The
Subsidiary Guarantees.The Subsidiary Guarantors, which currently constitute all of our subsidiaries other than Chesapeake Energy Marketing, Inc. and its subsidiaries Mayfield Processing, L.L.C. and Midcon Compression, L.P., will fully and unconditionally guarantee, on a joint and several basis, our obligations to pay principal of, premium, if any, and interest on any series of debt securities. Each entity that becomes a Restricted Subsidiary after the date of original issuance of any series of debt securities will guarantee the payment of such series.Unless otherwise indicated in an accompanying prospectus supplement, “Restricted Subsidiary” means any subsidiary of our company other than an Unrestricted Subsidiary. Unless otherwise indicated in an accompanying prospectus supplement relating to a particular series of debt securities, our board of directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary.
Unless otherwise indicated in an accompanying prospectus supplement, “Unrestricted Subsidiary” means:
| (a) | Chesapeake Energy Marketing, Inc. until it is designated as a Restricted Subsidiary; |
| (b) | any subsidiary of an Unrestricted Subsidiary; and |
| (c) | any subsidiary of our company or of a Restricted Subsidiary that is designated as an Unrestricted Subsidiary by a resolution adopted by our board of directors. |
The obligations of each Subsidiary Guarantor under its guarantee will be limited as necessary to prevent that guarantee from constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law. Each Subsidiary Guarantor that makes a payment or distribution under a guarantee shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the respective net assets of each Subsidiary Guarantor at the time of such payment determined in accordance with GAAP.
If a guarantee were rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor’s liability on its guarantee could be reduced to zero. See “Risk Factors — Risks Related to Debt Securities — A guarantee of debt securities could be voided if the guarantors fraudulently transferred their guarantees at the time they incurred the indebtedness, which could result in the holders of debt securities being able to rely on only Chesapeake Energy Corporation to satisfy claims.”
Unless otherwise indicated in an accompanying prospectus supplement and subject to the next paragraph, no Subsidiary Guarantor may consolidate or merge with or into (whether or not such Subsidiary Guarantor is the surviving entity) another entity unless:
the entity formed by or surviving any such consolidation or merger (if other than such Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor under the IndentureIndentures and the Debt Securities pursuant to a supplemental indenture, in a form reasonably satisfactory to the Trustee; and
immediately after such transaction, no Default or Event of Default exists.
The preceding does not prohibit a merger between Subsidiary Guarantors or a merger between our company and a Subsidiary Guarantor.
In the event of a sale or other disposition of all or substantially all of the assets of any Subsidiary Guarantor, or a sale or other disposition of all the capital stock of such Subsidiary Guarantor, in any case whether by way of merger, consolidation or otherwise, or a Subsidiary Guarantor otherwise ceases to be a Subsidiary Guarantor,
then the person acquiring the assets (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all or substantially all of the assets of such Subsidiary Guarantor) or such Subsidiary Guarantor (in any other event) will be released and relieved of any obligations under its guarantee.
Covenants
Reports.The Indenture contains the following covenant for the benefit of the holders of all series of debt securities:
Notwithstanding that we may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, we will file with the SEC and provide the Trustee and holders of Debt Securities with annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act.
A series of debt securities may provide for other covenants applicable to us and our subsidiaries. A description of any such affirmative and negative covenants will be contained in a prospectus supplement applicable to such series.
Events of Default, Remedies and Notice
Events of Default.Unless otherwise indicated in an accompanying prospectus supplement, each of the following events will be an “Event of Default” under the Indenture with respect to a series of debt securities:
default in any payment of interest on any debt securities of that series when due that continues for 30 days;
default in the payment of principal of or premium, if any, on any debt securities of that series when due at its stated maturity, upon redemption, upon required repurchase or otherwise;
default in the payment of any sinking fund payment, if any, on any debt securities of that series when due;
failure by us or by a Subsidiary Guarantor to comply for 60 days after notice with the other agreements contained in the Indenture, any supplement to the Indenture or any board resolution authorizing the issuance of that series;
certain events of bankruptcy, insolvency or reorganization of us or of the Subsidiary Guarantors;
any of the guarantees by the Subsidiary Guarantors ceases to be in full force and effect, except as otherwise provided in the Indenture;
any of the guarantees by the Subsidiary Guarantors is declared null and void in a judicial proceeding; or
any Subsidiary Guarantor denies or disaffirms its obligations under the Indenture or its guarantee.
Exercise of Remedies.If an Event of Default, other than an Event of Default described in the fifth bullet point above, occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding debt securities of that series may declare the entire principal of, premium, if any, and accrued and unpaid interest, if any, on all the debt securities of that series to be due and payable immediately.
A default under the fourth bullet point above will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding debt securities of that series notify us and the Subsidiary Guarantors of the default and such default is not cured within 60 days after receipt of notice.
If an Event of Default described in the fifth bullet point above, which we refer to as the “bankruptcy provisions”, occurs and is continuing, the principal of, premium, if any, and accrued and unpaid interest on all outstanding debt securities of all series will become immediately due and payable without any declaration of acceleration or other act on the part of the Trustee or any holders.
The holders of a majority in principal amount of the outstanding debt securities of a series may:
waive all past defaults, except with respect to nonpayment of principal, premium or interest or any other provision of the Indenture that cannot be amended without the consent of each holder that is affected; and
rescind any declaration of acceleration by the Trustee or the holders with respect to the debt securities of that series, but only if:
rescinding the declaration of acceleration would not conflict with any judgment or decree of a court of competent jurisdiction; and
all existing Events of Default have been cured or waived, other than the nonpayment of principal, premium or interest on the debt securities of that series that have become due solely by the declaration of acceleration.
If an Event of Default occurs and is continuing, the Trustee will be under no obligation, except as otherwise provided in the Indenture, 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 costs, liability or expense. No holder may pursue any remedy with respect to the Indenture or the debt securities of any series, except to enforce the right to receive payment of principal, premium or interest when due, unless:
such holder has previously given the Trustee notice that an Event of Default with respect to that series is continuing;
holders of at least 25% in principal amount of the outstanding debt securities of that series have requested that the Trustee pursue the remedy;
such holders have offered the Trustee reasonable indemnity or security against any cost, liability or expense;
the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of indemnity or security; and
the holders of a majority in principal amount of the outstanding debt securities of that series have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period.
The holders of a majority in principal amount of the outstanding debt securities of a series have the right, subject to certain restrictions, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any right or power conferred on the Trustee with respect to that series of debt securities. The Trustee, however, may refuse to follow any direction that:
conflicts with law;
is inconsistent with any provision of the Indenture;
the Trustee determines is unduly prejudicial to the rights of any other holder; or
would involve the Trustee in personal liability.
Notice of Events of Default.Upon the occurrence of an Event of Default, we are required to give written notice to the Trustee and indicate the status of the default and what action we are taking or propose to take to cure the default. In addition, we are required to deliver to the Trustee, within 90 days after the end of each fiscal year, a compliance certificate indicating that we have complied with all covenants contained in the Indenture or whether any default or Event of Default has occurred during the previous year.
If an Event of Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder a notice of the Event of Default by the later of 90 days after the Event of Default occurs or 30 days after the Trustee knows of the Event of Default. Except in the case of a default in the payment of principal, premium or interest with respect to any debt securities, the Trustee may withhold such notice, but only if and so long as the board of directors, the executive committee or a committee of directors or responsible officers of the Trustee in good faith determines that withholding such notice is in the interests of the holders.
Amendments and Waivers
We may amend the Indenture without the consent of any holder of debt securities to:
cure any ambiguity, omission, defect or inconsistency;
convey, transfer, assign, mortgage or pledge any property to or with the Trustee;
provide for the assumption by a successor of our obligations under the Indenture;
add Subsidiary Guarantors with respect to the debt securities;
evidence the removal of a Subsidiary Guarantor with respect to the debt securities as permitted by the Indenture and as described under “— The Subsidiary Guarantees” or an accompanying prospectus supplement;
secure the debt securities;
add covenants for the benefit of the holders or surrender any right or power conferred upon us or any Subsidiary Guarantor;
make any change that does not adversely affect the rights of any holder;
add or appoint a successor or separate Trustee; or
comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act.
In addition, we may amend the Indenture if the holders of a majority in principal amount of all debt securities of each series that would be affected then outstanding under the Indenture consent to it. We may not, however, without the consent of each holder of outstanding debt securities of each series that would be affected, amend the Indenture to:
reduce the percentage in principal amount of debt securities of any series whose holders must consent to an amendment;
reduce the rate of or extend the time for payment of interest on any debt securities;
reduce the principal of or extend the stated maturity of any debt securities;
reduce the premium payable upon the redemption of any debt securities or change the time at which any debt securities may or shall be redeemed;
make any debt securities payable in other than U.S. dollars;
impair the right of any holder to receive payment of premium, principal or interest with respect to such holder’s debt securities on or after the applicable due date;
impair the right of any holder to institute suit for the enforcement of any payment with respect to such holder’s debt securities;
release any security that has been granted in respect of the debt securities;
make any change to an amendment or waiver provision which requires each holder’s consent;
make any change in the waiver provisions; or
release a Subsidiary Guarantor or modify such Subsidiary Guarantor’s guarantee in any manner adverse to the holders other than as provided under “— The Subsidiary Guarantees.”
The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, we are required to mail to all holders a notice briefly describing the amendment. The failure to give, or any defect in, such notice, however, will not impair or affect the validity of the amendment.
The holders of a majority in aggregate principal amount of the outstanding debt securities of each affected series, on behalf of all such holders, and subject to certain rights of the Trustee, may waive:
compliance by us or a Subsidiary Guarantor with certain restrictive provisions of the Indenture; and
any past default under the Indenture, subject to certain rights of the Trustee under the Indenture;
except that such majority of holders may not waive a default:
in the payment of principal, premium or interest; or
in respect of a provision that under the Indenture cannot be amended without the consent of all holders of the series of debt securities that are affected.
Defeasance
At any time, we may terminate, with respect to debt securities of a particular series, all our obligations under such series of debt securities and the Indenture, which we call a “legal defeasance.” If we decide to make a legal defeasance, however, we may not terminate our obligations:
relating to the defeasance trust;
to register the transfer or exchange of the debt securities;
to replace mutilated, destroyed, lost or stolen debt securities; or
to maintain a registrar and paying agent in respect of the debt securities.
If we exercise our legal defeasance option, any subsidiary guarantee will terminate with respect to that series of debt securities.
At any time we may also effect a “covenant defeasance,” which means we have elected to terminate our obligations under:
covenants applicable to a series of debt securities and described in the prospectus supplement applicable to such series, other than as described in such prospectus supplement;
the bankruptcy provisions with respect to the Subsidiary Guarantors, if any; and
the guarantee provision described under “Events of Default” above with respect to a series of debt securities.
We may exercise our legal defeasance option notwithstanding our prior exercise of our covenant defeasance option. If we exercise our legal defeasance option, payment of the affected series of debt securities may not be accelerated because of an Event of Default with respect to that series. If we exercise our covenant defeasance option, payment of the affected series of debt securities may not be accelerated because of an Event of Default specified in the fourth, fifth (with respect only to a Subsidiary Guarantor) or sixth bullet points under “— Events of Default” above or an Event of Default that is added specifically for such series and described in a prospectus supplement.
In order to exercise either defeasance option, we must:
irrevocably deposit in trust with the Trustee money or certain U.S. government obligations for the payment of principal, premium, if any, and interest on the series of debt securities to redemption or maturity, as the case may be;
comply with certain other conditions, including that no default has occurred and is continuing after the deposit in trust; and
deliver to the Trustee an opinion of counsel to the effect that holders of the series of debt securities will not recognize income, gain or loss for Federal income tax purposes as a result of such 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.
Book Entry, Delivery and Form
We may issue debt securities of a series in the form of one or more global certificates deposited with a depositary. We expect that The Depository Trust Company, New York, New York, or “DTC,” will act as depositary. If we issue debt securities of a series in book-entry form, we will issue one or more global certificates that will be deposited with or on behalf of DTC and will not issue physical certificates to each holder. A global security may not be transferred unless it is exchanged in whole or in part for a certificated security, except that DTC, its nominees and their successors may transfer a global security as a whole to one another.
DTC will keep a computerized record of its participants, such as a broker, whose clients have purchased the debt securities. The participants will then keep records of their clients who purchased the debt securities. Beneficial interests in global securities will be shown on, and transfers of beneficial interests in global securities will be made only through, records maintained by DTC and its participants.
DTC advises us that it is:
a limited-purpose trust company organized under the New York Banking Law;
a “banking organization” within the meaning of the New York Banking Law;
a member of the United States Federal Reserve System;
a “clearing corporation” within the meaning of the New York Uniform Commercial Code; and
a “clearing agency” registered under the provisions of Section 17A of the Exchange Act.
DTC is owned by a number of its participants and by the New York Stock Exchange, Inc., The American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. The rules that apply to DTC and its participants are on file with the SEC.
DTC holds securities that its participants deposit with DTC. DTC also records the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through computerized records for participants’ accounts. This eliminates the need to exchange certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations.
We will wire principal, premium, if any, and interest payments due on the global securities to DTC’s nominee. We, the Trustee and any paying agent will treat DTC’s nominee as the owner of the global securities for all purposes. Accordingly, we, the Trustee and any paying agent will have no direct responsibility or liability to pay amounts due on the global securities to owners of beneficial interests in the global securities.
It is DTC’s current practice, upon receipt of any payment of principal, premium, if any, or interest, to credit participants’ accounts on the payment date according to their respective holdings of beneficial interests in the global securities as shown on DTC’s records. In addition, it is DTC’s current practice to assign any consenting or voting rights to participants, whose accounts are credited with debt securities on a record date, by using an omnibus proxy.
Payments by participants to owners of beneficial interests in the global securities, as well as voting by participants, will be governed by the customary practices between the participants and the owners of beneficial interests, as is the case with debt securities held for the account of customers registered in “street name.” Payments to holders of beneficial interests are the responsibility of the participants and not of DTC, the Trustee or us.
Beneficial interests in global securities will be exchangeable for certificated securities with the same terms in authorized denominations only if:
DTC notifies us that it is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under applicable law and a successor depositary is not appointed by us within 90 days; or
we determine not to require all of the debt securities of a series to be represented by a global security and notify the Trustee of our decision.
The Trustee
The Bank of New York will be the Trustee under the Indenture. The Bank of New York also serves as trustee for our 8.375% Senior Notes due 2008, our 8.125% Senior Notes due 2011, our 9% Senior Notes due 2012, our 7.5% Senior Notes due 2013, our 7.75% Senior Notes due 2015 and our 6.875% Senior Notes due 2016. We may also maintain banking and other commercial relationships with the Trustee and its affiliates in the ordinary course of business, and the Trustee may own our debt securities.
Governing Law
The Indenture and the debt securities will be governed by, and construed in accordance with, the laws of the State of New York.
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