected in oil and gas sales. The Company enters into hedging activities in order to secure an acceptable future price relating to a portion of future production. The primary objective of the activities is to protect against decreases in price during the term of the hedge. The Agreements provide for separate contracts tied to the NYMEX light sweet crude oil and natural gas futures contracts. The Company has contracts which contain specific contracted prices ("Swaps") or price ranges ("Collars") that are settled monthly based on the differences between the contract prices or prices ranges and the average NYMEX prices for each month applied to the related contract volumes. To the extent the average NYMEX price exceeds the contract price, the Company pays the spread, and to the extent the contract price exceeds the average NYMEX price the Company receives the spread. As of December 31, 1999, the Company's open forward position on its outstanding crude oil was as follows: (d) 350 barrels of oil per day with a no cost "collar" of $19 and $21 per barrel through December 2000; (e) 150 barrels of oil per day with a no cost "collar" of $18.20 and $20.20 per barrel through December 2000; and (f) 300 barrels of oil per day on a crude oil "swap" with a price of $23.98 per barrel through April 2000. At December 31, 1999 the Company's open forward position on its outstanding crude oil hedging contracts was 800 bbl per day at an average price of $21.29. F-25GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 1999 the Company's open forward position on its outstanding gas hedging contract was 5,000 Mcf per day with a "floor" price of $2.50 per Mcf through October 2000. The cost of the "floor" contract hedge is $0.23 per Mcf over the "floor" price. The Company is exposed to credit losses in the event of non performance by the counterparties to its hedging contracts. The Company anticipates, however, that counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral to support financial instruments but monitors the credit standing of the counterparties. Price fluctuations and volatile nature of markets Despite the measures taken by the Company to attempt to control price risk, the Company remains subject to price fluctuations for natural gas and oil sold in the spot market. Prices received for natural gas sold on the spot market are volatile due primarily to seasonality of demand and other factors beyond the Company's control. Domestic prices for oil and gas could have a material adverse effect on the Company's financial position, results of operations and quantities of reserves recoverable on an economic basis. NOTE L--Fair Value of Financial Instruments The following presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1999 and 1998.
December 31, 1999 December 31, 1998 ---------------------- --------------------- Carrying Carrying Amount Fair Value Amount Fair Value ----------- ---------- ---------- ----------Financial asset-- Marketable equity securities... $ -- -- 358,700 358,700 Financial liabilities-- Long-term debt (including current maturities)........... $27,090,617 27,090,617 29,500,000 29,500,000 Notes payable.................. $ 9,862,500 9,862,500 -- -- Production payment liability... $ 2,113,000 2,113,000 -- -- Hedges Asset (Liability)-- Oil............................ $ -- (338,398) -- -- Gas............................ $ -- 300,410 -- --The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, accounts receivable, accounts payables and accrued liabilities: The carrying amounts approximate fair value because of the short maturity of those instruments. Therefore, these instruments were not presented in the table above. Marketable equity securities: Fair value is based on bid prices published in financial media. Long term debt and other noncurrent liabilities: The fair value is estimated using the discounted cash flow method based on the Company's borrowing rates or similar types of financing arrangements. NOTE M--Concentrations of Credit Risk and Significant Customers Due to the nature of the industry the Company sells its oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Additionally, F-26GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) prior to the sale of the Company's interest in its pipeline joint venture in 1997, it received net monthly payments from its partner, Mitchell Marketing Company. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
Year Ended December 31, ---------------- 1999 1998 1997 ---- ---- ----Seaber Corporation of Louisiana.................................. 37% 47% 44% Equiva Trading................................................... 27 12 11 Texla Energy Management.......................................... 10 -- -- Navajo Refining Company.......................................... 7 11 -- Mobil Oil Corporation............................................ -- -- 10 Mitchell Marketing Company....................................... -- -- 9NOTE N--Commitments and Contingencies The U.S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company estimates that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with the Company's percentage of responsibility estimated to be approximately 3.05%. As of December 31, 1999, the Company had paid $321,000 in costs related to this matter and accrued $122,500 for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean-up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. On February 8, 2000, the Company commenced a suit against the operator and joint owner of the Lafitte Field, alleging certain items of misconduct and violations of the letter agreement associated with the joint acquisition. The suit is in its early stages and it is too early to predict a likely outcome, however, as the Company is the plaintiff in this action, this action is not expected to have a significantly adverse impact on the operations or financial position of the Company. The Company is party to additional lawsuits arising in the normal course of business. The Company intends to defend these actions vigorously and believes, based on currently available information, that adverse results or judgments from such actions, if any, will not be material to its financial position or results of operations. NOTE O--Natural Gas and Crude Oil Cost Data and Results of Operations. The following reflects the Company's capitalized costs related to natural gas and oil activities at December 31, 1999 and 1998:
1999 1998 ----------- -----------Proved properties...................................... $61,527,593 $49,916,276 Unproved properties.................................... 3,873,575 3,412,897 ----------- ----------- 65,401,168 53,329,173 Less accumulated depreciation and depletion............ 19,398,287 13,592,827 ----------- ----------- Net property and equipment........................... $46,002,881 $39,736,346 =========== ===========F-27GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table reflects certain data with respect to natural gas and oil property acquisitions, exploration and development activities:
Year Ended December 31, -------------------------------------- 1999 1998 1997 ----------- ----------- -----------Property acquisition Proved.............................. $10,136,298(a) $ 129,325 $17,308,540(b) Unproved............................ 498,391 2,446,474 886,647 Exploration......................... 1,634,299 8,718,682 5,535,783 Development........................... 1,960,371 8,169,741 3,598,177 ----------- ----------- ----------- $14,229,359 $19,464,222 $27,329,147 =========== =========== ===========- -------- (a) Primarily Lafitte Field acquisition inclusive of liabilities assumed in connection with the purchase. (b) Includes properties acquired in the La/Cal II Acquisition including portions funded with Serial B Preferred Stock ($7,500,000). Results of operations for natural gas and oil producing activities follow:
Year Ended December 31, ------------------------------------ 1999 1998 1997 ----------- ----------- -----------Sales to unaffiliated customers.......... $13,734,691 $ 9,836,863 $11,351,586 Production costs (lease operating expense and taxes).............................. 3,591,427 2,821,515 2,316,006 Exploration expenses..................... 1,656,158 6,010,425 3,205,730 Impairment of oil and gas properties..... 465,465 1,075,853 549,792 Depreciation, depletion and amortization............................ 4,702,240 4,038,547 4,065,998 ----------- ----------- ----------- 10,415,290 13,946,340 10,137,526 ----------- ----------- ----------- Results of operations.................... $ 3,319,401 $(4,109,477) $ 1,214,060 =========== =========== ===========No income taxes have been reflected above for the Company due to its net operating losses. NOTE P--Supplemental Oil and Gas Reserve Information (Unaudited) The supplemental oil and gas reserve information that follows is presented in accordance with SFAS No. 69, Disclosures about Oil and Gas Producing Activities. The schedules provide users with a common base for preparing estimates of future cash flows and comparing reserves among companies. Additional background information follows concerning the schedules. Schedules 1 and 2--Estimated Net Proved Oil and Gas Reserves Substantially all of the Company's reserve information related to crude oil, condensate, and natural gas liquids and natural gas was compiled based on evaluations performed by Coutret and Associates, Inc. All of the subject reserves are located in the continental United States. Many assumptions and judgmental decisions are required to estimate reserves. Quantities reported are considered reasonable but are subject to future revisions, some of which may be substantial, as additional information becomes available. Such additional knowledge may be gained as the result of reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes, and other factors. F-28GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Regulations published by the Securities and Exchange Commission define proved reserves as those volumes of crude oil, condensate, and natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are those volumes expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those volumes expected to be recovered as a result of making additional investment by drilling new wells on acreage offsetting productive units or recompleting existing wells. Schedule 3--Standardized Measure of Discounted Future Net Cash Flows to Proved Oil and Gas Reserves SFAS No. 69 requires calculation of future net cash flows using a 10% annual discount factor and year end prices, costs, and statutory tax rates, except for known future changes such as contracted prices and legislated tax rates. The calculated value of proved reserves is not necessarily indicative of either fair market value or present value of future cash flows because prices, costs, and governmental policies do not remain static; appropriate discount rates may vary; and extensive judgment is required to estimate the timing of production. Other logical assumptions would likely have resulted in significantly different amounts. Crude oil prices received for oil and the price received by well for natural gas, effective at the end of each year, were used for this calculation, and averaged $25.16 per bbl and $2.63 per Mcf, respectively as of December 31, 1999; $9.37 per Bbl and $2.24 per Mcf, respectively as of December 31, 1998, and $16.50 per Bbl and $2.59 per Mcf, respectively as of December 31, 1997. Schedule 3 also presents a summary of the principal reasons for change in the standard measure of discounted future net cash flows for each of the three years in the period ended December 31, 1999. Schedule 1--Estimated Net Proved Gas Reserves (Mcf)
Pro Year Ended December 31, Forma (b) ---------------------------------- ---------- 1999 1998 1997 1999 ---------- ---------- ---------- ----------Proved: Balance, beginning of period.. 28,144,310 37,570,614 18,184,738 Revisions of previous estimates.................... (6,069,885) (8,393,772) (1,582,986) Purchase of minerals in place........................ 1,705,822 226,778 3,761,481 Extensions, discoveries, and other additions.............. -- 1,656,200 19,707,712 Production.................... (2,930,655) (2,782,825) (2,449,320) Sales of minerals in place.... -- (132,685) (51,011) ---------- ---------- ---------- Balance, end of period........ 20,849,592 28,144,310 37,570,614 26,805,069 ========== ========== ========== Proved developed: Beginning of period........... 21,481,946 16,600,669 13,911,003 End of period................. 13,945,450 21,481,946 16,600,669 19,900,930F-29GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Schedule 2--Estimated Net Proved Oil Reserves (Barrels)
Pro Year Ended December 31, Forma (b) ------------------------------- --------- 1999 1998 1997 1999 --------- --------- --------- ---------Proved: Balance, beginning of period...... 3,092,810 4,098,390 1,050,210 Revisions of previous estimates... 106,259 (988,611) 132,327 Purchase of minerals in place..... 3,053,618 -- 1,614,779 Extensions, discoveries, and other additions........................ -- 299,799 1,685,438 Production........................ (394,442) (316,768) (282,380) Sale of minerals in place......... -- -- (101,984) --------- --------- --------- Balance, end of period............ 5,858,245 3,092,810 4,098,390 6,749,579 ========= ========= ========= Proved, developed: Beginning of period............... 2,266,854 2,292,626 969,868 End of period..................... 3,179,888 2,266,854 2,292,626 4,071,222The following table summarizes the Company's combined oil and gas reserve information on a Mcf equivalent basis. Estimates of reserves were converted using a conversion ratio of 1.0/6.0 Mcf.
Pro Year Ended December 31, Forma (b) -------------------------------- ---------- 1999 1998 1997 1999 ---------- ---------- ---------- ----------Estimated Net Proved Reserves (Mcfe): Total Proved.................... 55,999,062 46,701,170 62,160,954 67,302,543 Proved Developed................ 33,024,778 35,083,070 30,356,425 44,328,262Schedule 3--Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Gas Reserves
Pro Year Ended December 31, Forma (b) ---------------------------- -------- 1999 1998 1997 1999 -------- -------- -------- -------- (in thousands)Future cash inflows................... $184,812 $ 86,449 $155,542 $220,886 Production taxes...................... (31,192) (18,617) (18,985) (46,520) Development costs..................... (14,463) (5,722) (7,921) (20,538) Future income tax expense(a).......... (22,725) -- (24,177) (26,007) -------- -------- -------- -------- Future net cash flows................. 116,432 62,110 104,459 127,821 10% annual discount for estimated timing of cash flows................. (37,514) (21,475) (40,456) (38,499) -------- -------- -------- -------- Standardized measure of discounted future net cash flows................ $ 78,918 $ 40,635 $ 64,003 $ 89,322 ======== ======== ======== ======== Average year end prices: Natural gas (per Mcf)............... $ 2.63 $ 2.24 $ 2.59 Crude oil (per Bbl)................. $ 25.16 $ 9.37 $ 16.50- -------- (a) Taxable income for 1998 period was entirely offset by available net operating loss carryforwards. (b) Pro forma amounts include reserve information related to acquisition of Burrwood/West Delta 83 fields in February 2000 (see Note D). F-30GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following are the principal sources of change in the standardized measure of discounted net cash flows for the years shown:
Year Ended December 31, ---------------------------- 1999 1998 1997 -------- -------- -------- (in thousands)Net changes in prices and production costs related to future production................... $ 32,962 $(31,820) $(32,327) Sales and transfers of oil and gas produced, net of production costs............................ (10,144) (7,015) (9,036) Net change due to revisions in quantity estimates...................................... (8,993) (12,464) (991) Net change due to extensions, discoveries and improved recovery.............................. -- 3,006 37,465 Net change due to purchase and sales of minerals-in-place.............................. 33,305 82 16,065 Development costs incurred during the period.... 338 2,198 3,598 Net change in income taxes...................... (14,203) 14,093 (4,094) Accretion of discount........................... 4,064 7,810 5,736 Change in production rates (timing) and other... 954 742 230 -------- -------- -------- $ 38,283 $(23,368) $ 16,646 ======== ======== ========F-31Consolidated Quarterly Income Information (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter Total ---------- ---------- ---------- ---------- -----------1999 Revenues.............. $2,941,696 $2,829,530 $3,631,762 $4,617,586 $14,020,574 Costs and Expenses.... 3,458,450 3,405,546 3,283,633 5,182,433 15,330,062 Loss on sale of assets............... (519,495) -- -- -- (519,495) Net income (loss)..... (1,036,249) (576,016) 348,129 (564,847) (1,828,983) Preferred stock dividends............ 313,912 313,912 313,912 307,607 1,249,343 Earnings (loss) applicable to common stock................ (1,350,161) (889,928) 34,217 (872,454) (3,078,326) Basic earnings (loss) per average common share......... $ (.26) (.17) .01 (.16) (.58) Diluted earnings (loss) per average common share......... $ (.26) (.17) .01 (.16) (.58) 1998 Revenues.............. $2,433,577 $2,264,397 $2,697,743 $3,196,156 $10,591,873 Costs and Expenses.... 3,446,298 5,215,164 4,813,328 4,836,631 18,311,421 Gain on sale of assets............... 4,206 -- -- -- 4,206 Net income (loss)..... (1,008,515) (2,950,767) (2,115,585) (1,640,475) (7,715,342) Preferred stock dividends............ 313,912 313,902 313,912 313,912 1,255,638 Earnings (loss) applicable to common stock................ (1,322,427) (3,264,669) (2,429,497) (1,954,387) (8,970,980) Basic earnings (loss) per average common share......... $ (.25) (.62) (.46) (.38) (1.71) Diluted earnings (loss) per average common share......... $ (.25) (.62) (.46) (.38) (1.71)The fourth quarter amount includes impairment of oil and gas properties of $465,000. In addition the fourth quarter of 1999 is impacted by revenue and expenses associated with the acquisition of the Lafitte field and issuance of convertible notes payable. The first, second, third and fourth quarter of 1998 cost and expense amounts contain costs amounting to $0, $2,107,000, $1,496,000 and $81,000, respectively, related to dry holes. The fourth quarter amount also contains impairment of oil and gas properties of $1,076,000. F-32[Goodrich Logo appears here]2017 PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Item 13. Other Expenses of Issuance and Distribution The following table sets forth the
costsexpenses payable by the Registrant expected to be incurred in connection with the issuance andexpenses, otherdistribution of common stock being registered hereby (other than underwriting discounts andcommissions, payable in connection with the salecommissions). All ofcommon stock being registered. All amountssuch expenses are estimates, except for the SEC registrationfee and the NASD filing fees.fee.
SEC registration fee
$ 11,457.09 Financial printer fees and expenses
25,000.00 Legal fees and expenses
50,000.00 Accounting fees and expenses
80,000.00
Total
$ 166,457.09
SecuritiesItem 14. Indemnification of Directors and Exchange Commission registration fee................ $ 7,685 NASD filing fee.................................................... $ 3,411 NYSE listing fee................................................... $ 25,000 Legal fees and expenses............................................ $200,000 Engineering fees and expenses...................................... $ 20,000 Accounting fees and expenses....................................... $120,000 Printing expenses.................................................. $ 50,000 Miscellaneous...................................................... $ 98,904 -------- TOTAL............................................................ $525,000 ========Officers.Item 14. Indemnification of Directors and OfficersSection
145145(a) of theDelaware General Corporation Law ("DGCL")DGCL provides that a corporation may 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 thecorporationcorporation) by reason of the fact thathethe person 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 otherenterprise),enterprise, against expenses (includingattorney'sattorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred byhimthe person in connection with such action, suit or proceeding ifhethe person acted in good faith and in a mannerhethe person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believehisthe person’s conduct was unlawful. Section145 further145(b) of the DGCL provides that a corporationsimilarlymay indemnify anysuchpersonserving in any such capacitywho 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 thathethe person 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 (includingattorneys'attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit ifhethe person acted in good faith and in a mannerhethe person reasonably believed to be in or not opposed to the best interests of the corporation and 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 theDelawareCourt of Chancery orsuch otherthe court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of allofthe circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which theDelawareCourt of Chancery or such other court shall deem proper.Our certificateTo the extent that a present or former director or officer ofincorporation providesa corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 of the DGCL, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.Any indemnification under subsections (a) and (b) of Section 145 of the DGCL (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances
II-1
because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of Section 145. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the stockholders. Expenses (including attorneys’ fees) incurred by an officer or director in defending any 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 such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems appropriate. The indemnification and advancement of expenses provided by, or granted pursuant to, Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.
Section 145 of the DGCL also empowers a corporation to purchase 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 such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145.
The Certificate of Incorporation also contains indemnification rights for the directors and officers. Specifically, the Certificate of Incorporation provides for the indemnity of the officers and directors to the fullest extent
permittedauthorized by the DGCL.In addition, the DGCL permits the Company and its subsidiaries to purchase and maintain insurance on behalf of any person who is a director or officer for
all of our current or formeracts committed in their capacities as such directors or officers.As permitted by the DGCL, the certificate of incorporation provides that our directors shall have no personalThe Company currently maintains such liabilityto us or our stockholders for monetary damages for breach of fiduciary duty as a director, except (1) for any breachinsurance.The general effect of the
director's dutyforegoing is to provide indemnification to officers and directors for liabilities that may arise by reason ofloyalty to ustheir status as officers orour stockholders, (2) fordirectors, other than liabilities arising from willful or intentional misconduct, acts or omissions not in good faith, unlawful distributions of corporate assets orwhich involve intentional misconduct or knowing violation of law, (3) under Section 174 of the DGCL or (4) for any transactiontransactions from whichathe officer or director derived an improper personal benefit.II-1Item 15. Recent Sales of Unregistered Securities
Item 15. Recent Sales of Unregistered Securities. 8.00% Second Lien Senior Secured Notes due 2018 and Warrants
On
September 23, 1999, we and two of our subsidiaries, Goodrich PetroleumMarch 12, 2015, the CompanyL.L.C. and Goodrich Petroleum Company-Lafitte, L.L.C.,completed a previously announced privateplacement of $15 million of convertible securities. H&Q Guaranty acted as placement agent for this transaction, for which it received a fee of $900,000. The following securities were issued: . Our wholly owned subsidiary, Goodrich-Louisiana, issued convertible notes in the amount of $6,000,000offering pursuant to agroupcertain purchase agreement with Franklin. Pursuant to the purchase agreement, the Company issued and sold to the Purchaser 100,000 Units (the “2018 Units”), each consisting ofaccredited investors. Principal$1,000 aggregate principal amount at maturity of the Company’s 8.00% Second Lien Senior Secured Notes due 2018 (the “8.0% 2018 Notes”) andaccrued interest was convertible byone warrant to purchase 48.84 shares of theholder into ourCompany’s common stockat the rate of $4par value $0.20 per share. ThepurchasersCompany received proceeds, before offering expenses payable by the Company, ofthese notes received 1,500,000$100 million from the sale of the 2018 Units.The offer and sale of the warrants
to purchase shares of our common stock at $1.00 per share. The warrants may be exercised at any time before their expirationwere made in reliance onSeptember 30, 2006. The securities were issued in a transaction exempt pursuant tothe exemption from registration afforded by Section4(2)4(a)(2) of the Securities Actandas provided in Rule506506(b) of RegulationD; . Our wholly owned subsidiary, Goodrich-Lafitte, issued convertible notesD promulgated thereunder. The offering of the warrants was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by any investor in connection with the offering.II-2
5.00% Convertible Exchange Senior Notes due 2032 (September 2015)
On September 2, 2015, the Company entered into separate, privately negotiated exchange agreements under which it retired, effective September 8, 2015, $55,000,000 in aggregate original principal amount of
$6,000,000 toits outstanding 5.00% Convertible Senior Notes due 2032 (the “2032 Notes”) in exchange for its issuance of agroupnew series ofaccredited investors. Principal5.00% Convertible Exchange Senior Notes due 2032 (the “2032 Exchange Notes”) in an aggregate original principal amount of $27,496,000 andaccrued interest was convertible$4,000 of cash. Following the exchange transactions, there will be a total of $111.3 million aggregate original principal amount of 2032 Notes remaining outstanding, with terms unchanged by theholder into ourexchange transactions, and approximately $27.5 million in aggregate original principal amount of 2032 Exchange Notes outstanding.The Company offered the 2032 Exchange Notes to certain holders of the 2032 Notes in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The offer and sale of the 2032 Exchange Notes to certain holders of the 2032 Notes did not involve a public offering, the solicitation of offers for the 2032 Exchange Notes was not done by any form of general solicitation or general advertising, and offers for the 2032 Exchange Notes were only solicited from persons believed to be “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
8.875% Second Lien Senior Secured Notes due 2018 and Warrants
On October 1, 2015, the Company completed its previously announced exchange transaction with Franklin under which it retired $76.5 million in aggregate original principal amount of its outstanding 8.875% Senior Notes due 2019 (the “2019 Notes”) in exchange for 38,250 units (the “2019 Units”), each consisting of $1,000 aggregate principal amount of the Company’s 8.875% Second Lien Senior Secured Notes due 2018 (the “8.875% 2018 Notes”) and one warrant to purchase approximately 156.9 shares of the Company’s common stock,
at the rate of $4par value $0.20 per share.As an alternative conversion right, the principal and accrued interest under these notes was convertible into common equity interests in Goodrich-Lafitte, afterFurther, on October 1,
2002, if neither our2015, the Company completed its separate, privately negotiated exchange transactions with certain note holders under which it retired approximately $81.7 million in aggregate original principal amount of the 2019 Notes in exchange for its issuance of 8.875% 2018 Notes in an aggregate original principal amount of approximately $36.8 million.The warrants and shares of common stock
has a closing priceissuable upon exercise ofat least $3 per share nor our net asset value per share is at least $3. The purchasers of these notes received 1,500,000the warrantsto purchase shares of our common stock at $1.00 per share. The warrants may be exercised at any time before their expiration on September 30, 2006. The securitieswere issued ina transaction exempt pursuant toreliance on an exemption from registration under Section4(2)4(a)(2) of the Securities Act of 1933, as amended.5.00% Convertible Exchange Senior Notes due 2032 (October 2015)
On October 14, 2015, the Company completed its previously announced exchange transaction under which it retired approximately $17.1 million in aggregate original principal amount of its outstanding 5.00% Convertible Senior Notes due 2032 (the “2032 Notes”) in exchange for its issuance of additional 5.00% Convertible Exchange Senior Notes due 2032 (the “2032 Exchange Notes”) in an aggregate original principal amount of approximately $8.5 million.
Following the exchange transactions, there were a total of approximately $94.2 million aggregate original principal amount of 2032 Notes remaining outstanding, with terms unchanged by the exchange transactions, and approximately $36 million in aggregate original principal amount of 2032 Exchange Notes outstanding.
The Company sold the 2032 Exchange Notes to certain holders of the 2032 Notes in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The offer and sale of the 2032 Exchange Notes to certain holders of the 2032 Notes did not involve a public offering, the solicitation of offers for the 2032 Exchange Notes was not done by any form of general solicitation or general advertising, and offers for the 2032 Exchange Notes were only solicited from persons believed to be “accredited investors” within the meaning of Rule
506501 of RegulationD;D promulgated under the Securities Act.II-3
10.00% Series E Cumulative Convertible Preferred Stock
On December 18, 2015, the Company closed previously announced offers to exchange (i) any and
. Additionally, our wholly owned subsidiary Goodrich-Louisianaall of the shares of the Company’s outstanding 5.375% Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”), (ii) up to 2,390,000 depositary shares of the Company’s outstanding 10.00% Series C Cumulative Preferred Stock (the “Series C Preferred Stock”) and (iii) up to 2,390,000 depositary shares of the Company’s outstanding 9.75% Series D Cumulative Preferred Stock (the “Series D Preferred Stock” and, together with the Series B Preferred Stock and the Series C Preferred Stock, the “Existing Preferred Stock”) for newly issued$3,000,000depositary shares each representing a 1/1000th ownership interest in a share ofpreferred intereststhe Company’s 10.00% Series E Cumulative Convertible Preferred Stock (the “Series E Preferred Stock”).In exchange for each share of Existing Preferred Stock properly tendered (and not validly withdrawn) and accepted by the Company, participating holders of (i) Series B Preferred Stock received 1.20 depositary shares of Series E Preferred Stock per share of Series B Preferred Stock, (ii) Series C Preferred Stock received one depositary share of Series E Preferred Stock per depositary share of Series C Preferred Stock and (iii) Series D Preferred Stock received one depositary share of Series E Preferred Stock per depositary share of Series D Preferred Stock.
Pursuant to
a groupthe exchange offers, 758,434 shares ofaccredited investors consistingSeries B Preferred Stock, 1,274,932 depositary shares of300,000 preferred unitsSeries C Preferred Stock and 1,463,759 depositary shares of Series D Preferred Stock were validly tendered and accepted for exchange by the Company. In aggregate consideration for the accepted Existing Preferred Stock, the Company issued 3,648,803 depositary shares of Series E Preferred Stock to the tendering holders, based upon the particular series and number of shares of Existing Preferred Stock such holders validly tendered and did not withdraw in the Exchange Offers.The issuance of Series E Preferred Stock in the exchange offers was exempt from registration under the Securities Act, pursuant to the provisions of Section 3(a)(9) thereof as securities exchanged by the issuer with
a par valueits existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.New Common Stock, UCC Warrants and
liquidation preferenceWarrantsOn October 12, 2016, all existing shares of
$10 per share. Each preferred unit holder was alsoold common stock of the Company were cancelled pursuant to the Plan, and the Company issuedone warrant(i) 5,757,500 shares of common stock, pro rata, topurchase a sharethe Company’s former Second Lien Noteholders, (ii) 117,500 shares of common stock, pro rata, to the Company’s former unsecured noteholders and former holders of general unsecured claims, (iii) 1,250,000 UCC Warrants, pro rata, to the Company’s former unsecured noteholders and holders of general unsecured claims and (vi) 2,499,999 Warrants, pro rata, to the purchasers of Notes.The Confirmation Order and Plan provide for the exemption of the offer and sale of the shares of common stock of the Company,
for every $10 of preference value. The warrants are exercisable at $1.50 per share at any time before their expiration on September 30, 2006. Goodrich- Louisiana hastheright to redeemUCC Warrants and theunits at any time. The purchasers of these preferred interests received 300,000 warrants to purchaseWarrants (including shares ofourcommon stockat $1.50 per share. The preference amount and accrued distributions were convertible byissuable upon theholder into our common stock at $2 per share. The securities were issued in a transaction exemptexercise thereof) from the registration requirements of the Securities Act pursuant to Section4(2)1145(a)(1) of the Bankruptcy Code. Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under the Plan from registration under Section 5 of the Securities Act andRule 506state laws if certain requirements are satisfied.Private Placement of
Regulation D.Common StockOn
February 17, 2000,December 19, 2016, theholdersCompany entered into a Common Stock Subscription Agreement (the “Subscription Agreement”) with each of thepreferred units in Goodrich- Louisiana electedpurchasers listed on Schedule A thereto (the “PIPE Purchasers”) pursuant toconvert their units intowhich the PIPE Purchasers agreed to purchase 2,272,727 shares of the Company’s common stock (the “Shares”), at a price of $11.00 per share (the “Private Placement”). The issuance of theCompany. Each holder was an accredited investor. The transaction was exemptShares pursuant to the Subscription Agreement was made in reliance upon an exemption from registration provided underII-4
Section
4(2) of the Securities Act. Entreprenurial Investment Corporation and Mr. Malloy each received 12,500 of our common shares in connection with their underwriting and assistance in this transaction. On February 18, 2000, in a transaction exempt pursuant to Section 4(2)4(a)(2) of the Securities Act of 1933. The Private Placement resulted in approximately $25 million of gross proceeds andRule 506approximately $23.5 million ofRegulation D, we completed a private placement to a group of accredited investors of 1,500,000 shares of our common stock resulting innet proceedsto us of $4,500,000. H&Q Guaranty acted as underwriter, for which it received 8,333 shares of our common stock. On August 17, 2000, the holders of all of the convertible notes of Goodrich-Louisiana and Goodrich-Lafitte elected to convert their notes into common stock of the Company. Each holder was an accredited investor. The transaction was exempt pursuant to Section 4(2) of the Securities Act. We issued an aggregate of 3,295,647 shares in connection with this transaction, including 60,000 shares of common stock issued to H&Q Guaranty, Entreprenurial Investment Corporation and Mr. Malloy in connection with their underwriting and assistance in this transaction. On October 23, 2000, in a transaction exempt pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D, we completed a private placement of 1,000,000 shares of our common stock to a group of accredited investors for aggregate gross proceeds of $5.0 million. H&Q Guaranty acted as(after deducting placement agentforcommissions and the Company’s estimated expenses).
Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits.
See the Exhibit Index immediately following the signature page hereto, which
it received $250,000 in cash. II-2Item 16. Exhibits and Financial Statement Schedules (a) Exhibits:
1.1 --Form of Underwriting Agreement 3.1 --Amended and Restated Certificate of Incorporation of the Company dated August 15, 1995, and filed with the Secretary of State of the State of Delaware on August 15, 1995. 3.2* --Certificate of Amendment of Restated Certificate of Incorporation of Goodrich Petroleum Corporation dated March 12, 1998 (Incorporated by reference to Exhibit 3(i)2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 01-12719)). 3.3 --Bylaws of the Company, as amended and restated. 4.1* --Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.5 of the Company's Registration Statement filed February 20, 1996 on Form S-8 (File No. 33-01077)). 4.2* --Series B Convertible Preferred Stock Certificate of Designations. (Incorporated by reference to Exhibit 4.5 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 01-12719)). 5.1 --Opinion of Vinson & Elkins L.L.P. 10.1 --Goodrich Petroleum Corporation 1995 Stock Option Plan. 10.2* --Goodrich Petroleum Corporation 1997 Director Compensation Plan (Incorporated by reference to the Company's Proxy statement dated May 20, 1998). 10.3 --Registration Rights Agreement (2000 Private Placement). 10.4* --Credit Agreement between Goodrich Petroleum Company, L.L.C. and Compass Bank dated September 23, 1999 (Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filing dated September 23, 1999 (File No. 01-12719)). 10.5* --First amendment to the September 23, 1999 Credit Agreement between Goodrich Petroleum Company, LLC and Compass Bank dated February 29, 2000. (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (File No. 01-12719)). 10.6 --Letter Agreement amending Credit Agreement between Goodrich Petroleum Company, L.L.C. and Compass Bank dated November 8, 2000. 21.1 --Subsidiaries of the Company: Goodrich Petroleum Company, L.L.C.--incorporated in state of Louisiana Goodrich Petroleum Company--Lafitte, L.L.C. Subsidiaries of Goodrich Petroleum Company of Louisiana Drilling & Workover Company, Inc.--incorporated in state of Louisiana LECE, Inc.--incorporated in the state of Texas National Market Company--incorporated in state of Delaware 23.1 --Consent of KPMG LLP 23.2 --Consent of Coutret & Associates, Inc. 23.3 --Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1) 24.1* --Power of Attorney (included in signature page) 27.1* --Financial Data Schedule- -------- * Previously filed.is incorporated by reference as if fully set forth herein.(b) Financial Statement
Schedule All schedules are omitted because the information is contained in the Financial Statements or Notes. II-3Item 17. UndertakingsSchedules.None.
Item 17. Undertakings. (a) The undersigned
registrantRegistrant hereby undertakes:(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the undersigned registrant pursuant to the foregoing provisions, or otherwise, the undersigned registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the undersigned registrant of expenses incurred or paid by a director, officer, or controlling person of the undersigned registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the undersigned registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
toTo include any prospectus required bySectionsection 10(a)(3) of the Securities Act of 1933;(ii)
toTo reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more thana20% change in the maximum aggregate offering price set forth in thecalculation“Calculation of RegistrationFeeFee” table in the effective registrationstatement; andstatement.(iii)
toTo include anyadditional or changedmaterial informationonwith respect to the plan ofdistribution. (c) For purposes of determining any liability underdistribution not previously disclosed in theSecurities Act of 1933, the information omitted from the form of prospectus filed as part of thisregistration statement or any material change to such information inreliance upon Rule 430A and contained in a form of prospectus filed bytheundersigned registrant pursuant to Rule 424(b)(1) or (4) or 497(h) underregistration statement;(2) That, for the
Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (d) For purposespurpose of determining any liability under the Securities Act of 1933, each such post-effective amendmentthat contains a form of prospectusshall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.II-4(3) To remove from registration by means of a post-effective amendment any of the Securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
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(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the Securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended,the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Houston, State of Texas, onthe 22nd day of November, 2000. GOODRICH PETROLEUM CORPORATION /s/February 10, 2017.
GOODRICH PETROLEUM CORPORATION By: /s/ Walter G. Goodrich Name: Walter G. Goodrich Title: Chief Executive Officer POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Walter G. Goodrich, Robert C. Turnham, Jr.
By __________________________________ Robert C. Turnham, Jr.and Michael J. Killelea, and each of them, any of whom may act without the joinder of the other, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any registration statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities held on February 10, 2017.
Signature
Title
/s/ Walter G. Goodrich
Walter G. Goodrich
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Robert T. Barker
Robert T. Barker
Vice President, Controller and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
/s/ Robert C. Turnham, Jr.
Robert C. Turnham, Jr.
President, Chief Operating Officer and Director /s/ Ronald F. Coleman
Ronald F. Coleman
Director /s/ Eugene I. Davis
Eugene I. Davis
Director /s/ K. Adam Leight
K. Adam Leight
Director II-7
Signature
Title
/s/ Timothy D. Leuliette
Timothy D. Leuliette
Director /s/ Thomas M. Souers
Director Thomas M. Souers II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on February 10, 2017.
GOODRICH PETROLEUM COMPANY, L.L.C. By: /s/ Walter G. Goodrich Walter G. Goodrich
Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints Walter G. Goodrich and Michael J. Killelea and each of them, any of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any Registration Statement (including any amendment thereto) that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or would do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities
indicatedheld onthe dates indicated:February 10, 2017.
Signature
Title
Date --------- ----- ----*/s/ Walter G. Goodrich
Walter G. Goodrich
Chief Executive Officer
(Principal Executive Officer)
/s/ Robert T. Barker
Robert T. Barker
Vice President, Controller and Chief Executive November 22, 2000 ____________________________________ OfficerFinancial Office (PrincipalExecutive Walter G. Goodrich Officer) * ChiefFinancial OfficerNovember 22, 2000 ____________________________________ (Principal FinancialandRoland L. FrautschiPrincipal Accounting Officer)* ChairmanII-9
EXHIBIT INDEX
Exhibit
NumberDescription
2.1 First Amended Joint Chapter 11 Plan of Reorganization of Goodrich Petroleum Corporation and its subsidiary, Goodrich Petroleum Company L.L.C., dated August 12, 2016 (Incorporated by reference to Exhibit 2.1 of the BoardCompany’s Form 8-K (File No. 001-12719) filed on October 3, 2016).3.1 Second Amended and Restated Certificate of Incorporation of Goodrich Petroleum Corporation, dated October 12, 2016 (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 (File No. 333-214080) filed on October 12, 2016). 3.2 Second Amended and Restated Bylaws of Goodrich Petroleum Corporation, dated October 12, 2016 (Incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-8 (File No. 333-214080) filed on October 12, 2016). 4.1 Indenture, dated as of October 12, 2016, by and between Goodrich Petroleum Corporation, Goodrich Petroleum, L.L.C., as the Subsidiary Guarantor, and Wilmington Trust, National Association, as trustee and collateral agent, relating to the 13.50% Convertible Second Lien Senior Secured Notes due 2019 (Incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (FileNo. 001-12719) filed on October 14, 2016). 4.2 Warrant Agreement, dated as of October 12, 2016, by and between Goodrich Petroleum Corporation and American Stock Transfer & Trust Company, LLC, relating to the 2L Fee Warrants (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K (File No. 001-12719) filed on October 14, 2016). 4.3 Warrant Agreement, dated as of October 12, 2016, by and between Goodrich Petroleum Corporation and American Stock Transfer & Trust Company, LLC, relating to the UCC Warrants (Incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K (File No. 001-12719) filed on October 14, 2016). 4.4† Goodrich Petroleum Corporation Management Incentive Plan (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 (File No. 333-214080) filed on October 12, 2016). 4.5† Form of Grant of Restricted Stock (Incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-8 (File No. 333-214080) filed on October 12, 2016). 4.6† Form of Grant of Restricted Stock (Secondary Exit Award; UCC Warrant Exercise) (Incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-8 (FileNo. 333-214080) filed on October 12, 2016). 4.7† Form of Grant of Restricted Stock (Secondary Exit Award; 2L Note Conversion) (Incorporated by reference to Exhibit 4.6 of the Company’s Registration Statement on Form S-8 (FileNo. 333-214080) filed on October 12, 2016). 5.1* Legal Opinion of Vinson & Elkins L.L.P. 5.2* Legal Opinion of Cook, Yancey, King & Galloway, APLC 10.1 Exit Credit Agreement, dated as of October 12, 2016, among Goodrich Petroleum Corporation, as Parent Guarantor, Goodrich Petroleum Company, L.L.C., as Borrower, Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-12719) filed on October 14, 2016). 10.2 Note Purchase Agreement, dated as of October 12, 2016, among Goodrich Petroleum Corporation, Goodrich Petroleum Company, L.L.C., as Subsidiary Guarantor and the Purchasers named therein (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K (File No. 001-12719) filed on October 14, 2016). II-10
Exhibit
NumberDescription
10.3 Commitment Letter, dated July 25, 2016, among Goodrich Petroleum Corporation, Goodrich Petroleum Company, L.L.C., Shenkman Capital Management, Inc., CVC Capital Partners, J.P. Morgan Securities LLC and Franklin Advisers, Inc. (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-12719) filed on July 29, 2016). 10.4 Registration Rights Agreement, dated as of October 12, 2016, by and among Goodrich Petroleum Corporation and the Holders party thereto, relating to the 2L Fee Warrants (Incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K (File No. 001-12719) filed on October 14, 2016). 10.5 Registration Rights Agreement, dated as of October 12, 2016, by and among Goodrich Petroleum Corporation and the Holders party thereto (Incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K (File No. 001-12719) filed on October 14, 2016). 10.6 Registration Rights Agreement, dated as of October 12, 2016, by and among Goodrich Petroleum Corporation and the Holders party thereto, relating to the Convertible Second Lien Notes (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K (File No. 001-12719) filed on October 14, 2016). 10.7 Common Stock Subscription Agreement, dated as of December 19, 2016, by and among the Company and the Purchasers named therein (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-12719) filed on December 22, 2016). 10.8 Registration Rights Agreement, dated as of December 22, 2016, by and among the Company and the Purchasers named therein (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K (File No. 001-12719) filed on December 22, 2016). 12.1* Computation of Ratio of Earnings to Fixed Charges. 16.1 Letter from Ernst & Young LLP to the Securities and Exchange Commission dated November 22, 2000 ____________________________________ Henry14, 2016 (Incorporated by reference to Exhibit 16.1 of the Company’s Form 8-K (File No. 001-12719) filed on November 14, 2016).21.1 Subsidiary of the Registrant:
Goodrich Petroleum Company L.L.C.—Organized in the State of Louisiana.
23.1* Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP. 23.2* Consent of Ryder Scott Company, LP. 23.3* Consent of Netherland, Sewell & Associates, Inc. 23.4 Consent of Vinson & Elkins L.L.P. (included as part of Exhibit 5.1). 23.5 Consent of Cook, Yancey, King & Galloway, APLC (included as part of Exhibit 5.2). 24.1** Director November 22, 2000 ____________________________________ Sheldon AppelPower of Attorney (included on the signature page). 99.1 Findings of Fact, Conclusions of Law and Order Confirming the First Amended Joint Chapter 11 Plan of Reorganization of Goodrich Petroleum Corporation and its subsidiary, Goodrich Petroleum Company, L.L.C. as entered by the Bankruptcy Court on September 28, 2016 (Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K (File No. 001-12719) filed on October 3, 2016).
* Director November 22, 2000 ____________________________________ Jeff H. BenhardFiled herewith.
* Director November 22, 2000 ____________________________________ Donald M. Campbell*Director November 22, 2000 ____________________________________ Patrick E. Malloy, III * Director November 22, 2000 ____________________________________ Michael Y. McGovern * Director November 22, 2000 ____________________________________ Arthur A. Seeligson */s/ Robert C. Turnham, Jr. ____________________________________ Robert C. Turnham, Jr. Attorney-In-FactPreviously filed. II-5
| † | Management compensatory plan or arrangement. |
II-11