As filed with the Securities and Exchange Commission on May 16, 2011
(exact name of registrant as specified in its charter)
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Delaware | 1311 | 20-4278595 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
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1021 Main, Suite 2626 Houston, Texas 77002 (713) 351-3000 |
Ben Marchive 1021 Main, Suite 2626 Houston, Texas 77002 (713) 351-3000 |
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices) |
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o
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. o
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 Exchange Act.
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Large accelerated filer o | Accelerated filer x | |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction.
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Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | o | |
Exchange Act Rule 13d-1(d) (Cross-Border Third-Party Issuer Tender Offer) | o |
Each Registrant hereby amends this Registration Statement on such dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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Bermuda | Energy XXI (Bermuda) Limited | 98-0499286 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Exact Name of Registrant As Specified In Its Charter) | (I.R.S. Employer Identification Number) |
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Delaware | Energy XXI GOM, LLC | 56-2140027 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Exact Name of Registrant As Specified In Its Charter) | (I.R.S. Employer Identification Number) |
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Delaware | Energy XXI Texas Onshore, LLC | 20-0650294 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Exact Name of Registrant As Specified In Its Charter) | (I.R.S. Employer Identification Number) |
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Delaware | Energy XXI Onshore, LLC | 20-0650308 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Exact Name of Registrant As Specified In Its Charter) | (I.R.S. Employer Identification Number) |
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Delaware | Energy XXI Pipeline, LLC | 27-4165863 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Exact Name of Registrant As Specified In Its Charter) | (I.R.S. Employer Identification Number) |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
The exchange offer expires at 5:00 p.m., New York City time, on June , 2011, unless extended.
We are offering to exchange up to $250,000,000 of our outstanding 7.75% Senior Notes due 2019 (the old Notes) for new notes (the new Notes and, together with the old Notes, the Notes) with substantially identical terms that have been registered under the Securities Act of 1933, as amended (the Securities Act), and are freely transferable. We issued the old Notes on February 25, 2011 in a transaction not requiring registration under the Securities Act. We are offering you new Notes in exchange for old Notes in order to satisfy our registration obligations from that previous transaction.
We will exchange for an equal principal amount of new Notes all old Notes that you validly tender and do not validly withdraw before the exchange offer expires. You may withdraw tenders of old Notes at any time prior to the expiration of the exchange offer. The exchange procedure is more fully described in The Exchange Offer Procedures for Tendering. If you fail to tender your old Notes, you will continue to hold unregistered Notes that you will not be able to transfer freely.
The terms of the new Notes are substantially identical to the old Notes, except that the transfer restrictions, registration rights and provisions for additional interest applicable to the old Notes do not apply to the new Notes. Please read Description of the New Notes for more details on the terms of the new Notes. We will not receive any cash proceeds from the issuance of the new Notes in the exchange offer. The exchange of old Notes for new Notes will not be a taxable event for U.S. federal income tax purposes.
Each broker-dealer that receives new Notes for its own account pursuant to this exchange offer must acknowledge in the letter of transmittal that it will deliver this prospectus in connection with any resale of such new Notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new Notes received in exchange for old Notes where such old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. Please read Plan of Distribution.
These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is May , 2011.
This prospectus is part of a registration statement we filed with the Securities and Exchange Commission (the SEC). In deciding whether to participate in the exchange offer, you should rely only on the information contained or incorporated by reference in this prospectus and in the accompanying letter of transmittal. We have not authorized anyone to provide you with any other information. If you receive any unauthorized information, you must not rely on it. We are not making an offer to sell these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus, or the documents incorporated by reference into this prospectus, is accurate as of any date other than the date on the front cover of this prospectus or the date of such document, as the case may be.
This prospectus incorporates by reference important business and financial information about us that is not included in or delivered with this prospectus. This information is available without charge upon written or oral request directed to: Investor Relations, Energy XXI, 2626 Main, Suite 2600, Houston, Texas 77002; telephone number: (713) 351-3000. To obtain timely delivery, you must request the information no later than , 2011, or the date which is five business days before the expiration date of this offer.
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The information discussed in this prospectus, the documents we incorporate by reference herein and our public releases include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, referred to herein as the Securities Act, and Section 21E of the Securities Exchange Act, as amended, referred to herein as the Exchange Act. All statements included or incorporated by reference in this prospectus, other than statements of historical fact, are forward-looking statements. Such statements include, without limitation, all statements as to the production of oil and gas, product prices, oil and gas reserves, drilling and completion results, capital expenditures and other such matters. These statements relate to events and/or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements or the industry in which we operate to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. These risks and other factors include those listed under the section entitled Risk Factors and those described elsewhere in this prospectus and the documents incorporated by reference therein.
In some cases you can identify forward-looking statements by our use of terms such as may, will, should, expects, plans, anticipates, believes, estimates, intends, predicts, potential or the negative of those terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under Risk Factors. These factors may cause our actual results to differ materially from any forward-looking statement. Factors that could affect our actual results and could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, the following:
| our business strategy; |
| our financial position; |
| the extent to which we are leveraged; |
| our cash flow and liquidity; |
| declines in the prices we receive for our oil and gas affecting our operating results and cash flows; |
| economic slowdowns that can adversely affect consumption of oil and gas by businesses and consumers; |
| uncertainties in estimating our oil and gas reserves; |
| replacing our oil and gas reserves; |
| uncertainties in exploring for and producing oil and gas; |
| our inability to obtain additional financing necessary in order to fund our operations, capital expenditures, and to meet our other obligations; |
| our ability to make acquisitions and to integrate acquisitions; |
| availability of drilling and production equipment and field service providers; |
| disruption of operations and damages due to hurricanes or tropical storms; |
| availability, cost and adequacy of insurance coverage; |
| competition in the oil and gas industry; |
| our inability to retain and attract key personnel; |
| the effects of government regulation and permitting and other legal requirements; |
| potential costs associated with maintaining compliance with those regulations promulgated by the Bureau of Ocean Energy Management, Regulation and Enforcement; |
| estimates of proved reserve quantities and net present value of those reserves; and |
| other factors discussed under Risk Factors. |
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Other factors described herein or incorporated by reference, or factors that are unknown or unpredictable, could also have a material adverse effect on future results. Please read Risk Factors beginning on page 7 of this prospectus and in Item 1A. Risk Factors in the annual report on Form 10-K for the year ended June 30, 2010 and in the quarterly reports on Form 10-Q for the three months ended September 30, 2010, the three and six months ended December 31, 2010 and the three and nine months ended March 31, 2011 of Energy XXI (Bermuda) Limited, the ultimate parent of the Company (the Parent). Except as required by securities laws applicable to the documents incorporated by reference, we do not intend to update these forward-looking statements and information.
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This summary may not contain all the information that may be important to you or that you should consider before deciding whether to participate in the exchange offer. You should read this entire prospectus and the documents we have incorporated into this prospectus by reference for a more complete understanding of this exchange offer before making an investment decision. You should carefully consider the information set forth under Risk Factors beginning on page 7 of this prospectus and in our Parents annual report on Form 10-K for the year ended June 30, 2010 and our Parents quarterly reports on Form 10-Q for the three months ended September 30, 2010, the three and six months ended December 31, 2010 and the three and nine months ended March 31, 2011. In addition, certain statements include forward-looking information which involves risks and uncertainties. Please read Forward-Looking Statements beginning on page ii of this prospectus. References to the Notes in this prospectus include both the old Notes and the new Notes.
For purposes of this prospectus, unless the context clearly indicates otherwise, we, us, our, the Company and similar terms refer to Energy XXI Gulf Coast, Inc. (including its permitted successors and assigns) and not to any of its subsidiaries.
The term Parent refers to Energy XXI (Bermuda) Limited, the ultimate parent of the Company including any successors and assigns.
We are a Delaware corporation formed in February of 2006. We are an independent oil and gas exploration and production company with operations focused in the U.S. Gulf Coast and the Gulf of Mexico. We are an indirect wholly-owned subsidiary of our Parent.
Our executive offices are located at 1021 Main, Suite 2626, Houston, Texas 77002 and our telephone number is (713) 351-3000. Our website is located at http://www.energyxxi.com. The information on our website is not part of this prospectus.
Our Parent is an independent oil and natural gas exploration and production company whose business strategy includes: (i) acquiring oil and gas properties; (ii) exploiting its core assets to enhance production and ultimate recovery of reserves; and (iii) utilizing a portion of its capital program to explore the ultra-deep shelf for potential quantities of oil and gas. Our Parents properties are primarily located in the U.S. Gulf Coast and Gulf of Mexico. Our Parents common stock trades on the AIM Market of the London Stock Exchange and on The NASDAQ Capital Market under the symbol EXXI.
For additional information as to our and our Parents business, properties and financial condition, please refer to the documents cited in Where You Can Find More Information.
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On February 25, 2011, we completed a private offering of the old Notes. In connection with that private offering, we entered into a registration rights agreement with the initial purchasers of the old Notes in which we agreed to, among other things, deliver this prospectus and to consummate the exchange offer within 40 days after the effective date of the registration statement of which this prospectus forms a part. The following is a summary of the exchange offer.
Old Notes |
Our 7.75% Senior Notes due 2019, which we issued on February 25, 2011. |
New Notes |
Our 7.75% Senior Notes due 2019. The terms of the new Notes are substantially identical to the terms of the old Notes, except that the transfer restrictions, registration rights and provisions for additional interest relating to the old Notes do not apply to the new Notes. The new Notes offered hereby, together with any old Notes that remain outstanding after the completion of the exchange offer, will be treated as a single class for all purposes under the indenture governing such notes, including, without limitation, waivers, amendments, redemptions and offers to purchase. The new Notes will have a CUSIP number different from that of any old Notes that remain outstanding after the completion of the exchange offer. |
Exchange Offer |
We are offering to exchange new Notes for old Notes to satisfy our obligations under the registration rights agreement that we entered into when we issued the old Notes in a transaction exempt from registration under the Securities Act. |
Expiration Date |
The exchange offer will expire at 5:00 p.m. New York City time, on June , 2011, unless we decide to extend the exchange offer. |
Conditions to the Exchange Offer |
The registration rights agreement does not require us to accept old Notes for exchange if the exchange offer or the making of any exchange by a holder of the old Notes would violate any applicable law or interpretation of the staff of the SEC. A minimum aggregate principal amount of old Notes being tendered is not a condition to the exchange offer. Please read Exchange Offer Conditions to the Exchange Offer for more information about the conditions to the exchange offer. |
Procedures for Tendering Old Notes |
To participate in the exchange offer, you must follow the procedures established by The Depository Trust Company, which we call DTC, for tendering old Notes held in book entry form. These procedures, which we call ATOP, require that (1) the exchange agent receive, prior to the expiration date of the exchange offer, a computer generated message known as an agents message that is transmitted through DTCs automated tender offer program, and (2) DTC confirms that: |
DTC has received your instructions to exchange your Notes, and |
you agree to be bound by the terms of the letter of transmittal. |
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For more information on tendering your old Notes, please read The Exchange Offer Terms of the Exchange Offer and Procedures for Tendering. |
Guaranteed Delivery Procedures |
None. |
Withdrawal of Tenders |
You may withdraw your tender of old Notes under the exchange offer at any time prior to the expiration date. To withdraw, you must submit a notice of withdrawal to the exchange agent using ATOP procedures before 5:00 p.m. New York City time on the expiration date of the exchange offer. Please read The Exchange Offer Withdrawal of Tenders. |
Acceptance of Old Notes and Delivery of New Notes |
If you fulfill all conditions required for proper acceptance of old Notes, we will accept any and all old Notes that you properly tender in the exchange offer before 5:00 p.m. New York City time on the expiration date. We will return to you, without expense promptly after the expiration date, any outstanding Note that we do not accept for exchange. We will deliver the new Notes promptly after the expiration date and acceptance of the old Notes for exchange. Please read The Exchange Offer Terms of the Exchange Offer. |
Fees and Expenses |
We will bear all expenses related to the exchange offer. Please read The Exchange Offer Fees and Expenses. |
Use of Proceeds |
The issuance of the new Notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement. |
Consequences of Failure to Exchange Old Notes |
If you do not exchange your old Notes in the exchange offer, you will no longer be able to require us to register the old Notes under the Securities Act, except in limited circumstances provided in the registration rights agreement. In addition, you will not be able to resell, offer to resell or otherwise transfer the old Notes unless we have registered the old Notes under the Securities Act, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. |
Certain U.S. Federal Income Tax Consequences |
The exchange of new Notes for the old Notes will not be a taxable event for U.S. federal income tax purposes. Please read Certain U.S. Federal Income Tax Consequences. |
Exchange Agent |
We have appointed Wells Fargo Bank, National Association, as exchange agent for the exchange offer. You should direct questions and requests for assistance, for additional copies of this prospectus or the letter of transmittal to the exchange agent. |
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The new Notes will be identical to the old Notes except that the new Notes will be registered under the Securities Act and will not have restrictions on transfer, registration rights or provisions for additional interest. The new Notes will evidence the same debt as the old Notes, and the same indenture will govern the new Notes and the old Notes.
The following summary contains basic information about the new Notes and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the Notes, please refer to the section of this prospectus entitled Description of the Notes.
Issuer |
Energy XXI Gulf Coast, Inc. |
Securities Offered |
Up to $250,000,000 aggregate principal amount of 7.75% Senior Notes due 2019 (the new Notes). |
Interest Rate |
The new Notes will accrue interest from February 25, 2011 at a rate of 7.75% per annum. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. |
Interest Payment Dates |
Interest on the new Notes will be payable semi-annually on June 15 and December 15 of each year, beginning on June 15, 2011. |
Maturity |
June 15, 2019. |
Guarantees |
The new Notes will be guaranteed by our existing subsidiaries, certain future material domestic restricted subsidiaries and Energy XXI (Bermuda) Limited, our Parent. See Description of the Notes Brief Description of the New Notes and Guarantees The Guarantees. Although the new Notes will be guaranteed by our Parent, our Parent will generally not be subject to the restrictive covenants in the indenture governing the Notes. |
Ranking |
The new Notes will be general unsecured obligations, ranking: |
equal in right of payment to all of our existing and future senior indebtedness, including indebtedness under our revolving credit facility, our 10% Senior Notes due 2013 (our 10% Notes) and our 9.25% Senior Notes due 2017 (our 9.25% Notes and, together with our 10% Notes, our Existing Unsecured Notes); |
effectively subordinated, to the extent of the value of the assets securing such indebtedness, to any of our existing and future secured indebtedness, including the indebtedness under our revolving credit facility; and |
senior in right of payment to any subordinated indebtedness. |
Optional Redemption |
On or after June 15, 2015, we will have the right to redeem all or some of the Notes at a redemption price that will decrease ratably from 103.875% of the aggregate principal amount to 100% of the aggregate principal |
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amount on or after June 15, 2017, in each case plus accrued and unpaid interest. |
Prior to June 15, 2014, we may redeem up to 35% of the aggregate principal amount of the Notes at a price equal to 107.750% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings. |
In addition, prior to June 15, 2015, we may redeem all or part of the Notes at a price equal to 100% of their aggregate principal amount plus a make-whole premium and accrued and unpaid interest. |
Change of Control Offer |
If a change of control as defined in the indenture occurs, each holder of Notes will have the right to require us to repurchase all or part of their Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. For more details, see Description of New Notes Repurchase at the Option of Holders Change of Control. |
Asset Sale Proceeds |
If we engage in certain asset sales, we generally must either invest the net cash proceeds form such sales in our business within a period of time, repay senior debt or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds. The purchase price of each Note so purchased will be 100% of its principal amount plus accrued and unpaid interest. For more details, see Description of the New Notes Repurchase at the Option of Holders Asset Sales. |
Restrictive Covenants |
The new Notes will be issued under an indenture containing covenants that, among other things, restricts our ability and the ability of our restricted subsidiaries to: |
transfer or sell assets; |
make loans or investments; |
pay dividends, redeem subordinated indebtedness or make restricted payments; |
incur or guarantee additional indebtedness or issue disqualified capital stock; |
create or incur certain liens; |
incur dividend or other payment restrictions affecting certain subsidiaries; |
consummate a merger, consolidation or sale of all or substantially all of our assets; |
enter into transactions with affiliates; and |
engage in business other than the oil and gas business. |
During any period that the Notes have investment grade ratings from both Moodys Investors Service, Inc. and Standard and Poors Rating Services and no default has |
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occurred and is continuing, many of the foregoing covenants will cease to be in effect. See Description of the New Notes Certain Covenants Suspended Covenants. |
These covenants are subject to a number of important limitations and exceptions. For more details, see Description of the New Notes Certain Covenants. |
With limited exceptions, the Parent will not be subject to these covenants. |
No Established Trading Market |
The new Notes will be a new issue of securities with no established trading market. The new Notes will not be listed on any securities exchange or on any automated dealer quotation system. No assurance can be given that an active trading market for the new Notes will develop. If an active trading market for the new Notes never develops, the market price and liquidity of the new Notes may be adversely affected. |
Form and Denominations |
The new Notes will be issued in minimum denominations of $2,000 and $1,000 integral multiples in excess thereof. The new Notes will be book-entry only and registered in the name of a nominee of DTC. Investors may elect to hold interests in the new Notes through Clearstream Banking, S.A., or Euroclear Bank S.A./N.V., as operator of the Euroclear system if they are participants in those systems or indirectly through organizations that are participants in those systems. |
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Before deciding to participate in the exchange offer, you should consider carefully the risks and uncertainties described below and in our Parents annual report on Form 10-K for the year ended June 30, 2010 and our Parents quarterly reports on Form 10-Q for the quarters ended September 30, 2010 and December 31, 2010, together with all of the other information included or incorporated by reference in this prospectus, including financial statements and related notes. If any of the following risks or uncertainties actually occurs, our business, financial condition or results of operations could be materially adversely affected.
If you do not properly tender your old Notes, you will continue to hold unregistered old Notes and your ability to transfer old Notes will be adversely affected.
We will only issue new Notes in exchange for old Notes that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely delivery of the old Notes and you should carefully follow the instructions on how to tender your old Notes. Neither we nor the exchange agent is required to tell you of any defects or irregularities with respect to your tender of old Notes.
If you do not exchange your old Notes for new Notes pursuant to the exchange offer, the old Notes you hold will continue to be subject to the existing transfer restrictions. In general, you may not offer or sell the old Notes except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not plan to register old Notes under the Securities Act unless our registration rights agreement with the initial purchasers of the old Notes requires us to do so. Further, if you continue to hold any old Notes after the exchange offer is consummated, you may have trouble selling them because there will be fewer Notes outstanding.
The new Notes and the guarantees will be structurally subordinated to our and the guarantors secured debt to the extent of the value of the collateral securing the debt.
The indebtedness evidenced by the new Notes will be our senior unsecured obligations. The new Notes will rank equally in right of payment with all of our existing and future senior indebtedness, including the Existing Unsecured Notes, and senior to all of our existing and future subordinated indebtedness. However, the new Notes will be structurally subordinated to all of our existing and future secured indebtedness (including our obligations under the revolving credit facility), to the extent of the value of the assets securing such secured indebtedness. Debt outstanding under our revolving credit facility (including hedges entered into in connection therewith) is secured by a first priority security interest, subject to certain exceptions, in substantially all of our assets and, through secured guarantees, the assets of our subsidiaries.
The indebtedness evidenced by the subsidiary guarantees and our Parents guarantee will be senior unsecured indebtedness of the applicable guarantor. Such guarantees will rank equally in right of payment with all existing and future senior indebtedness of such guarantor, and senior to all existing and future subordinated indebtedness of such guarantor. The guarantees will also be effectively subordinated to any secured indebtedness of such guarantor, including the obligations of such guarantor under our revolving credit facility (including hedges entered into in connection therewith), to the extent of the value of the assets securing such secured indebtedness. With respect to our future subsidiaries, only domestic subsidiaries that meet materiality requirements in the indenture and that guarantee our debt under a credit facility will be required to guarantee the new Notes.
As of March 31, 2011, we and the subsidiary guarantors had outstanding approximately $120 million of secured indebtedness and $231 million in outstanding letters of credit under our revolving credit facility, to which the new Notes would effectively be junior in right of payment to the extent of the value of the assets securing such obligations. In addition, we had the ability to borrow an additional $349 million under such revolving credit facility.
In the event of a bankruptcy, liquidation, reorganization or other winding up involving us or any of our subsidiaries, a default in the payment under our revolving credit facility, the new Notes or an acceleration of any debt under our revolving credit facility (including hedges entered into in connection therewith) or the new Notes. The holders of the secured debt could have the right to foreclose on their collateral to the exclusion of
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the holders of the new Notes even if an event of default were then to exist under the indenture governing the new Notes. Upon the occurrence of any of these events, there may not be sufficient funds to pay amounts due on the new Notes.
We are dependent on the earnings of our subsidiaries to make payments on the Notes.
A substantial portion of our assets consist of direct and indirect ownership interests in our subsidiaries. Our subsidiaries are legally distinct from us and have no obligation to make funds available to us for payment of our indebtedness. Consequently, our ability to repay our debt, including the new Notes, depends to a large extent on the earnings of our subsidiaries, our ability to receive funds from such subsidiaries through dividends, repayment of intercompany notes or other payments and from our investments in cash and marketable securities. The ability of our subsidiaries to pay dividends, repay intercompany notes or make other advances to us is subject to restrictions imposed by applicable laws, tax considerations and agreements governing our subsidiaries. In addition, such payment may be restricted by claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and employees.
We may not be able to purchase the Notes upon a change of control or an offer to repurchase the Notes in connection with an asset sale as required by the indenture.
Upon the occurrence of specific types of change of control events, we may be required to offer to repurchase all of the Notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase. In addition, in connection with certain asset sales, we may be required to offer to repurchase a principal amount of the Notes equal to the amount of any excess cash proceeds from such sale at a price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of repurchase. We may not have sufficient funds available to repurchase all of the Notes tendered pursuant to any such offer and any other debt that would become payable upon a change of control (including the Existing Unsecured Notes). Our failure to purchase the Notes would be a default under the indenture, which would in turn trigger a default under the revolving credit facility. In that event, we would need to cure or refinance the revolving credit facility before making an offer to purchase the Notes. Additionally, the exercise by the holders of Notes of their right to require us to repurchase the Notes upon a change of control or an asset sale could cause a default under our revolving credit facility if we are then prohibited by the terms of the revolving credit facility from making the change of control or asset sale offer under the indenture. In the event a change of control or an asset sale occurs at a time when we are prohibited from purchasing Notes, we could seek the consent of our senior lenders to purchase Notes or could attempt to refinance the borrowings that contain such prohibition. If we do not obtain a consent or repay those borrowings, we will remain prohibited from purchasing Notes. In that case, our failure to purchase tendered Notes would constitute an event of default under the indenture, which could, in turn, constitute a default under the other indebtedness, including the first lien revolving credit agreement. A change of control (as defined under the revolving credit facility) would also constitute a default under our revolving credit facility. Upon any such default, the lenders may declare any outstanding obligations under the revolving credit facility immediately due and payable. If such debt repayment were accelerated, we may not have sufficient funds to repurchase the Notes and repay the debt. There can be no assurance that we would be able to refinance our indebtedness or, if a refinancing were to occur, that the refinancing would be on terms favorable to us.
In addition, agreements governing future senior indebtedness may contain prohibitions of certain events that would constitute a change of control or require such senior indebtedness to be repurchased or repaid upon a change of control. Moreover, the exercise by the holders of their right to require us to repurchase the Notes could cause a default under such agreements, even if the change of control itself does not due to the financial effect of such repurchase on us. Finally, our ability to pay cash to the holders upon a repurchase may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases.
The definition of change of control includes a phrase relating to the sale or other transfer of all or substantially all of the properties or assets of the Parent and its subsidiaries, taken as a whole, us or any of our restricted subsidiaries taken as a whole. There is no precise definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of all or substantially all of the assets of any of the companies in
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question, and therefore it may be unclear as to whether a change of control has occurred and whether the holders of the Notes have the right to require us to repurchase such Notes.
Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the Notes.
As of March 31, 2011, we and the subsidiary guarantors had outstanding approximately $1,231 million in total indebtedness. Our high level of indebtedness could have important consequences to you, including the following:
| it may make it difficult for us to satisfy our obligations under the new Notes and our other indebtedness and contractual and commercial commitments; |
| it may prevent us from raising the funds necessary to repurchase new Notes tendered to us if there is a change of control, which would constitute a default under the indenture governing the new Notes, the indentures governing our Existing Unsecured Notes and our revolving credit facility; and |
| it may otherwise limit us in the ways summarized below under Risks Related to Our Business Our indebtedness may limit our ability to borrow additional funds or capitalize on acquisition or other business opportunities. |
Our ability to make payments with respect to the new Notes and to satisfy our other debt obligations will depend on our future operating performance, and our ability to refinance our indebtedness, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control.
Despite existing debt levels, we and our subsidiaries may still be able to incur substantially more debt, which would increase the risks associated with our leverage.
Even though we are highly leveraged, we may be able to incur substantial amounts of additional debt in the future, including debt under existing and future credit facilities, which may be secured and therefore effectively senior to the new Notes. As of March 31, 2011, we were able to incur approximately $349 million of additional indebtedness under the borrowing base limitations of our revolving credit facility, including $69 million of additional letters of credit. Although the terms of the Notes, our Existing Unsecured Notes and our credit facility will limit our ability to incur additional debt, such terms do not and will not prohibit us from incurring substantial amounts of additional debt for specific purposes or under certain circumstances. If new debt is added to our and our subsidiaries current debt levels, the related risks that we and they now face could intensify. The incurrence of additional debt could adversely impact our ability to service payments on the new Notes.
We may not be able to generate sufficient cash flow to meet our debt service and other obligations due to events beyond our control.
Our ability to generate cash flows from operations and to make scheduled payments on our indebtedness will depend on our future financial performance. Our future performance will be affected by a range of economic, competitive and business factors that we cannot control, such as general economic and financial conditions in our industry or the economy generally. A significant reduction in operating cash flow resulting from changes in economic conditions, increased competition or other events beyond our control could increase the need for additional or alternative sources of liquidity and could have a material adverse effect on our business, financial condition, results of operations, prospects and our ability to service our debt and other obligations. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as reducing capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital. We cannot assure you that any of these alternative strategies could be effected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on the new Notes and our other indebtedness.
If for any reason we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing our debt, which would allow our creditors at that time to declare all outstanding indebtedness to be due and payable, which would in turn trigger cross-acceleration or
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cross-default rights between the relevant agreements. In addition, our lenders could compel us to apply all of our available cash to repay our borrowings or they could prevent us from making payments on the new Notes. If the amounts outstanding under the revolving credit facility or the new Notes were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders, including you as a noteholder.
The indenture governing the Notes and the agreements governing our other indebtedness impose significant operating and financial restrictions on us and our subsidiaries that may prevent us from pursuing certain business opportunities and restrict our ability to operate our business.
The indenture governing the Notes contains, and our indentures governing the Existing Unsecured Notes and our revolving credit facility contain, covenants that restrict our and our subsidiaries (but generally not our Parents) ability to take various actions, such as:
| engaging in businesses other than the oil and gas business; |
| incurring or guaranteeing additional indebtedness or issuing disqualified capital stock; |
| making investments; |
| paying dividends, redeeming subordinated indebtedness or making other restricted payments; |
| entering into transactions with affiliates; |
| creating or incurring liens; |
| transferring or selling assets; |
| incurring dividend or other payment restrictions affecting certain subsidiaries; |
| consummating a merger, consolidation or sale of all or substantially all our assets; and |
| entering into sale/leaseback transactions. |
In addition, under our revolving credit facility there is a restriction on changes in our management. Our revolving credit facility requires, and any future credit facilities may require us to comply with specified financial ratios, including regarding interest coverage, total leverage, senior secured leverage coverage and fixed charge coverage. Please read Description of Other Indebtedness.
Our ability to comply with these covenants will likely be affected by events beyond our control and we cannot assure you that we will satisfy those requirements. A breach of any of these provisions could result in a default under these instruments, which could allow all amounts outstanding thereunder to be declared immediately due and payable, which would in turn trigger cross-acceleration and cross-default rights under our other debt. We may also be prevented from taking advantage of business opportunities that arise if we fail to meet certain ratios or because of the limitations imposed on us by the restrictive covenants under these instruments.
The restrictions contained in the indenture for the Notes, our other indentures and the revolving credit facility could:
| limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans; and |
| adversely affect our ability to finance our operations, enter into acquisitions or to engage in other business activities that would be in our interest. |
Although the new Notes will be guaranteed by our Parent, our Parent will generally not be subject to the restrictive covenants in the indenture governing the Notes.
In the event of a default under the revolving credit facility, the lenders could foreclose on the assets and capital stock pledged to them.
A breach of any of the covenants contained in our revolving credit facility, or in any future credit facilities, or our inability to comply with the financial ratios could result in an event of default, which would
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allow the lenders to declare all borrowings outstanding to be due and payable, which would in turn trigger an event of default under the indenture for the new Notes or our other indentures. In addition, our lenders could compel us to apply all of our available cash to repay our borrowings or they could prevent us from making payments on the new Notes. If the amounts outstanding under the revolving credit facility or the new Notes were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders, including you as a noteholder.
Many of the covenants contained in the indenture will be suspended if the Notes are rated investment grade by both Standard & Poors and Moodys and no default or event of default has occurred and is continuing.
Many of the covenants in the indenture governing the Notes will be suspended if the Notes are rated investment grade by both Standard & Poors and Moodys and no default or event of default has occurred and is continuing. These covenants restrict, among other things, our ability to make certain payments, incur debt and enter into certain other transactions. Suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force. See Description of the New Notes Certain Covenants Suspended Covenants.
A court could cancel the guarantees under fraudulent conveyance laws or certain other circumstances.
All of our present and future domestic restricted subsidiaries and Parent will guarantee the new Notes. If, however, such a guarantor becomes a debtor in a case under the U.S. Bankruptcy Code or encounters other financial difficulty, under federal or state laws governing fraudulent conveyance or preferential payments, a court in the relevant jurisdiction might void or cancel its guarantee. The court might do so if it found that, when the guarantor entered into its guarantee or, in some states, when payments become due thereunder, it received less than reasonably equivalent value or fair consideration for such guarantee and either was or was rendered insolvent, was left with inadequate capital to conduct its business, or believed or should have believed that it would incur debts beyond its ability to pay. The court might also void such guarantee, without regard to the above factors. If it found that the guarantor entered into its guarantee with actual or deemed intent to hinder, delay, or defraud its creditors.
A court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee unless it benefited directly or indirectly from the issuance of the new Notes. If a court voided such guarantee, you would no longer have a claim against such guarantor. In addition, the court might direct you to repay any amounts already received from such guarantor. If the court were to void any guarantee, we cannot assure you that funds would be available to pay the new Notes from another guarantor or from any other source.
The indenture will state that the liability of each guarantor on its guarantee is limited to the maximum amount that the guarantor can incur without risk that the guarantee will be subject to avoidance as a fraudulent conveyance. This limitation may not protect the guarantees from a fraudulent conveyance attack or, if it does, we cannot assure you that the guarantees will be in amounts sufficient, if necessary, to pay obligations under the new Notes when due.
The new Notes currently have no established trading or other public market and, if one develops, it may not be liquid.
The new Notes will constitute a new issue of securities with no established trading market. Although the new Notes will be registered under the Securities Act, they will not be listed on any securities exchange. We cannot assure you that any market for the new Notes will develop, or if one does develop, that it will be liquid. If the new Notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, our credit rating, our operating performance and financial condition and other factors. As a result, we cannot ensure you that you will be able to sell any of the new Notes at a particular time, at attractive prices, or at all.
In addition, the market for non-investment-grade debt securities has historically been subject to disruptions that have caused price volatility independent of the operating and financial performance of the issuers of these securities. It is possible that the market for the new Notes will be subject to these kinds of
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disruptions. Accordingly, declines in the liquidity and market price of the new Notes, if any are issued, may occur independent of our operating and financial performance. If any new Notes are issued, any liquid market for the new Notes is not certain to develop.
The trading prices for the Notes will be directly affected by our credit rating.
Credit rating agencies continually revise their ratings for companies that they follow, including us. Any ratings downgrade could adversely affect the trading price of the Notes or the trading market for the Notes to the extent a trading market for the Notes develops. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future.
Because our Parent is incorporated under the laws of Bermuda, there may be difficulty in serving process on and enforcing liabilities against our Parent.
Our Parent, which will guarantee payments under the new Notes, is incorporated under the laws of Bermuda. Some of the directors and officers and a substantial portion of the assets of Parent are located outside the United States. Accordingly, it may be difficult for investors in the new Notes to effect service of process within the United States upon these persons or to enforce against them, in courts outside the United States, judgments of courts of the United States predicated upon civil liabilities under the U.S. federal securities or other laws.
We have been advised by our Bermuda legal counsel, Appleby, that there is doubt with respect to Bermuda law as to (a) whether a judgment of a U.S. court predicated solely upon the civil liability provisions of the U.S. federal securities or other laws would be enforceable in Bermuda against Parent and (b) whether an action could be brought in Bermuda against Parent in the first instance on the basis of liability predicated solely upon the provisions of the U.S. federal securities or other laws. In addition, other laws of Bermuda, such as those limiting a partys enforcement rights on the grounds of public policy and the fact that a treaty does not exist between the United States and the government of Bermuda regarding the enforcement of civil liabilities may also restrict the ability to enforce Parents obligations under its guarantee.
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On February 25, 2011, we sold $250 million aggregate principal amount of the old Notes in a private offering. The old Notes were sold to initial purchasers who in turn resold the old Notes to a limited number of qualified institutional buyers pursuant to Rule 144A of the Securities Act or offshore investors pursuant to Regulation S of the Securities Act.
In connection with the issuance of the old Notes, we entered into a registration rights agreement with respect to the Notes (the registration rights agreement). Under the registration rights agreement, we agreed to:
| file a registration statement with the SEC with respect to a registered offer to exchange each outstanding Note for a new Note having terms substantially identical in all material respects to such Note except that the new Note will not contain terms with respect to transfer restrictions, registration rights or additional interest; |
| use our reasonable best efforts to cause the registration statement to be declared effective under the Securities Act within 270 days after the original issuance of the old Notes; |
| as soon as practicable following the effectiveness of the registration statement, offer the new Notes in exchange for surrender of the old Notes; |
| keep the exchange offer open for not less than 30 days (or longer if required by applicable law) after the date notice of the exchange offer is mailed to the holders of the old Notes; and |
| consummate the exchange of the old Notes for new Notes within 40 days after the effectiveness of the registration statement. |
We have performed the first three of these five actions.
To exchange your old Notes for transferable new Notes in the exchange offer, you will be required to make the following representations:
| any new Notes will be acquired in the ordinary course of your business; |
| you have no arrangement or understanding with any person or entity to participate in the distribution of the new Notes within the meaning of the Securities Act; |
| if you are not a broker-dealer, you are not engaged in and do not intend to engage in the distribution of the Notes; |
| if you are a broker-dealer that will receive new Notes for your own account in exchange for old Notes you acquired as a result of market-making activities or other trading activities, you will comply with the applicable provisions of the Securities Act in connection with any resale of such new Notes; |
| you have full power and authority to transfer the old Notes in exchange for the new Notes and that we will acquire good and unencumbered title thereto free and clear of any liens, restrictions, charges or encumbrances and not subject to any adverse claims; and |
| you are not our affiliate, as defined in Rule 405 of the Securities Act. |
The description of the registration rights agreement contained in this section is a summary only. For more information, you should review the provisions of the registration rights agreement that we filed with the SEC as an exhibit to the registration statement of which this prospectus is a part.
Based on no-action letters of the SEC staff issued to third parties, we believe that new Notes may be offered for resale, resold and otherwise transferred by you without further compliance with the registration and prospectus delivery provisions of the Securities Act if:
| you are not a broker-dealer; |
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| you are not our affiliate within the meaning of Rule 405 under the Securities Act; |
| such new Notes are acquired in the ordinary course of your business; and |
| you do not intend to participate in a distribution of the new Notes. |
The SEC, however, has not considered the exchange offer for the new Notes in the context of a no-action letter, and the SEC may not make a similar determination as in the no-action letters issued to these third parties.
If you tender in the exchange offer with the intention of participating in any manner in a distribution of the new Notes, you
| cannot rely on such interpretations by the SEC staff; and |
| must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. |
Unless an exemption from registration is otherwise available, any security holder intending to distribute new Notes should be covered by an effective registration statement under the Securities Act. The registration statement should contain the selling security holders information required by Item 507 of Regulation S-K under the Securities Act.
This prospectus may be used for an offer to resell, resale or other retransfer of new Notes only as specifically described in this prospectus. Failure to comply with the registration and prospectus delivery requirements by a holder subject to these requirements could result in that holder incurring liability for which it is not indemnified by us. If you are a broker-dealer, you may participate in the exchange offer only if you acquired the old Notes as a result of market-making activities or other trading activities. Each broker-dealer that receives new Notes for its own account in exchange for old Notes, where such old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge in the letter of transmittal that it will deliver a prospectus in connection with any resale of the new Notes. Please read the section captioned Plan of Distribution for more details regarding the transfer of new Notes.
Subject to the terms and conditions described in this prospectus and in the letter of transmittal, we will accept for exchange any old Notes properly tendered and not withdrawn prior to 5:00 p.m. New York City time on the expiration date. We will issue new Notes in principal amount equal to the principal amount of old Notes surrendered under the exchange offer.
The exchange offer is not conditioned upon any minimum aggregate principal amount of old Notes being tendered for exchange.
As of the date of this prospectus, $250.0 million in aggregate principal amount of the Notes are outstanding. This prospectus is being sent to DTC, the sole registered holder of the old Notes, and to all persons that we can identify as beneficial owners of the old Notes. There will be no fixed record date for determining registered holders of old Notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement and the applicable requirements of the Securities Act, the Securities Exchange Act of 1934 and the rules and regulations of the SEC. Old Notes that the holders thereof do not tender for exchange in the exchange offer will remain outstanding and continue to accrue interest. These old Notes will be entitled to the rights and benefits such holders have under the indenture relating to the Notes and the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered old Notes when we have given oral or written notice of the acceptance to the exchange agent and complied with the applicable provisions of the registration rights agreement. The exchange agent will act as agent for the Company for the purposes of accepting the old Notes, tendered to us.
If you tender old Notes in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the letter of transmittal, transfer taxes with respect to the exchange of old Notes. We will
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pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offer. It is important that you read the section labeled Fees and Expenses for more details regarding fees and expenses incurred in the exchange offer.
We will return any old Notes that we do not accept for exchange for any reason without expense to their tendering holder promptly after the expiration or termination of the exchange offer.
The exchange offer will expire at 5:00 p.m. New York City time on June , 2011, unless, in our sole discretion, we extend it.
We expressly reserve the right, at any time or various times, to extend the period of time during which the exchange offer is open. During any such extensions, all old Notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange.
In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of old Notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.
If any of the conditions described below under Conditions to the Exchange Offer have not been satisfied, we reserve the right, in our sole discretion to:
| extend the exchange offer, or |
| terminate the exchange offer, |
by giving oral or written notice of such delay, extension or termination to the exchange agent. Subject to the terms of the registration rights agreement, we also reserve the right to amend the terms of the exchange offer in any manner.
Any such extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of old Notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose such amendment by means of a prospectus supplement. The supplement will be distributed to the registered holders of the old Notes. Depending upon the significance of the amendment and the manner of disclosure to the registered holders, we will extend such exchange offer if such exchange offer would otherwise expire during such period.
We will not be required to accept for exchange, or exchange any new Notes for, any old Notes if the exchange offer, or the making of any exchange by a holder of old Notes, would violate applicable law or any applicable interpretation of the staff of the SEC. Similarly, we may terminate the exchange offer as provided in this prospectus before accepting old Notes for exchange in the event of such a potential violation.
In addition, we will not be obligated to accept for exchange the old Notes of any holder that has not made to us the representations described under Purpose and Effect of the Exchange Offer, Procedures for Tendering and Plan of Distribution and such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to allow us to use an appropriate form to register the new Notes under the Securities Act.
Furthermore, we will not accept for exchange any old Notes tendered, and will not issue new Notes in exchange for any such old Notes, if at such time any stop order has been threatened or is in effect with respect to (1) the registration statement of which this prospectus constitutes a part or (2) the qualification of the indenture relating to the Notes under the Trust Indenture Act of 1939.
We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any old Notes not previously accepted for exchange, upon the occurrence of any of the conditions to the exchange offer specified above. We will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the old Notes as promptly as practicable.
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These conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time or at various times in our sole discretion. If we fail at any time to exercise any of these rights, this failure will not mean that we have waived our rights. Each such right will be deemed an ongoing right that we may assert at any time or at various times.
In order to participate in the exchange offer, you must properly tender your old Notes to the exchange agent as described below. It is your responsibility to properly tender your Notes. We have the right to waive any defects. However, we are not required to waive defects and are not required to notify you of defects in your tender.
If you have any questions or need help in exchanging your old Notes, please call the exchange agent, whose address and phone number are set forth in Prospectus Summary The Exchange Offer Exchange Agent.
All of the old Notes were issued in book-entry form, and all of the old Notes are currently represented by one or more global certificates held for the account of DTC. We have confirmed with DTC that the old Notes may be tendered using the ATOP procedures instituted by DTC. The exchange agent will establish an account with DTC for purposes of the exchange offer promptly after the commencement of the exchange offer and DTC participants may electronically transmit their acceptance of the exchange offer by causing DTC to transfer their old Notes to the exchange agent using the ATOP procedures. In connection with the transfer, DTC will send an agents message to the exchange agent. The agents message will state that DTC has received instructions from the participant to tender old Notes, that the participant agrees to be bound by the terms of the letter of transmittal and that we may enforce the letter of transmittal against the participant.
By using the ATOP procedures to exchange old Notes, you will not be required to deliver a letter of transmittal to the exchange agent. However, you will be bound by its terms just as if you had signed it.
There is no procedure for guaranteed late delivery of the old Notes.
We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered old Notes and withdrawal of tendered old Notes. Our determination will be final and binding. We reserve the absolute right to reject any old Notes not properly tendered or any old Notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defect, irregularities or conditions of tender as to particular old Notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of old Notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old Notes, neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of old Notes will not be deemed made until such defects or irregularities have been cured or waived. Any old Notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.
In all cases, we will issue new Notes for old Notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives:
| a book-entry confirmation of such old Notes into the exchange agents account at DTC; and |
| a properly transmitted agents message. |
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If we do not accept any tendered old Notes for exchange or if old Notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged old Notes will be returned without expense to their tendering holder. Such non-exchanged old Notes will be credited to an account maintained with DTC. These actions will occur promptly after the expiration or termination of the exchange offer.
By agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:
| any new Notes you receive will be acquired in the ordinary course of your business; |
| you have no arrangement or understanding with any person or entity to participate in the distribution of the Notes within the meaning of the Securities Act; |
| if you are not a broker-dealer, you are not engaged in and do not intend to engage in the distribution of the Notes; |
| if you are a broker-dealer that will receive new Notes for your own account in exchange for old Notes you acquired as a result of market-making activities or other trading activities, you will comply with the applicable provisions of the Securities Act in connection with any resale of such new Notes; |
| you have full power and authority to transfer the old Notes in exchange for the new Notes and that we will acquire good and unencumbered title thereto free and clear of any liens, restrictions, charges or encumbrances and not subject to any adverse claims; and |
| you are not our affiliate, as defined in Rule 405 of the Securities Act. |
Except as otherwise provided in this prospectus, you may withdraw your tender at any time prior to 5:00 p.m. New York City time on the expiration date. For a withdrawal to be effective you must comply with the appropriate procedures of DTCs ATOP system. Any notice of withdrawal must specify the name and number of the account at DTC to be credited with withdrawn old Notes and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal. Our determination shall be final and binding on all parties. We will deem any old Notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer.
Any old Notes that have been tendered for exchange but are not exchanged for any reason will be credited to an account maintained with DTC for the old Notes. This return or crediting will take place as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn old Notes by following the procedures described under Procedures for Tendering above at any time prior to 5:00 p.m., New York City time, on the expiration date.
We will bear the expenses of soliciting tenders with respect to the exchange offer. The principal solicitation is being made by mail; however, we may make additional solicitation by telegraph, telephone or in person by our officers and regular employees and those of our affiliates.
We have not retained any dealer manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out of pocket expenses.
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We will pay the cash expenses to be incurred in connection with the exchange offer. They include:
| SEC registration fees; |
| fees and expenses of the exchange agent and trustee; |
| accounting and legal fees and printing costs; and |
| related fees and expenses. |
We will pay all transfer taxes, if any, applicable to the exchange of old Notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if a transfer tax is imposed for any reason other than the exchange of old Notes under the exchange offer.
If you do not exchange new Notes for your old Notes under the exchange offer, you will remain subject to the existing restrictions on transfer of the old Notes. In general, you may not offer or sell the old Notes unless the offer or sale is either registered under the Securities Act or exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the old Notes under the Securities Act.
We will record the new Notes in our accounting records at the same carrying value as the old Notes. This carrying value is the aggregate principal amount of the old Notes less any bond discount, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer.
Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old Notes in open market or privately negotiated transactions, through subsequent exchange offer or otherwise. We have no present plans to acquire any old Notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old Notes.
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The following table sets forth our ratio of earnings to fixed charges for the periods indicated on a consolidated historical basis.
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Nine Months Ended March 31, |
Year Ended June 30, | |||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||
(Unaudited) | ||||||||||||||||
Ratio of Earnings (Loss) to Fixed Charges | 1.52x | 1.46x | | 1.45x |
For purposes of computing the ratio of earnings (loss) to fixed charges, earnings (loss) is defined as pre-tax income (loss) plus fixed charges. Fixed charges consist of interest expense and amortization of deferred financing fees. For the year ended June 30, 2009 earnings were inadequate to cover fixed charges and therefore have not been presented for this period. The coverage deficiency necessary for the ratio of earnings to fixed charges to equal 1.00x (one-to-one coverage) was $604.2 million for the year ended June 30, 2009.
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Nine Months Ended March 31, | Year Ended June 30, | |||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||
(Dollars in Thousands) (Unaudited) |
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Earnings (Loss): |
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Pre-Tax Income (Loss) | $ | 38,962 | $ | 42,499 | $ | (604,213 | ) | $ | 46,233 | |||||||
Fixed Charges | 74,887 | 92,838 | 94,019 | 101,655 | ||||||||||||
Total Earnings (Loss) | 113,849 | 135,337 | (510,194 | ) | 147,888 | |||||||||||
Fixed Charges: |
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Interest Expense | 67,953 | 85,032 | 88,774 | 97,469 | ||||||||||||
Deferred Financing Fees | 6,934 | 7,806 | 5,245 | 4,186 | ||||||||||||
Total Fixed Charges | 74,887 | 92,838 | 94,019 | 101,655 | ||||||||||||
Ratio of Earnings (Loss) to Fixed Charges | 1.52x | 1.46x | | 1.45x |
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The exchange offer is intended to satisfy our obligations under a registration rights agreement. We will not receive any cash proceeds from the issuance of the new Notes in the exchange offer. In consideration for issuing the new Notes as contemplated by this prospectus, we will receive old Notes in a like principal amount. The form and terms of the new Notes are identical in all respects to the form and terms of the old Notes, except the new Notes do not include certain transfer restrictions. Old Notes surrendered in exchange for the new Notes will be retired and cancelled and will not be reissued. Accordingly, the issuance of the new Notes will not result in any change in our outstanding indebtedness.
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The new Notes will be issued, and the old Notes were issued, under an indenture dated as of February 25, 2011, among us, the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee (the indenture).
The indenture is governed by the Trust Indenture Act of 1939 (the Trust Indenture Act). The terms of the Notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act. The registration rights agreement referred to under the caption Registration Rights sets forth the rights holders of the old Notes have to require us to register their Notes with the SEC.
You can find the definitions of certain terms used in this description under the subheading Certain Definitions. In this description, the term Company, us or we refers only to Energy XXI Gulf Coast, Inc. (including its permitted successors and assigns) and not to any of its subsidiaries. The term Parent refers to Energy XXI (Bermuda) Limited, the ultimate parent of the Company (including its permitted successors and assigns).
If the exchange offer is consummated, Holders of old Notes who do not exchange their old Notes for new Notes will vote together with the Holders of the new Notes for all relevant purposes under the indenture. In that regard, the indenture requires that certain actions by the Holders under the indenture (including the acceleration after an Event of Default) must be taken, and certain rights must be exercised, by Holders of specified minimum percentages of the aggregate principal amount of all Notes issued and outstanding under the indenture. In determining whether Holders of the requisite percentage in aggregate principal amount of Notes have given any notice, consent or waiver or taken any other action permitted under the indenture, any old Notes that remain outstanding after the exchange offer will be aggregated with the new Notes, and the Holders of these old Notes and new Notes will vote together as a single series for all such purposes. Accordingly, all references to this Description of the New Notes to specified percentages in aggregate principal amount of the Notes that remain outstanding mean, at any time after the exchange offer for the old Notes is consummated, such percentage in aggregate principal amount of such old Notes and the new Notes then outstanding.
The following description is a summary of the material provisions of the indenture. It does not restate the indenture in its entirety. We urge you to read the indenture because it, and not this description, defines your rights as holders of the Notes.
The New Notes:
| will be general unsecured senior obligations of the Company; |
| will be treated as a single class with the old Notes for all purposes of the indenture, and will vote together as one class on all matters with respect to the Notes; |
| will be initially issued in an aggregate principal amount of up to $250 million, subject to the Companys ability to issue additional notes under certain circumstances; |
| will be equal in right of payment to all existing and future senior Indebtedness of the Company; |
| will be effectively subordinate in right of payment to any secured Indebtedness of the Company to the extent of the collateral therefor, including Indebtedness under the Companys existing and future Credit Facilities; |
| will be senior in right of payment to any future subordinated Indebtedness of the Company; and |
| will be fully and unconditionally, jointly and severally, guaranteed by the Guarantors. |
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The Notes will be jointly and severally, fully and unconditionally, guaranteed by the Parent and each of the Companys present Restricted Subsidiaries and its future Material Domestic Subsidiaries that guarantee Indebtedness of the Company under any Credit Facility.
The Guarantees of the Notes:
| will be general unsecured senior obligations of each Guarantor; |
| will be equal in right of payment to all existing and future senior Indebtedness of each Guarantor; |
| will be effectively subordinate in right of payment to any secured Indebtedness of each Guarantor to the extent of the collateral therefor, including guarantees or other Indebtedness of the Guarantors under the Companys existing and future Credit Facilities; and |
| will be senior in right of payment to any future subordinated Indebtedness of each Guarantor. |
As of February 25, 2011, all of our Subsidiaries are Restricted Subsidiaries. However, under the circumstances described below under the subheading Certain Covenants Designation of Restricted and Unrestricted Subsidiaries, we will be permitted to designate certain of our Subsidiaries as Unrestricted Subsidiaries. Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Our Unrestricted Subsidiaries will not guarantee the Notes.
The indenture permits us and the Guarantors to incur additional Indebtedness, including additional secured Indebtedness. In the event of a bankruptcy, liquidation or reorganization of any non-guarantor Subsidiary, the non-guarantor Subsidiary will pay the holders of its debt and its trade creditors before it will be able to distribute any of its assets to us.
The Company will issue the new Notes with an initial maximum aggregate principal amount of up to $250 million. The Company may issue additional notes from time to time after the date hereof. Any offering of additional notes is subject to the covenant described below under the caption Certain Covenants Incurrence of Indebtedness and Issuance of Preferred Stock. The new Notes and any additional notes subsequently issued under the indenture, together with any unexchanged old Notes, will be treated as a single class for all purposes under the indenture, including without limitation, waivers, amendments, redemptions and offers to purchase. The Company will issue new Notes in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The Notes will mature on June 15, 2019.
Interest on the Notes will accrue at the rate of 7.75% per annum. Interest will be payable semi-annually in arrears on June 15 and December 15, commencing on June 15, 2011. The Company will make each interest payment to the Holders of record on the immediately preceding June 1 and December 1.
Interest on the Notes will accrue from February 25, 2011 or, if interest has already been paid, from the date it was most recently paid. All references to interest in this description include any additional interest that may be payable on the Notes, including, but not limited to, any additional interest payable pursuant to the clause (5) under the heading Events of Default. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
If a Holder has given wire transfer instructions to the Company, the Company will pay all principal, interest and premium, if any, on that Holders Notes in accordance with those instructions. All other payments on the Notes will be made at the office or agency of the paying agent and registrar unless the Company elects to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders.
The trustee will initially act as paying agent and registrar. The Company may change the paying agent or registrar without prior notice to the Holders of the Notes, and the Company or any of its Domestic Subsidiaries may act as paying agent.
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A Holder may transfer or exchange Notes in accordance with the indenture. The registrar or the trustee may require a Holder to furnish appropriate endorsements and transfer documents in connection with a transfer of Notes. No service charge will be imposed for any registration of transfer or exchange of Notes, but the Company may require Holders to pay all taxes due on transfer. The Company is not required to transfer or exchange any note selected for redemption. Also, the Company is not required to transfer or exchange any note for a period of 15 days prior to the mailing of a notice of redemption.
The Parent and all of the Companys Subsidiaries have guaranteed the old Notes, and each of them will guarantee the new Notes. In the future, the Notes will be guaranteed by each of the Companys future Material Domestic Subsidiaries that guarantees Indebtedness of the Company under any Credit Facility. See Certain Covenants Additional Guarantees. These additional Guarantees will be unconditional, joint and several obligations of the Guarantors. The obligations of each Guarantor under its Guarantee will be limited as necessary to prevent that Guarantee from constituting a fraudulent conveyance under applicable law. See Risk Factors A court could cancel the guarantees under fraudulent conveyance laws or certain other circumstances.
A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless:
(1) | immediately after giving effect to such transaction, no Default or Event of Default exists; and |
(2) | either: |
(a) | the Person acquiring the properties or assets in any such sale or other disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) unconditionally assumes all the obligations of that Guarantor, pursuant to a supplemental indenture substantially in the form specified in the indenture, under the Notes, the indenture and that Guarantors Guarantee; or |
(b) | such sale or other disposition complies with the Asset Sale provisions of the indenture. |
The Guarantee of a Guarantor will be released:
(1) | with respect to Guarantees by the Companys Subsidiaries, in connection with any sale or other disposition of all or substantially all of the properties or assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Company or a Subsidiary of the Company, if the sale or other disposition complies with the Asset Sale provisions of the indenture; or |
(2) | in connection with any sale or other disposition of all of the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Subsidiary of the Company, if the sale or other disposition complies with the Asset Sale provisions of the indenture; or |
(3) | if the Company designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of the indenture; |
(4) | with respect to any Guarantees by a Subsidiary of the Company, if that Guarantor ceases to guarantee any other Indebtedness under a Credit Facility; or |
(5) | upon Legal Defeasance or Covenant Defeasance with respect to all Notes as described below under the caption Certain Covenants Legal Defeasance and Covenant Defeasance or upon satisfaction and discharge of the indenture as described below under the caption Satisfaction and Discharge. |
See Repurchase at the Option of Holders Asset Sales.
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On or after June 15, 2015, the Company may redeem all or a part of the Notes at any time or from time to time upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, on the Notes to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of the years set forth below:
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Period | Percentage | |||
2015 | 103.875 | % | ||
2016 | 101.938 | % | ||
2017 and thereafter | 100.000 | % |
In addition, at any time prior to June 15, 2014 the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the Notes issued under the indenture at a redemption price of 107.75% of the principal amount, plus accrued and unpaid interest, if any, on the Notes to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), with the net cash proceeds of one or more Equity Offerings by the Company, provided that:
(1) | at least 65% of the aggregate principal amount of Notes issued under the indenture (including additional notes) remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and |
(2) | the redemption occurs within 90 days of the date of the closing of such Equity Offering. |
In addition, at any time prior to June 15, 2015, the Notes may be redeemed in whole or in part at the option of the Company upon not less than 30 nor more than 60 days prior notice 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, if any, to the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date).
Applicable Premium means, with respect to a note at any redemption date, the greater of (x) 1.0% of the principal amount of such note and (y) the excess of (A) the present value at such time of (1) redemption price of such note as of June 15, 2015 (without regard to accrued and unpaid interest) plus (2) all required interest payments due on such note through June 15, 2015, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such note.
Treasury Rate means, with respect to the Notes 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) that 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 June 15, 2015; provided, however, that if the period from the redemption date to June 15, 2015 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 the final maturity of the Notes 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.
Except as provided above, the Notes will not be redeemable at the Companys option prior to their final maturity.
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If less than all of the Notes are to be redeemed at any time, the trustee will select Notes for redemption as follows:
(1) | if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or |
(2) | if the relevant Notes are not listed on any national securities exchange, on a pro rata basis. |
No Notes of $2,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the indenture. Notices of redemption may be conditional.
If any Note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder of Notes upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption, unless any condition to the redemption set forth in the notice therefor shall not have been satisfied. On and after the redemption date, unless any condition to the redemption set forth in the notice therefor shall not have been satisfied, interest ceases to accrue on Notes or portions of them called for redemption.
Except as set forth below under Repurchase at the Option of Holders, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes or to repurchase the Notes at the option of the Holders. The Company may at any time and from time to time purchase Notes in the open market or otherwise if such purchase complies with the then applicable agreements of the Company, including the indenture.
If a Change of Control occurs, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000 in excess of $2,000) of that Holders Notes pursuant to an offer (Change of Control Offer) on the terms set forth in the indenture. In the Change of Control Offer, the Company will offer a payment in cash (Change of Control Payment) equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased, to the date of settlement (the Change of Control Purchase Date), subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Change of Control Purchase Date. Within 30 days following any Change of Control, the Company will mail a notice to each Holder and the Trustee describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes as of the Change of Control Purchase Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict.
On the Change of Control Purchase Date, the Company will, to the extent lawful:
(i) | accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; |
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(ii) | deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and |
(iii) | deliver or cause to be delivered to the trustee the Notes properly accepted together with an officers certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. |
On the Change of Control Purchase Date, the paying agent will mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes (or, if all the Notes are then in global form, make such payment through the facilities of DTC), and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each Note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess of $2,000. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date.
The occurrence of a Change of Control may result in a default under the Companys existing or future Credit Facilities and may cause a default under other Indebtedness of Parent and its Subsidiaries or the Company and its Subsidiaries, and give the lenders thereunder the right to require the Company to repay obligations outstanding thereunder. Moreover, the exercise by Holders of their right to require the Company or Parent 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. The Companys ability to repurchase Notes following a Change of Control also may be limited by the Companys then existing financial resources. Prior to complying with any of the provisions of this Change of Control covenant, but in any event no later than the Change of Control Purchase Date, the Company will, to the extent necessary, either repay all outstanding Credit Facilities or obtain any requisite consents under all agreements governing outstanding Credit Facilities to permit the repurchase of Notes required by this covenant.
The provisions described above that require the Company to make a Change of Control Offer following a Change of Control 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 of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.
The Company 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 time and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of all or substantially all of the properties or assets of the Parent and its subsidiaries, taken as a whole, the Company or any of the Companys Restricted Subsidiaries taken as a whole. 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, the ability of a Holder of Notes to require the Company to repurchase the Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Parent and its subsidiaries taken as a whole, the Company, or any of the Companys Restricted Subsidiaries taken as a whole to another Person or group may be uncertain.
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) | the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; |
(2) | the fair market value is determined by the Companys Board of Directors and evidenced by a resolution of the Board of Directors set forth in an officers certificate delivered to the trustee; and |
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(3) | at least 75% of the consideration received by the Company or such Restricted Subsidiary from all Asset Sales since the Issue Date, in the aggregate, is in the form of cash. |
For purposes of this provision, each of the following will be deemed to be cash:
(a) | any liabilities, as shown on the Companys or such Restricted Subsidiarys most recent balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee) that are assumed by the transferee of any such assets pursuant to a customary agreement that releases the Company or such Restricted Subsidiary from further liability; and |
(b) | any securities, Notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted within 90 days by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion. |
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or any such Restricted Subsidiary may apply those Net Proceeds at its option to any combination of the following:
(i) | to repay, redeem or repurchase Indebtedness of the Company or a Guarantor that is not subordinated in right of payment to the Notes or any Guarantee (but excluding intercompany Indebtedness of the Company or any Guarantor to the Company or any of its Affiliates); provided that if such Indebtedness is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto as specified in the covenant entitled Incurrence of Indebtedness and Issuance of Preferred Stock; |
(ii) | to acquire all or substantially all of the properties or assets of one or more other Persons primarily engaged in the Oil and Gas Business, and, for this purpose, a division or line of business of a Person shall be treated as a separate Person so long as such properties and assets are acquired by the Company or a Restricted Subsidiary; |
(iii) | to acquire a majority of the Voting Stock of one or more other Persons primarily engaged in the Oil and Gas Business, if after giving effect to any such acquisition of Voting Stock, such Person is or becomes a Restricted Subsidiary; |
(iv) | to make one or more capital expenditures; or |
(v) | to acquire other long-term assets that are used or useful in the Oil and Gas Business. |
Pending the final application of any Net Proceeds, the Company or any such Restricted Subsidiary may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute Excess Proceeds. On the 361st day after an Asset Sale (or, at the Companys option, any earlier date), if the aggregate amount of Excess Proceeds then exceeds $15.0 million, the Company will make an offer (an Asset Sale Offer) to all Holders of Notes, and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of settlement, subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the date of settlement, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
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The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such conflict.
During any period when the Notes have an Investment Grade Rating from both Rating Agencies and no Default has occurred and is continuing under the Indenture (the Covenant Suspension Period), the Company and its Restricted Subsidiaries will not be subject to the provisions of the Indenture described above under the caption Repurchase at the Option of Holders Asset Sales and under the following headings:
| Restricted Payments, |
| Incurrence of Indebtedness and Issuance of Preferred Stock, |
| Dividend and other Payment Restrictions Affecting Subsidiaries, |
| Clause (4) of the covenant under Merger, Consolidation or Sale of Assets, |
| Transactions with Affiliates, |
| Additional Guarantees and |
| Business Activities |
(collectively, the Suspended Covenants); provided that if the Company and the Restricted Subsidiaries are not subject to the Suspended Covenants for any period of time as a result of the preceding portion of this sentence and, subsequently, either of the Rating Agencies withdraws its ratings or downgrades the ratings assigned to the Notes below the Investment Grade Ratings so that the Notes do not have an Investment Grade Rating from both Rating Agencies, or a Default (other than with respect to the Suspended Covenants) occurs and is continuing, the Company and the Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants, subject to the terms, conditions and obligations set forth in the Indenture (each such date of reinstatement being the Reinstatement Date). As a result, during any Covenant Suspension Period, the Notes will be entitled to substantially reduced covenant protection. Compliance with the Suspended Covenants with respect to Restricted Payments made after the Reinstatement Date will be calculated in accordance with the terms of the covenant described under Restricted Payments as though such covenant had been in effect during the entire period of time from which the Notes are issued. However, all Restricted Payments made, Indebtedness incurred and other actions effected during any period in which covenants are suspended will not cause a default under the Indenture on any Reinstatement Date.
The Company will provide the Trustee with prompt written notice upon the commencement of a Covenant Suspension Period and of the occurrence of a Reinstatement Date. In addition, during any period when the Suspended Covenants are suspended the Company will not be permitted to designate any of its Subsidiaries as Unrestricted Subsidiaries pursuant to the definition of Unrestricted Subsidiary.
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) | declare or pay any dividend or make any other payment or distribution on account of the Companys or any of its Restricted Subsidiaries Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Companys or any of its Restricted Subsidiaries Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or payable to the Company or a Restricted Subsidiary of the Company); |
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(2) | purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; |
(3) | make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Guarantees, except a payment of interest or principal at the Stated Maturity thereof; or |
(4) | make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as Restricted Payments), |
unless, at the time of and after giving effect to such Restricted Payment:
(1) | no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; |
(2) | the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption Incurrence of Indebtedness and Issuance of Preferred Stock; and |
(3) | such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after December 17, 2010 (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (7), (8), (9), (10) and (12) of the next succeeding paragraph), is less than the sum, without duplication, of (the Restricted Payments Basket): |
(a) | 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from October 1, 2010 to the end of the Companys most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus |
(b) | 100% of the aggregate net cash proceeds received by the Company (and the fair market value of any Additional Assets to the extent acquired in consideration of Equity Interests of the Company (other than Disqualified Stock)) since December 17, 2010 as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus |
(c) | to the extent that any Restricted Investment that was made after December 17, 2010 is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus |
(d) | to the extent that any Unrestricted Subsidiary of the Company is redesignated as a Restricted Subsidiary after December 17, 2010, the lesser of (i) the fair market value of the Companys Investment in such Subsidiary as of the date of such redesignation or (ii) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary. |
So long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit:
(1) | the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of the indenture; |
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(2) | the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (3)(b) of the preceding paragraph; |
(3) | the defeasance, redemption, repurchase, retirement or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from a substantially concurrent incurrence of, or in exchange for, Permitted Refinancing Indebtedness; and |
(4) | the payment of any dividend by a wholly-owned Restricted Subsidiary of the Company to the Company or a Restricted Subsidiary; |
(5) | the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former director or employee of the Company or any of its Restricted Subsidiaries pursuant to any director or employee equity subscription agreement or plan, stock option agreement or similar agreement or plan; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $4.0 million in any twelve-month period; |
(6) | the acquisition of Equity Interests by the Company in connection with the exercise of stock options or stock appreciation rights by way of cashless exercise; |
(7) | so long as no Default has occurred and is continuing, upon the occurrence of a Change of Control or an Asset Sale and within 60 days after the completion of the offer to repurchase the Notes under the covenants described under Repurchase at the Option of Holders Change of Control or Repurchase at the Option of Holders Asset Sales above (including the purchase of all Notes tendered), any purchase, repurchase, redemption, defeasance, acquisition or other retirement for value of Subordinated Indebtedness required under the terms thereof as a result of such Change of Control or Asset Sale at a purchase or redemption price not to exceed 101% of the outstanding principal amount thereof, plus accrued and unpaid interest thereon, if any, provided that, in the notice to Holders relating to a Change of Control or Asset Sale hereunder, the Company shall describe this clause (7); |
(8) | the payment of cash in lieu of fractional shares of Capital Stock in connection with any transaction otherwise permitted under the indenture; |
(8) | Permitted Payments to Parent Companies; |
(10) | other Restricted Payments in an aggregate amount since December 17, 2010 not to exceed $70.0 million; |
(11) | the payment of dividends on the Companys common equity (or the payment of dividends or distributions to a direct or indirect parent company of the Company to fund the payment by such parent company of dividends or distributions on its common equity) of up to 6.0% per calendar year of the net proceeds received by the Company from any public Equity Offering or contributed to the Company by a direct or indirect parent company of the Company from any public Equity Offering; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (3)(b) of the preceding paragraph; and |
(12) | the declaration and payment of dividends to holders of any class or series of preferred stock or Disqualified Stock of the Company or any of its Restricted Subsidiaries issued in accordance with the covenant described under Incurrence of Indebtedness and Issuance of Preferred Stock to the extent such dividends are included in the calculation of Fixed Charges. |
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The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant will be determined by the Board of Directors, whose determination shall be evidenced by a Board Resolution. The Board of Directors determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $20.0 million. For purposes of determining compliance with this Restricted Payments covenant, in the event that a Restricted Payment meets the criteria of more than one of the categories of Restricted Payments described in the preceding clauses (1) (12), the Company will be permitted to classify (or later classify or reclassify in whole or in part in its sole discretion) such Restricted Payment in any manner that complies with this covenant.
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, incur) any Indebtedness (including Acquired Debt), neither the Company nor any Restricted Subsidiary will issue any Disqualified Stock, and the Company will not permit any of its other Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Companys most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.25 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, Permitted Debt):
(1) | the incurrence by the Company or any Restricted Subsidiary of additional Indebtedness (including letters of credit) under one or more Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed an amount equal to the greater of (a) $925.0 million, less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any of its Restricted Subsidiaries since the Issue Date to repay any revolving credit Indebtedness under any Credit Facilities and effect a corresponding commitment reduction thereunder pursuant to the covenant described above under the caption Repurchase at the Option of Holders Asset Sales, and (b) 30% of ACNTA as of the date of such incurrence; |
(2) | the incurrence by the Company or any of its Restricted Subsidiaries of the Existing Indebtedness; |
(3) | the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Guarantees; |
(4) | the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed $20.0 million at any time outstanding; |
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(5) | the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clause (2), (3) or (12) of this paragraph or this clause (5); |
(6) | the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness, Disqualified Stock or preferred stock between or among the Company and any of its Restricted Subsidiaries; provided, however, that: |
(a) | if the Company is the obligor on such Indebtedness and a Guarantor is not the obligee, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, or if a Guarantor is the obligor on such Indebtedness and neither the Company nor another Guarantor is the obligee, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Guarantee of such Guarantor; and |
(b) | (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness, Disqualified Stock or preferred stock 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, Disqualified Stock or preferred stock to a Person that is neither the Company nor a Restricted Subsidiary of the Company will be deemed, in each case, to constitute an incurrence of such Indebtedness, Disqualified Stock or preferred stock by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); |
(7) | the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations; |
(8) | the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or any Guarantor that was permitted to be incurred by another provision of this covenant; |
(9) | the incurrence by the Company or any of its Restricted Subsidiaries of obligations relating to net gas balancing positions arising in the ordinary course of business and consistent with past practice; |
(10) | the incurrence by the Companys Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (10); |
(11) | the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of bid, performance, surety and similar bonds issued for the account of the Company and any of its Restricted Subsidiaries in the ordinary course of business, including guarantees and obligations of the Company and any of its Restricted Subsidiaries with respect to letters of credit supporting such obligations (in each case other than an obligation for money borrowed); |
(12) | Indebtedness, Disqualified Stock or preferred stock of a Restricted Subsidiary incurred and outstanding on the date on which such Restricted Subsidiary was acquired by, or merged into, the Company or any Restricted Subsidiary (other than Indebtedness, Disqualified Stock or preferred stock incurred (a) to provide all or any portion of the funds utilized to consummate the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by the Company or (b) otherwise in connection with, or in contemplation of, such acquisition); provided, however, that at the time such Restricted Subsidiary is acquired by the Company, the Company would have been able in incur $1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after giving effect to the incurrence of such Indebtedness, Disqualified Stock or preferred stock pursuant to this clause (12); |
(13) | the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from agreements of the Company or any of its Restricted Subsidiaries providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Capital Stock of a Subsidiary, provided that the |
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maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; |
(14) | the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, not to exceed $50.0 million; and |
(15) | Indebtedness to the extent the proceeds thereof are used to finance insurance premiums. |
For purposes of determining compliance with this Incurrence of Indebtedness and Issuance of Preferred Stock covenant, in the event that an item of Indebtedness (including Acquired Debt) meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify (or later classify or reclassify in whole or in part in its sole discretion) such item of Indebtedness in any manner that complies with this covenant.
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. Indebtedness of any Person existing at the time such Person becomes a Restricted Subsidiary shall be deemed to have been incurred by the Company and the Restricted Subsidiary at the time such Person becomes a Restricted Subsidiary. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued.
The Company will not and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) securing Indebtedness or Attributable Debt upon any of their property or assets, now owned or hereafter acquired, unless the Notes or any Guarantee of such Restricted Subsidiary, as applicable, is secured on an equal and ratable basis (or on a senior basis to, in the case of obligations subordinated in right of payment to the Notes or such Guarantee, as the case may be) with the obligations so secured until such time as such obligations are no longer secured by a Lien.
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) | pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or pay any Indebtedness or other obligations owed to the Company or any of its Restricted Subsidiaries; |
(2) | make loans or advances to the Company or any of its Restricted Subsidiaries; or |
(3) | transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. |
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) | agreements governing Existing Indebtedness and Credit Facilities as in effect on December 17, 2010 and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements, provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on December 17, 2010; |
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(2) | the indenture, the Notes and the Guarantees; |
(3) | applicable law; |
(4) | any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; |
(5) | customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; |
(6) | purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of the preceding paragraph; |
(7) | any agreement for the sale or other disposition of a Restricted Subsidiary of the Company that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; |
(8) | Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; |
(9) | agreements governing other Indebtedness of the Company and one or more Restricted Subsidiaries permitted under the indenture, provided that the restrictions in the agreements governing such Indebtedness are not materially more restrictive, taken as a whole, than those in the indenture; |
(10) | Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant described above under the caption Liens that limit the right of the debtor to dispose of the assets subject to such Liens; |
(11) | provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements, agreements respecting Permitted Business Investments and other similar agreements entered into in the ordinary course of business; and |
(12) | restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. |
The Company will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless:
(1) | either (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; |
(2) | the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition has been made assumes all the obligations of the Company under the Notes and the indenture pursuant to agreements reasonably satisfactory to the trustee; |
(3) | immediately after such transaction no Default or Event of Default exists; |
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(4) | except with respect to a transaction solely between the Company and a Guarantor, (i) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption Incurrence of Indebtedness and Issuance of Preferred Stock or (ii) such Fixed Charge Coverage Ratio would increase after giving such pro forma 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 or disposition and such supplemental indenture (if any) comply with 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 properties or assets of a Person.
The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an Affiliate Transaction), unless:
(1) | the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and |
(2) | the Company delivers to the trustee: |
(a) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an officers certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and |
(b) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, the Company delivers to the Trustee a written opinion that such Affiliate Transaction(s) is fair, from a financial point of view, to the Company and its Restricted Subsidiaries, taken as a whole, or that such Affiliate Transaction(s) is not less favorable to the Company and its Restricted Subsidiaries than could reasonably be expected to be obtained at the time in an arms-length transaction with a person who is not an Affiliate, in either such case issued by an independent accounting, appraisal or investment banking firm of national standing. |
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) | any employment or severance agreement or other employee compensation agreement, arrangement or plan, or any amendment thereto, entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; |
(2) | transactions between or among any of the Parent, the Company and its Restricted Subsidiaries; |
(3) | transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns an Equity Interest in such Person; |
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(4) | the payment of reasonable directors fees, payments, the payments of other reasonable benefits and the provision of officers and directors indemnification and insurance to the extent permitted by law to persons who are officers and directors of the Parent or its Subsidiaries and the Company and its Restricted Subsidiaries and who are not otherwise Affiliates of the Company, in each case in the ordinary course of business and approved by the Board of Directors; |
(5) | sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; |
(6) | transactions among the Company, its Restricted Subsidiaries and Energy XXI Services, Inc. (Services), a wholly-owned subsidiary of Parent and a sister company of the Company relating to the provision of employment, administrative and related services by Services pursuant to the Cost Allocation Agreement in effect on February 25, 2011 among the Company, certain Subsidiaries and Services, as such agreement may be amended, modified or supplemented from time to time provided that any such amendment, modification or supplement will not be materially adverse to the Company or the Restricted Subsidiaries compared to the terms of such agreement in effect on the Issue Date; and |
(7) | Restricted Payments that are permitted by the provisions of the indenture described above under the caption Restricted Payments, including Permitted Payments to Parent Companies. |
The Board of Directors of the Company may designate any Restricted Subsidiary of the Company to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary of the Company is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption Restricted Payments or represent Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Subsidiary so designated otherwise meets the definition of an Unrestricted Subsidiary.
The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and the creation, incurrence, assumption or otherwise causing to exist any Lien of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described above under the caption Incurrence of Indebtedness and Issuance of Preferred Stock, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, (2) such Lien is permitted under the covenant described above under the caption Liens and (3) no Default or Event of Default would be in existence following such designation.
If the Company or any of its Restricted Subsidiaries acquires or creates another Material Domestic Subsidiary after February 25, 2011 that guarantees Indebtedness of the Company under any Credit Facility, then that Subsidiary will become a Guarantor by executing a supplemental indenture and delivering it to the trustee within 20 Business Days of the date on which it was acquired or created or guaranteed Indebtedness of the Company, as the case may be; provided, however, that the foregoing shall not apply to Subsidiaries of the Company that have properly been designated as Unrestricted Subsidiaries in accordance with the indenture for so long as they continue to constitute Unrestricted Subsidiaries.
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The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Guarantor may enter into a sale and leaseback transaction if:
(1) | the Company or that Guarantor, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in the first paragraph of the covenant described above under the caption Incurrence of Indebtedness and Issuance of Preferred Stock and (b) incurred a Lien to secure such Indebtedness without securing the Notes pursuant to the covenant described above under the caption Liens; |
(2) | the gross cash proceeds of that sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an officers certificate delivered to the trustee, of the property that is the subject of that sale and leaseback transaction; and |
(3) | the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption Repurchase at the Option of Holders Asset Sales. |
The Company will not, and will not permit any Restricted Subsidiary to, engage in any business 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, and Parent will not engage in any business other than the Permitted Parent Business, except to such extent as would not be material to Parent.
Whether or not required by the Commission, so long as any Notes are outstanding, the Parent will file with the Commission for public availability within the time periods specified in the Commissions rules and regulations (unless the Commission will not accept such a filing), and the Parent will furnish to the trustee and, upon its request, to any of the Holders of Notes, within five Business Days of filing, or attempting to file, the same with the Commission:
(1) | all quarterly and annual financial and other information with respect to the Parent and its Subsidiaries that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Parent were required to file such Forms, including a Managements Discussion and Analysis of Financial Condition and Results of Operations and, with respect to the annual information only, a report on the annual financial statements by the Parents certified independent accountants; |
(2) | all current reports that would be required to be filed with the Commission on Form 8-K if the Parent were required to file such reports; and |
(3) | unaudited quarterly and audited annual financial statements of the Company and its Subsidiaries. |
Notwithstanding any of the foregoing, if the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the Companys quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footNotes thereto, 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.
In addition, the Company and the Guarantors have agreed that, for so long as any Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors in the Notes, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The availability of the foregoing materials on the Commissions website shall be deemed to satisfy the foregoing delivery obligations.
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Each of the following is an Event of Default:
(1) | default for 30 days in the payment when due of interest on the Notes; |
(2) | default in payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes; |
(3) | failure by the Company to comply with the provisions described under Merger, Consolidation or Sale of Assets or under the captions Repurchase at the Option of Holders Asset Sales or Repurchase at the Option of Holders Change of Control; |
(4) | failure by the Parent, the Company or any of its Restricted Subsidiaries, as applicable, to comply for 30 days after receipt of written notice from the Trustee or the Holders of at least 25% in principal amount of the Notes with the provisions described under the captions Restricted Payments, Incurrence of Indebtedness and Issuance of Preferred Stock, Liens, Dividend and Other Payment Restrictions Affecting Subsidiaries, Transactions with Affiliates, Additional Guarantees, Sale and Leaseback Transactions, and Business Activities; |
(5) | failure by the Company or the Parent, as applicable, for 60 days after notice from the trustee or the Holders of at least 25% of the principal amount of the Notes outstanding to comply with any of the other agreements in the indenture (or 120 days with respect to the covenant described above under Reports, provided, however, that beginning on the 61st day the Company is not in compliance with the covenant under Reports, additional interest at a rate of 0.25% per annum shall accrue and be payable on the Notes until such covenant is complied with); |
(6) | default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Significant Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after February 25, 2011, if that 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 (a Payment Default); or |
(b) | results in the acceleration of such Indebtedness prior to its Stated Maturity, 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 $15 million or more; |
(7) | failure by the Company or any of its Significant Restricted Subsidiaries to pay final judgments aggregating in excess of $15 million, which judgments are not paid, discharged or stayed (including a stay pending appeal) for a period of 60 days after the date of such final judgment (or, if later, the date when payment is due pursuant to such judgment); |
(8) | except as permitted by the indenture, any Guarantee of Parent or a Significant Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor that is a Parent or Significant Subsidiary, or any Person acting on behalf of any Guarantor that is a Parent or Significant Subsidiary, shall deny or disaffirm its obligations under its Guarantee; and |
(9) | certain events of bankruptcy, insolvency or reorganization described in the indenture with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries of the Company that, taken as a whole, would constitute a Significant Subsidiary. |
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In the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization, with respect to the Company, any Subsidiary of the Company that is a Significant Subsidiary or any group of Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary, all Notes outstanding will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.
Holders of the Notes may not enforce the indenture or the Notes except as provided in the indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the trustee in its exercise of any trust or power. The trustee may withhold notice of any continuing Default or Event of Default from Holders of the Notes if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal of, or interest or premium, if any, on, the Notes.
The Holders of a majority in principal amount of the Notes then outstanding by notice to the trustee may on behalf of the Holders of all of the Notes waive any past Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of principal of, or interest or premium, if any, on the Notes or in respect of a covenant that cannot be amended without the consent of each Holder.
In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes prior to stated maturity (other than with the net cash proceeds of an Equity Offering), an equivalent premium will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes.
The Company is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the trustee a statement specifying such Default or Event of Default.
No director, officer, employee, incorporator or stockholder or other owner of Capital Stock of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or any Guarantor under the Notes, the indenture or the Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
The Company may at its option and, at any time, elect to have all of its obligations discharged with respect to outstanding Notes and all obligations of the Guarantors discharged with respect to their Guarantees (Legal Defeasance) except for:
(1) | the rights of Holders of outstanding Notes to receive payments in respect of the principal of, and interest or premium, if any, on such Notes when such payments are due from the trust referred to below; |
(2) | the Companys obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust; |
(3) | the rights, powers, trusts, duties and immunities of the trustee, and the Companys obligations in connection therewith; and |
(4) | the Legal Defeasance provisions of the indenture. |
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In addition, the Company may, at its option and at any time, elect to have its obligations released with respect to certain covenants that are described in the indenture (Covenant Defeasance) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, insolvency or reorganization events) described under Events of Default and Remedies will no longer constitute an Event of Default with respect to the Notes. If the Company exercises either its Legal Defeasance or Covenant Defeasance option, each Guarantor will be released and relieved of any obligations under its Guarantee and any security for the Notes (other than the trust) will be released.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) | the Company must irrevocably deposit with the trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and interest and premium, if any, on the outstanding Notes on the date of fixed maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to the date of fixed maturity or to a particular redemption date; |
(2) | in the case of Legal Defeasance, the Company has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that: |
(a) | the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or |
(b) | since February 25, 2011, there has been a change in the applicable federal income tax law, |
in either case to the effect that, and based thereon such opinion of counsel will confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) | in the case of Covenant Defeasance, the Company has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; |
(4) | no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); |
(5) | such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture) to which the Company or any of the Guarantors (other than Parent) is a party or by which the Company or any of the Guarantors (other than Parent) is bound; |
(6) | the Company must deliver to the trustee an officers certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and |
(7) | the Company must deliver to the trustee an officers certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. |
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Except as provided in the next three succeeding paragraphs, the indenture, the Notes, or the Guarantees may be amended or supplemented with the consent of the Holders of at least 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), and any existing Default or Event of Default or compliance with any provision of the indenture, the Notes or the Guarantees may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment, supplement or waiver may not (with respect to any Notes held by a non-consenting Holder):
(1) | reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; |
(2) | reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption or repurchase of the Notes (other than provisions relating to the covenants described above under the caption Repurchase at the Option of Holders); |
(3) | reduce the rate of or change the time for payment of interest, including any default interest, on any note; |
(4) | waive a Default or Event of Default in the payment of principal of, or interest or premium, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); |
(5) | make any note payable in currency other than that stated in the Notes; |
(6) | make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium, if any, on the Notes (other than as permitted in clause (7) below); |
(7) | waive a redemption or repurchase payment with respect to any note (other than a payment required by one of the covenants described above under the caption Repurchase at the Option of Holders); |
(8) | release any Guarantor from any of its obligations under its Guarantee or the indenture, except in accordance with the terms of the indenture; or |
(9) | make any change in the preceding amendment, supplement and waiver provisions. |
Notwithstanding the preceding, without the consent of any Holder of Notes, the Company, the Guarantors and the trustee may amend or supplement the indenture, the Notes, or the Guarantees:
(1) | to cure any ambiguity, defect or inconsistency; |
(2) | to provide for uncertificated Notes in addition to or in place of certificated Notes; |
(3) | to provide for the assumption of the Companys or a Guarantors obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Companys or a Guarantors properties or assets; |
(4) | to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the indenture of any Holder, provided that any change to conform the indenture to this Memorandum will not be deemed to adversely affect the legal rights under the indenture of any holder; |
(5) | to secure the Notes or the Guarantees pursuant to the requirements of the covenant described above under the subheading Certain Covenants Liens; |
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(6) | to provide for the issuance of additional Notes in accordance with the limitations set forth in the indenture; |
(7) | to add any additional Guarantor or to evidence the release of any Guarantor from its Guarantee, in each case as provided in the indenture; |
(8) | to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act; or |
(9) | to evidence or provide for the acceptance of appointment under the indenture of a successor trustee. |
Neither the Parent, the Company nor any of the Companys Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Beneficial Owner or Holder of any Notes for or as an inducement to any consent to any waiver, supplement or amendment of any terms or provisions of the indenture or the Notes, unless such consideration is offered to be paid or agreed to be paid to all Beneficial Owners and Holders of the Notes which so consent in the time frame set forth in solicitation documents relating to such consent.
The indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder (except as to surviving rights of registration of transfer or exchange of the Notes and as otherwise specified in the indenture), when:
(1) | either: |
(a) | 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 been deposited in trust and thereafter repaid to the Company, have been delivered to the trustee for cancellation; or |
(b) | 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 mailing of a notice of redemption or otherwise and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in 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 for principal, premium, if any, and accrued interest to the date of fixed maturity or redemption; |
(2) | the Company or any Guarantor has paid or caused to be paid all other sums payable by it under the indenture; |
(3) | the deposit will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture) of the Company or any Guarantor; and |
(4) | the Company has delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the Notes at fixed maturity or the redemption date, as the case may be. |
In addition, the Company must deliver an officers certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
If the trustee becomes a creditor of the Company or any Guarantor, the indenture limits its right 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; however, if it acquires any conflicting interest (as defined in the Trust Indenture Act) after a Default has occurred and is continuing, it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign.
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The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any Holder of Notes, unless such Holder has offered to the trustee security or indemnity satisfactory to it against any loss, liability or expense.
The indenture, the Notes and the Guarantees will be governed by, and construed in accordance with, the laws of the State of New York.
Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.
ACNTA (Adjusted Consolidated Net Tangible Assets) means (without duplication), as of the date of determination:
(1) | the sum of: |
(a) | discounted future net revenue from proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated in a reserve report prepared as of the end of the Companys most recently completed fiscal year, which reserve report is prepared or reviewed or audited by an independent petroleum engineer as to reserves accounting for at least 80% of all such discounted future net revenue and by the Companys petroleum engineers with respect to any other such reserves covered by such report, as increased by, as of the date of determination, the discounted future net revenue from: |
(i) | estimated proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries attributable to acquisitions consummated since the date of such year-end reserve report, and |
(ii) | estimated crude oil and natural gas reserves of the Company and its Restricted Subsidiaries attributable to extensions, discoveries and other additions and upward determinations of estimates of proved crude oil and natural gas reserves (including previously estimated development costs incurred during the period and the accretion of discount since the prior year end) due to exploration, development or exploitation, production or other activities which reserves were not reflected in such year-end reserve report, |
in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such yearend reserve report), and decreased by, as of the date of determination, the discounted future net revenue attributable to
(iii) | estimated proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries reflected in such year-end reserve report produced or disposed of since the date of such year-end reserve report and |
(iv) | reductions in the estimated proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries reflected in such year-end reserve report since the date of such year-end reserve report attributable to downward determinations of estimates of proved crude oil and natural gas reserves due to exploration, development or exploitation, production or other activities conducted or otherwise occurring since the date of such year-end reserve report, |
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in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such yearend reserve report); provided, however, that, in the case of each of the determinations made pursuant to clauses (i) through (iv), such increases and decreases shall be as estimated by the Companys petroleum engineers, except that if as a result of such acquisitions, dispositions, discoveries, extensions or revisions, there is a Material Change, then such increases and decreases in the discounted future net revenue shall be confirmed in writing by an independent petroleum engineer;
(b) | the capitalized costs that are attributable to crude oil and natural gas properties of the Company and its Restricted Subsidiaries to which no proved crude oil and natural gas reserves are attributed, based on the Companys books and records as of a date no earlier than the date of the Companys latest annual or quarterly financial statements; |
(c) | the Net Working Capital on a date no earlier than the date of the Companys latest annual or quarterly financial statements; and |
(d) | the greater of (I) the net book value on a date no earlier than the date of the Companys latest annual or quarterly financial statements and (II) 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 Companys latest audited financial statements; |
(2) | minus, to the extent not otherwise taken into account in the immediately preceding clause (1), the sum of: |
(a) | minority interests; |
(b) | any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Companys latest audited financial statements; |
(c) | the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the same prices utilized in the Companys year-end reserve report), attributable to reserves subject to participation interests, overriding royalty interests or other interests of third parties, pursuant to participation, partnership, vendor financing or other agreements then in effect, or which otherwise are required to be delivered to third parties; |
(d) | the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the same prices utilized in the Companys year-end reserve report), attributable to reserves that are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments on the schedules specified with respect thereto; and |
(e) | the discounted future net revenue, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments that, based on the estimates of production included in determining the discounted future net revenue specified in the immediately preceding clause (1)(a) (utilizing the same prices utilized in the Companys year-end reserve report), would be necessary to satisfy fully the obligations of the Company and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments on the schedules specified with respect thereto. |
If the Company changes its method of accounting for its oil and gas properties from the full cost method to the successful efforts method or a similar method of accounting, ACNTA will continue to be calculated as if the Company were still using the full cost method of accounting.
For the avoidance of doubt, for purposes of this covenant, the Companys year-end end reserve report shall mean the Companys most recent reserve report or reports prepared by one or more of the Companys independent petroleum engineers as of the last date of the Companys most recent fiscal year.
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Acquired Debt means, with respect to any specified Person:
(1) | Indebtedness of any other Person existing at the time such other Person was merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and |
(2) | Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. |
Additional Assets means:
(1) | any assets used or useful in the Oil and Gas Business; |
(2) | the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or |
(3) | Capital Stock constituting a minority in any Person that at such time is a Restricted Subsidiary; |
provided, however, that any such Restricted Subsidiary described in clause (2) or (3) is primarily engaged in the Oil and Gas Business.
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 purposes of this definition, control, as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms controlling, controlled by and under common control with have correlative meanings. For the avoidance of doubt, the Parent and any of its existing or future Subsidiaries, in addition to the Company and its Restricted Subsidiaries, will be considered Affiliates of the Company.
Asset Sale means:
(1) | the sale, lease, conveyance or other disposition of any properties or assets (including by way of a Production Payment, sale and leaseback transaction, merger, consolidation or otherwise); provided that the disposition of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption Repurchase at the Option of Holders Change of Control and/or the provisions described above under the caption Certain Covenants Merger, Consolidation or Sale of Assets and not by the provisions of the Asset Sale covenant; and |
(2) | the issuance of Equity Interests in any of the Companys Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries. |
Notwithstanding the preceding, the following items will not be deemed to be Asset Sales:
(1) | any single transaction or series of related transactions that involves properties or assets having a fair market value of less than $5 million; |
(2) | a transfer of assets between or among any of the Company and its Restricted Subsidiaries, |
(3) | an issuance or sale of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; |
(4) | the sale, lease or other disposition of hydrocarbons, equipment, inventory, accounts receivable or other properties or assets in the ordinary course of business, including, without limitation, any abandonment, farm-in, farm-out, lease or sublease of any oil and gas properties or the forfeiture or other disposition of such properties pursuant to standard form operating agreements, in each case in the ordinary course of business in a manner customary in the Oil and Gas Business; |
(5) | the sale or other disposition of cash or Cash Equivalents; |
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(6) | a Restricted Payment that is permitted by the covenant described above under the caption Certain Covenants Restricted Payments or a Permitted Investment; |
(7) | any trade or exchange by the Company or any Restricted Subsidiary of oil and gas properties or other properties or assets for oil and gas properties or other properties or assets owned or held by another Person, provided that the fair market value of the properties or assets traded or exchanged by the Company or such Restricted Subsidiary (together with any cash) is reasonably equivalent to the fair market value of the properties or assets (together with any cash) to be received by the Company or such Restricted Subsidiary, and provided further that any net cash received must be applied in accordance with the provisions described above under the caption Repurchase at the Option of Holders Asset Sales; |
(8) | the creation or perfection of a Lien and the exercise by any Person in whose favor a Permitted Lien is granted of any rights in respect of that Permitted Lien (including the sale or other disposition of the properties or assets subject to such Permitted Lien) in each case provided that such Lien is permitted by the indenture; and |
(9) | surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind. |
Attributable Debt in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.
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 upon the occurrence of a subsequent condition. The terms Beneficially Owns and Beneficially Owned have correlative meanings.
Board of Directors means:
(1) | with respect to a corporation, the board of directors of the corporation; |
(2) | with respect to a partnership, the Board of Directors of the general partner of the partnership; and |
(3) | with respect to any other Person, the board or committee of such Person serving a similar function. |
Board Resolution means a copy of a resolution certified by the Secretary or an Assistant Secretary of the applicable Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the trustee.
Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in Houston, Texas or in New York, New York are authorized or required by law to close.
Capital Lease Obligation means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP.
Capital Stock means:
(1) | in the case of a corporation, corporate stock; |
(2) | in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; |
(3) | in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and |
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(4) | any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. |
Cash Equivalents means:
(1) | United States dollars; |
(2) | securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition; |
(3) | certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $250.0 million and a Thomson Bank Watch Rating of B or better; |
(4) | repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; |
(5) | commercial paper having the highest rating obtainable from Moodys Investors Service, Inc. or Standard & Poors Ratings Services and in each case maturing within six months after the date of acquisition; and |
(6) | money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. |
Change of Control means the occurrence of any of the following:
(1) | the direct or indirect 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 properties or assets (including Capital Stock) of (a) the Parent and its Subsidiaries taken as a whole, (b) the Company or (c) the Companys Restricted Subsidiaries taken as a whole, to any person (as that term is used in Section 13(d)(3) of the Exchange Act); |
(2) | the adoption of a plan relating to the liquidation or dissolution of the Parent or the Company; |
(3) | the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person or group (as that term is used in Section 13(d)(3) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Parent or the Company, measured by voting power rather than number of shares, other than beneficial ownership by the Parent or any Subsidiary thereof, directly or indirectly, of Voting Stock of the Company; |
(4) | the Parent, the Company (or any parent thereof) consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into the Parent, the Company (or any parent thereof) in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Parent, the Company (or any parent thereof), as the case may be, is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company (or any parent thereof) outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person (or any parent thereof) constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (or any parent thereof) immediately after giving effect to such issuance; provided, however, that the consolidation or merger of any Subsidiary of the Parent (other than the Company and its Subsidiaries) shall not constitute a Change of Control if the Voting Stock of the Company continues to be owned directly or indirectly (through one or more Subsidiaries) by the Parent. |
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Commission or SEC means the Securities and Exchange Commission.
Consolidated Cash Flow means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus:
(1) | provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus |
(2) | Fixed Charges of such Person and its Restricted Subsidiaries for such period; plus |
(3) | depreciation, depletion and amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period), impairment, exploration expense and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, depletion and amortization, impairment and other non-cash expenses were deducted in computing such Consolidated Net Income; plus |
(4) | accretion of asset retirement obligations in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations, and any similar accounting in prior periods; plus |
(5) | unrealized non-cash losses resulting from foreign currency balance sheet adjustments required by GAAP to the extent such losses were deducted in computing such Consolidated Net Income; minus |
(6) | non-cash items increasing such Consolidated Net Income for such period, other than items that were accrued in the ordinary course of business; and minus |
(7) | to the extent included in determining 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 and (y) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments, in each case, on a consolidated basis and determined in accordance with GAAP. |
Consolidated Net Income means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:
(1) | the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be excluded, except to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; |
(2) | the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, partners or members; |
(3) | the cumulative effect of a change in accounting principles will be excluded; |
(4) | income resulting from transfers of assets (other than cash) between the Company or any of its Restricted Subsidiaries, on the one hand, and an Unrestricted Subsidiary, on the other hand, will be excluded; |
(5) | any write-downs of non-current assets will be excluded; provided that any ceiling limitation write-downs under Commission guidelines shall be treated as capitalized costs, as if such write-downs had not occurred; |
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(6) | any unrealized non-cash gains or losses or charges in respect of hedge or non-hedge derivatives (including those resulting from the application of FAS 133) will be excluded; |
(7) | any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards will be excluded; |
(8) | any item classified as an extraordinary, unusual or nonrecurring gain, loss or charge will be excluded; |
(9) | all deferred financing costs written off and premiums paid or other charges in connection with any early extinguishment of Indebtedness will be excluded; |
(10) | any net after-tax income or loss from disposed, abandoned, transferred, closed or discontinued operations and any net after-tax gain or loss on disposal, abandoned, transferred, closed or discontinued operations shall be excluded; and |
(11) | all Permitted Payments to Parent will be excluded. |
Credit Agreement means the Amended and Restated First Lien Credit Agreement entered into as of June 8, 2007 among Energy XXI Gulf Coast, Inc., as borrower, the various lenders named therein, The Royal Bank of Scotland plc, RBS Securities Inc. and BNP Paribas, providing for revolving credit borrowings, including any related Notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced from time to time.
Credit Facilities means one or more debt facilities (including, without limitation, the Credit Agreement), commercial paper facilities or capital markets financings, in each case with banks or other institutional lenders or institutional investors providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from (or sell receivables to) such lenders against such receivables), letters of credit or capital markets financings, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including refinancing with any capital markets transaction) in whole or in part from time to time.
Default means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
Disqualified Stock means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption Certain Covenants 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.
Domestic Subsidiary means any Restricted Subsidiary of the Company other than a Foreign Subsidiary.
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).
Equity Offering means any public or private sale of Capital Stock (other than Disqualified Stock) made for cash on a primary basis by the Company after February 25, 2011.
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Existing Indebtedness means the aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement which is considered incurred under clause (1) of the definition of Permitted Debt under the covenant entitled Incurrence of Indebtedness and Issuance of Preferred Stock) in existence on February 25, 2011, until such amounts are repaid, including, without limitation, the Existing Unsecured Notes.
Existing Unsecured Notes means the Companys 10% Senior Notes due 2013 and 9.25% Senior Notes due 2017.
Fixed Charge Coverage Ratio means with respect to any specified Person for any four-quarter reference period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the applicable four-quarter reference period and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the Calculation Date), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) | acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, subsequent to the commencement of the applicable four-quarter reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of such period, including any Consolidated Cash Flow, provided that any cost savings or operating improvements may be given such pro forma effect only if they are permitted by Regulation S-X promulgated under the Securities Act or any other regulation or policy of the Commission related thereto); |
(2) | the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and assets, operations or businesses disposed of prior to the Calculation Date, will be excluded; and |
(3) | the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and assets, operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. |
Fixed Charges means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) | the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued including, without limitation, amortization of debt issuance costs (excluding prepayment penalties associated with the repayment of debt from the proceeds of this offering) and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers acceptance financings), and net of the effect of all payments made or received pursuant to interest rate Hedging Obligations; plus |
(2) | the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus |
(3) | any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such guarantee or Lien is called upon; plus |
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(4) | the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. |
Foreign Subsidiary means any Restricted Subsidiary of the Company that was not formed under the laws of the United States or any state of the United States or the District of Columbia and that conducts substantially all of its operations outside the United States.
Funded Indebtedness means all Indebtedness (including Indebtedness incurred under any revolving credit, letter of credit or working capital facility) that matures by its terms, or that is renewable at the option of any obligor thereon to a date, more than one year after the date on which such Indebtedness is originally incurred.
GAAP means generally accepted accounting principles in the United States, which are in effect from time to time.
The term guarantee means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. When used as a verb, guarantee has a correlative meaning.
Guarantee means any guarantee by a Guarantor of the Companys payment Obligations under the indenture and on the Notes.
Guarantors means the Parent and each Restricted Subsidiary of the Company that executes the indenture as an initial Guarantor or that becomes a Guarantor in accordance with the provisions of the indenture, and their respective successors and assigns.
Hedging Obligations means, with respect to any specified Person, the obligations of such Person incurred in the normal course of business and consistent with past practices and not for speculative purposes under:
(1) | interest rate swap agreements, interest rate cap agreements and interest rate collar agreements entered into with one of more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in interest rates with respect to Indebtedness incurred; |
(2) | foreign exchange contracts and currency protection agreements entered into with one of more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in currency exchanges rates with respect to Indebtedness incurred; |
(3) | any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of oil, natural gas or other commodities used, produced, processed or sold by that Person or any of its Restricted Subsidiaries at the time; and |
(4) | other agreements or arrangements designed to protect such Person or any of its Restricted Subsidiaries against fluctuations in interest rates, commodity prices or currency exchange rates. |
Holder means a Person in whose name a Note is registered.
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Indebtedness means, with respect to any specified Person, without duplication,
(1) | all obligations of such Person, whether or not contingent, in respect of: |
(a) | the principal of and premium, if any, in respect of outstanding (A) Indebtedness of such Person for money borrowed and (B) Indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; |
(b) | all Capital Lease Obligations of such Person and all Attributable Debt in respect of sale and leaseback transactions entered into by such Person; |
(c) | the deferred purchase price of property, which purchase price is due more than six months after the date of taking delivery of title to such property, including all obligations of such Person for the deferred purchase price of property under any title retention agreement, but excluding accrued expenses and trade accounts payable arising in the ordinary course of business; and |
(d) | the reimbursement obligation of any obligor for the principal amount of any letter of credit, bankers acceptance or similar transaction (excluding obligations with respect to letters of credit securing obligations (other than obligations described in clauses (a) through (c) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); |
(2) | all net obligations in respect of Hedging Obligations except to the extent such net obligations are otherwise included in this definition; |
(3) | all liabilities of others of the kind described in the preceding clause (1) or (2) that such Person has Guaranteed or that are otherwise its legal liability; |
(4) | with respect to any Production Payment, any warranties or guaranties of production or payment by such Person with respect to such Production Payment but excluding other contractual obligations of such Person with respect to such Production Payment; |
(5) | Indebtedness (as otherwise defined in this definition) of another Person secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, the amount of such obligations being deemed to be the lesser of (a) the full amount of such obligations so secured, and (b) the fair market value of such asset as determined in good faith by such specified Person; |
(6) | Disqualified Stock of such Person or a Restricted Subsidiary in an amount 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; |
(7) | the aggregate preference in respect of amounts payable on the issued and outstanding shares of preferred stock of any of the Companys Restricted Subsidiaries that are not Guarantors in the event of any voluntary or involuntary liquidation, dissolution or winding up (excluding any such preference attributable to such shares of preferred stock that are owned by such Person or any of its Restricted Subsidiaries; provided, that if such Person is the Company, such exclusion shall be for such preference attributable to such shares of preferred stock that are owned by the Company or any of its Restricted Subsidiaries); and |
(8) | any and all deferrals, renewals, extensions, refinancings and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (1), (2), (3), (4), (5), (6), (7) or this clause (8), whether or not between or among the same parties. |
Subject to clause (4) of the preceding sentence, Production Payments shall not be deemed to be Indebtedness.
Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P, or an equivalent rating by any other Rating Agency.
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Investments means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations), advances or capital contributions (excluding trade receivables and commission, travel expenses and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition in an amount equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption Certain Covenants Restricted Payments.
Issue Date means the date on which Notes were first issued under the indenture, or February 25, 2011.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest 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 Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement not intended as a security agreement.
Material Change means an increase or decrease (excluding changes that result solely from changes in prices and changes resulting from the incurrence of previously estimated future development costs) of more than 25% during a fiscal quarter in the discounted future net revenues from proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries, calculated in accordance with clause (1)(a) of the definition of ACNTA; provided, however, that the following will be excluded from the calculation of Material Change:
(1) | any acquisitions during the fiscal quarter of oil and gas reserves that have been estimated by a nationally recognized firm of independent petroleum engineers and with respect to which a report or reports of such engineers exist; and |
(2) | any disposition of properties existing at the beginning of such fiscal quarter that have been disposed of in compliance with the covenant described under Repurchase of the Option of Holders Assets Sales. |
Material Domestic Subsidiary means any Domestic Subsidiary that is not a Guarantor, when taken together with all other Domestic Subsidiaries that are not Guarantors, that at the time of determination has either assets or quarterly revenues in excess of 5.0% of the consolidated assets or quarterly revenues of the Company and its Restricted Subsidiaries, in each case based upon the most recent quarterly financial statements available to the Company.
Moodys means Moodys Investors Service, Inc., or any successor thereof.
Net Income means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(1) | any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and |
(2) | any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). |
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Net Proceeds means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of, without duplication:
(1) | the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, |
(2) | taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, |
(3) | amounts required to be applied to the repayment of Indebtedness, other than under the Credit Facilities, secured by a Lien on the properties or assets that were the subject of such Asset Sale, and |
(4) | any reserve for adjustment in respect of the sale price of such properties or assets established in accordance with GAAP. |
Net Working Capital means:
(1) | 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 business, minus |
(2) | all current liabilities of the Company and its Restricted Subsidiaries, except (i) current liabilities included in Indebtedness and (ii) current liabilities from commodity price risk management activities arising in the ordinary course of business; |
in each case, on a consolidated basis and determined in accordance with GAAP.
Non-Recourse Debt means Indebtedness:
(1) | as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) is the lender; |
(2) | no default with respect to which (including any rights that the holders of the Indebtedness 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 (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and |
(3) | the explicit terms of which provide there is no recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. |
Obligations means any principal, premium, if any, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization, whether or not a claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages, guarantees, and other liabilities or amounts payable under the documentation governing any Indebtedness or in respect thereto.
Oil and Gas Business means:
(1) | the acquisition, exploration, development, operation and disposition of interests in oil, natural gas and other hydrocarbon properties; |
(2) | the gathering, marketing, treating, processing (but not refining), storage, selling and transporting of any production from those interests, including any hedging activities related thereto; and |
(3) | any activity necessary, appropriate, incidental or reasonably related to the activities described above. |
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Permitted Business Investments means Investments made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business, including through agreements, transactions, interests or arrangements that permit one to share risk or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties, including without limitation:
(1) | direct or indirect ownership of crude oil, natural gas, other related hydrocarbon and mineral properties or any interest therein or gathering, transportation, processing, storage or related systems; and |
(2) | the entry into operating agreements, joint ventures, processing agreements, working interests, royalty interests, mineral leases, farm-in agreements, farm-out agreements, development agreements, production sharing agreements, area of mutual interest agreements, contracts for the sale, transportation or exchange of crude oil and natural gas and related hydrocarbons and minerals, unitization agreements, pooling arrangements, joint bidding agreements, service contracts, partnership agreements (whether general or limited), or other similar or customary agreements, transactions, properties, interests or arrangements and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the Oil and Gas Business, excluding, however, Investments in corporations and publicly-traded limited partnerships. |
Permitted Investments means:
(1) | any Investment in the Company or in a Restricted Subsidiary of the Company; |
(2) | any Investment in Cash Equivalents; |
(3) | any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: |
(a) | such Person becomes a Restricted Subsidiary of the Company; or |
(b) | such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its properties or assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; |
(4) | any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption Repurchase at the Option of Holders Asset Sales; |
(5) | any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; |
(6) | any Investments received in compromise of obligations of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; |
(7) | Hedging Obligations permitted to be incurred under the Incurrence of Indebtedness and Issuance of Preferred Stock covenant; |
(8) | Permitted Business Investments; and |
(9) | other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (9) that are at the time outstanding, not to exceed 2.0% of ACNTA. |
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Permitted Liens means:
(1) | Liens on any property or assets of the Company and any Guarantor securing Indebtedness and other obligations under Credit Facilities permitted under the indenture; |
(2) | Liens in favor of the Company or the Guarantors; |
(3) | Liens on any property or assets of the Company and any Guarantor securing the Notes and the Guarantees; |
(4) | Liens on any property or assets of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any property or assets other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; |
(5) | Liens on any property or assets existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were not incurred in connection with the contemplation of such acquisition; |
(6) | Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; |
(7) | Liens existing on the Issue Date; |
(8) | Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; |
(9) | Liens securing Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was previously so secured, provided 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; |
(10) | Liens securing Hedging Obligations of the Company or any of its Restricted Subsidiaries; |
(11) | Liens securing Indebtedness incurred in connection with the acquisition by the Company or any Restricted Subsidiary of assets used in the Oil and Gas Business (including the office buildings and other real property used by the Company or such Restricted Subsidiary in conducting its operations); provided that (i) such Liens attach only to the assets acquired with the proceeds of such Indebtedness; (ii) such Indebtedness is not in excess of the purchase price of such fixed assets; and (iii) such Indebtedness is permitted to be incurred under the Incurrence of Indebtedness and Issuance of Preferred Stock covenant; |
(12) | any Lien incurred in the ordinary course of business incidental to the conduct of the business of the Company or the Restricted Subsidiaries or the ownership of their property (including (a) easements, rights of way and similar encumbrances, (b) rights or title of lessors under leases (other than Capital Lease Obligations), (c) rights of collecting banks having rights of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or the Restricted Subsidiaries on deposit with or in the possession of such banks, (d) Liens imposed by law, including Liens under workers compensation or similar legislation and mechanics, carriers, warehousemens, materialmens, suppliers and vendors Liens, and (e) Liens incurred to secure performance of obligations with respect to statutory or regulatory requirements, performance or return-of-money bonds, surety bonds or other obligations of a like nature) and incurred in a manner consistent with industry practice; |
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(13) | Liens for taxes, assessments and governmental charges not yet due or the validity of which are being contested in good faith by appropriate proceedings, promptly instituted and diligently conducted, and for which adequate reserves have been established to the extent required by GAAP as in effect at such time; |
(14) | Liens to secure Indebtedness represented by Capital Lease Obligations permitted by clause (4) of the second paragraph of the covenant entitled Certain Covenants Incurrence of Indebtedness and Issuance of Preferred Stock covering only the assets acquired with or financed by such Indebtedness; |
(15) | Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $20.0 million at any one time outstanding; |
(16) | judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceedings that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such legal proceedings may be initiated shall not have expired; |
(17) | Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other, obligations of such Unrestricted Subsidiary; |
(18) | Liens to secure a defeasance trust; |
(19) | Liens on monies deposited pursuant to the terms of an agreement to acquire assets used in or persons engaged in the Oil and Gas Business; and |
(20) | Liens securing insurance premium financing arrangements, provided that such Lien is limited to the applicable insurance contracts. |
Permitted Parent Business means:
(a) | the ownership of Capital Stock or Indebtedness of Parents existing Subsidiaries as of the Issue Date and any activities directly related to such ownership, in each case as otherwise permitted by the indenture; |
(b) | the performance of its obligations under and in connection with its Guarantee of the Notes and any existing and future Credit Facilities and the performance of similar obligations with respect to any Credit Facilities or other items of Indebtedness of future direct subsidiaries of Parent, in each case otherwise permitted to be incurred under the covenant described above under the caption Incurrence of Indebtedness and Issuance of Preferred Stock; |
(c) | the undertaking of any actions required by law, regulation or order, including to maintain its existence; |
(d) | directly engaging in the Oil and Gas Business or the ownership of the Capital Stock or Indebtedness of other Persons that are corporations or limited liability companies or other Persons consisting of limited partnership interests in limited partnerships, in each case, engaged in the Oil and Gas Business. |
Permitted Payments to Parent Companies means:
(1) | payments to the Parent or any of its Subsidiaries to permit them to pay their reasonable accounting, legal and administrative expenses when due, in an aggregate amount not to exceed $3.5 million per annum; and |
(2) | for so long as the Company is a member of a group filing a consolidated or combined tax return with Parent or any Subsidiary thereof, payments to Parent or any Subsidiary thereof in respect of an allocable portion of the tax liabilities of such group that is attributable to the Company and its Subsidiaries (Tax Payments); provided that the Tax Payments do not exceed the amount of the relevant tax (including any penalties and interest) that the Company would owe if the Company |
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were filing a separate tax return (or a separate consolidated or combined return with its Subsidiaries that are members of the consolidated or combined group), taking into account any carryovers and carrybacks of tax attributes (such as net operating losses) of the Company and such Subsidiaries from other taxable years. Any Tax Payments received from the Company shall be paid over to the appropriate taxing authority within 30 days of Parents receipt of such Tax Payments or refunded to the Company. |
Permitted Refinancing Indebtedness means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1) | the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith); |
(2) | such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; |
(3) | if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or the Guarantees, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes or the Guarantees on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and |
(4) | such Indebtedness is not incurred by a Restricted Subsidiary of the Company if the Company is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; |
provided, however, that a Restricted Subsidiary that is also a Guarantor may guarantee Permitted Refinancing Indebtedness incurred by the Company, whether or not such Restricted Subsidiary was an obligor or guarantor of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.
Person means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
Production Payments means, collectively, Dollar-Denominated Production Payments and Volumetric Production Payments.
Rating Agency means each of S&P and Moodys, or if S&P or Moodys 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 (as certified by a Board Resolution) which shall be substituted for S&P or Moodys, or both, as the case may be.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Subsidiary of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
Significant Restricted Subsidiary is any Restricted Subsidiary that is a Significant Subsidiary.
Significant Subsidiary means any Subsidiary that would be a significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on December 17, 2010.
S&P means Standard & Poors Rating Services, a division of McGraw-Hill, Inc., or any successor thereof.
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Stated Maturity means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
Subsidiary means, with respect to any specified Person:
(1) | any corporation, association or other business entity (other than a partnership) of which more than 50% of the total voting power of Voting Stock is at the time owned or controlled, directly or through another Subsidiary, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and |
(2) | any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof), or (c) as to which such Person and its Subsidiaries are entitled to receive more than 50% of the assets of such partnership upon its dissolution. |
Unrestricted Subsidiary means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary:
(1) | has no Indebtedness other than Non-Recourse Debt; |
(2) | is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; |
(3) | 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 Equity Interests or (b) to maintain or preserve such Persons financial condition or to cause such Person to achieve any specified levels of operating results; and |
(4) | has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. |
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee the Board Resolution giving effect to such designation and an officers certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption Certain Covenants Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred, and any Lien of such Subsidiary will be deemed to be incurred as of such date under the covenant, or such Lien is not permitted to be incurred as of such date under the covenant described under the caption Liens, then in, in either case, described under the caption Certain Covenants Incurrence of Indebtedness and Issuance of Preferred Stock, the Company will be in default of such covenant.
Volumetric Production Payments means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all related undertakings and obligations.
Voting Stock of any Person as of any date means the Capital Stock of such Person that is at the time entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
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(1) | the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by |
(2) | the then outstanding principal amount of such Indebtedness. |
The Notes will be represented by one or more notes in registered, global form without interest coupons (collectively, the Global Notes). The Global Notes will be deposited with the trustee as custodian for The Depository Trust Company (DTC), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole but not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for definitive new Notes in registered certificated form (Certificated Notes) new Notes except in the limited circumstances described below. See Exchange of Global Notes for Certificated Notes. Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of Certificated Notes.
The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and procedures are solely within the control of DTCs settlement system and are subject to changes by DTC. We take no responsibility for these operations and procedures and urge investors to contact DTC or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the Participants) and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the banks), banks, trust companies, clearing corporations and certain other organizations. Access to DTCs system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the Indirect Participants). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) | upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the initial purchaser with portions of the principal amount of the Global Notes; and |
(2) | ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes). |
Investors in the Global Notes who are Participants in DTCs system may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold their interests therein indirectly through organizations which are Participants in such system.
The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.
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Except as described below, owners of an interest in the Global Notes will not have Notes registered in their names, will not receive physical delivery of certificated Notes and will not be considered the registered owners or Holders thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest, premium, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the indenture. Under the terms of the indenture, the Company and the trustee will treat the Persons in whose names the new Notes, including the Global Notes, are registered as the owners of the new Notes for the purpose of receiving payments and for all other purposes. Consequently, neither the Company, the trustee nor any agent of the Company or the trustee has or will have any responsibility or liability for:
(1) | any aspect of DTCs records or any Participants or Indirect Participants records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any of DTCs records or any Participants or Indirect Participants records relating to the beneficial ownership interests in the Global Notes; or |
(2) | any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. |
DTC has advised us that its current practice, at the due date of any payment in respect of securities such as the new Notes, is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of new Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or the Company. Neither the Company nor the trustee will be liable for any delay by DTC or any of its Participants or Indirect Participants in identifying the beneficial owners of the new Notes, and the Company and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between Participants will be effected in accordance with DTCs procedures, and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a Holder of Notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Notes for legended new Notes in registered certificated form, and to distribute such new Notes to its Participants.
A Global Note is exchangeable for Certificated Notes, if:
(1) | DTC (a) notifies us that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and in either event the Company fails to appoint a successor depositary within 90 days; or |
(2) | there has occurred and is continuing an Event of Default and DTC notifies the trustee of its decision to exchange the Global Note for Certificated Notes. |
Beneficial interests in a Global Note also may be exchanged for Certificated Notes upon prior written notice given to the trustee by or on behalf of DTC in the limited other circumstances permitted by the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the restrictive legend referred to in Notice to Investors, unless that legend is not required by applicable law.
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Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the trustee a written certificate (in the form provided in the indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such new Notes. See Notice to Investors.
The Company will make payments in respect of the new Notes represented by the Global Notes (including principal, interest and premium, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. The Company will make all payments of principal, interest and premium, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such Holders registered address. The new Notes represented by the Global Notes are expected to be eligible to trade in DTCs Same-Day Funds Settlement System, and any permitted secondary market trading activity in such new Notes will, therefore, be required by DTC to be settled in immediately available funds. The Company expects that secondary trading in any Certificated Notes will also be settled in immediately available funds.
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The following summary describes certain U.S. federal income tax consequences of the exchange of old Notes for the new Notes pursuant to this exchange offer. This summary does not discuss all of the aspects of U.S. federal income taxation which may be relevant to investors in light of their particular circumstances. In addition, this summary does not discuss any state or local income or foreign income or other tax consequences. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations promulgated thereunder, rulings and judicial decisions, all as in effect as of the date of this prospectus and all of which are subject to change or differing interpretation, possibly with retroactive effect. The statements set forth below are not binding on the Internal Revenue Service or on any court. Thus, we can provide no assurance that the statements set forth below will not be challenged by the Internal Revenue Service, or that they would be sustained by a court if they were so challenged.
We believe that the exchange of old Notes for new Notes in the exchange offer will not constitute a taxable event. The new Notes will be treated as a continuation of the old Notes. Consequently, you will not recognize gain or loss upon receipt of a new note in exchange for an outstanding note in the exchange offer, your basis in the new note received in the exchange offer will be the same as your basis in the corresponding outstanding note immediately before the exchange, and your holding period in the new note will include your holding period in the outstanding note. The U.S. federal income tax consequences of holding and disposing of a new note received in the exchange offer will be the same as the U.S. federal income tax consequences of holding and disposing of an outstanding note.
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation as well as any tax consequences arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty in connection with the exchange of old Notes for new Notes.
Based on interpretations by the staff of the SEC in no-action letters issued to third parties, we believe that you may transfer new Notes issued under the exchange offer in exchange for the old Notes if:
| you acquire the new Notes in the ordinary course of your business; and |
| you are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the Notes within the meaning of the Securities Act. |
You may not participate in the exchange offer if you are:
| our affiliate within the meaning of Rule 405 under the Securities Act; or |
| a broker-dealer that acquired old Notes directly from us. |
Each broker-dealer that receives new Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new Notes. To date, the staff of the SEC has taken the position that broker-dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as these exchange offer, other than a resale of an unsold allotment from the original sale of the old Notes, with a prospectus contained in a registration statement like this registration statement. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new Notes received in exchange for old Notes where such old Notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of up to one year after the consummation of the exchange offer, we will make this prospectus, as amended or supplemented, promptly available to any broker-dealer for use in connection with any such resale.
If you wish to exchange your old Notes for new Notes in the exchange offer, you will be required to make representations to us as described in The Exchange Offer Purpose and Effect of the Exchange Offer and Your Representations to Us in this prospectus and in the letter of transmittal. In addition, if you are a broker-dealer who receives new Notes for your own account in exchange for old Notes that were
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acquired by you as a result of market-making activities or other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale by you of such new Notes.
We will not receive any proceeds from any sale of new Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions:
| in the over-the-counter market; |
| in negotiated transactions; |
| through the writing of options on the new Notes or a combination of the preceding methods of resale; |
| at market prices prevailing at the time of resale; and |
| at prices related to such prevailing market prices or negotiated prices. |
Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new Notes. Any broker-dealer that resells new Notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new Notes may be deemed to be an underwriter within the meaning of the Securities Act and any profit of any such resale of new Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act.
For a period of 180 days after the consummation of each exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents pursuant to the letter of transmittal. We have agreed to pay all expenses incident to each exchange offer (including the expenses of one counsel for the holders of the old Notes) other than commissions or concessions of any broker-dealers and will indemnify the holders of the old Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
The validity of the new Notes and the related guarantees, except for the guarantee of our Parent, will be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas. The validity of our parents guarantee of the new Notes will be passed upon by Appleby.
The consolidated financial statements of Energy XXI Gulf Coast, Inc. as of June 30, 2010 and 2009, and for each of the three fiscal years in the period ended June 30, 2010 incorporated herein by reference, have been audited by UHY LLP, an independent registered public accounting firm, as set forth in their report thereon and are incorporated in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Energy XXI (Bermuda) Limited as of June 30, 2010 and 2009, and for each of the three fiscal years in the period ended June 30, 2010 incorporated herein by reference, and the effectiveness of Energy XXI (Bermuda) Limiteds internal control over financial reporting as of June 30, 2010 have been audited by UHY LLP, an independent registered public accounting firm, as set forth in their reports thereon and are incorporated in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
The statements of revenues and direct operating expenses of the oil and gas properties purchased by Energy XXI GOM, LLC, an indirect wholly owned subsidiary of Energy XXI (Bermuda) Limited, from ExxonMobil Corporation and certain of its affiliates for each of the fiscal twelve month periods in the three year period ended June 30, 2010, incorporated by reference herein, have been audited by UHY LLP, an
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independent registered public accounting firm, as set forth in their report thereon and are incorporated in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The statements of revenues and direct operating expenses of the oil and gas properties purchased by Energy XXI, Inc., an indirect wholly owned subsidiary of Energy XXI (Bermuda) Limited, from MitEnergy Upstream, LLC for each of the fiscal twelve month periods in the three-year period ended June 30, 2009, incorporated herein by reference, have been audited by UHY LLP, an independent registered public accounting firm, as set forth in their report thereon and are incorporated in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The information incorporated by reference into this prospectus regarding estimated quantities of proved reserves, the future net revenues from those reserves and their present value is based, in part, on estimates of our Parents proved reserves and present values of proved reserves as of June 30, 2010 and prepared by or derived from estimates prepared by Netherland, Sewell & Associates, Inc., an independent petroleum engineering consultant (NSAI). These estimates are aggregated and the sums are incorporated by reference in reliance upon the authority of NSAI as an expert in these matters. NSAI also prepared estimated quantities of proved reserves for the Exxon properties as of November 30, 2010. These estimates are incorporated by reference in this prospectus or reliance upon the authority of NSAI as an expert in these matters.
We are incorporating by reference into this prospectus information we or our Parent file with the SEC. This procedure means that we can disclose important information to you by referring you to documents filed with the SEC by us or our Parent. The information we incorporate by reference is part of this prospectus and later information that we or our Parent files with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made by the Parent (Commission File No. 1-33628) with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (excluding any information furnished and not filed with the SEC) until the offering under this registration statement is completed:
| Annual Report on Form 10-K of our Parent for the Fiscal Year Ended June 30, 2010 filed with the SEC on September 8, 2010; |
| Quarterly Reports on Form 10-Q of our Parent for the quarters ended September 30, 2010, December 31, 2010 and March 31, 2011 filed with the SEC on November 8, 2010, February 4, 2011 and April 28, 2011, respectively; and |
| Current Reports on Form 8-K/A of our Parent as filed with the SEC on December 1, 2009 and on Form 8-K of our Parent as filed with the SEC on October 4, 2010, October 7, 2010, October 15, 2010, October 18, 2010, October 21, 2010, October 21, 2010, October 27, 2010, November 3, 2010, November 5, 2010, November 8, 2010, November 10, 2010, November 18, 2010, November 22, 2010, November 23, 2010, November 29, 2010, December 2, 2010, December 6, 2010, December 17, 2010, December 22, 2010, February 7, 2011, February 9, 2011, February 10, 2011, February 11, 2011, February 28, 2011, March 11, 2011, May 2, 2011, May 2, 2011 and May 6, 2011 (excluding any information furnished pursuant to Item 2.02 or Item 7.01 of any such Current Reports on Form 8-K). |
You may request a copy of these filings at no cost by making written or telephone requests for copies to:
Energy XXI (Bermuda) Limited
1021 Main, Suite 2626
Houston, Texas 77002
Attention: Stewart Lawrence
Telephone: (713) 351-3000
Additionally, you may read and copy any materials that we or our Parent have filed with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
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maintains an internet site that contains reports, proxy and information statements, and other information regarding us or our Parent. The SECs website address is www.sec.gov.
You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with any information. You should not assume that the information provided in this prospectus or incorporated by reference is accurate as of any date other than the date on the front cover or the date of the incorporated material, as applicable.
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ANNEX A
The Exchange Agent for the Exchange Offer is:
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By Registered & Certified Mail: WELLS FARGO BANK, N.A. Corporate Trust Operations MAC N9303-121 PO Box 1517 Minneapolis, MN 55480 |
By Regular Mail or Overnight Courier: WELLS FARGO BANK, N.A. Corporate Trust Operations MAC N9303-121 Sixth & Marquette Avenue Minneapolis, MN 55479 |
In Person by Hand Only: WELLS FARGO BANK, N.A. 12th Floor Northstar East Building Corporate Trust Operations 608 Second Avenue South Minneapolis, MN 55402 |
By Facsimile (for Eligible Institutions only):
(612) 667-6282
For Information or Confirmation by Telephone:
(800) 344-5128
If you wish to exchange currently outstanding 7.75% Senior Notes due 2019 (the old Notes) for an equal aggregate principal amount at maturity of new 7.75% Senior Notes due 2019 pursuant to the exchange offer, you must validly tender (and not withdraw) old Notes to the exchange agent prior to the expiration date.
The undersigned hereby acknowledges receipt of the Prospectus, dated May , 2011 (the Prospectus), of Energy XXI Gulf Coast, Inc. (the Issuer), and this Letter of Transmittal (the Letter of Transmittal), which together describe the Issuers offer (the Exchange Offer) to exchange their 7.75% Senior Notes due 2019 (the New Notes) that have been registered under the Securities Act of 1933, as amended (the Securities Act), for a like principal amount of their issued and outstanding 7.75% Senior Notes due 2019 (the Old Notes). Capitalized terms used but not defined herein have the respective meaning given to them in the Prospectus.
The Issuer reserves the right, at any time or from time to time, to extend the Exchange Offer at its discretion, in which event the term Expiration Date shall mean the latest date to which the Exchange Offer is extended. The Issuer shall notify the Exchange Agent and each registered holder of the Old Notes of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by holders of the Old Notes. Tenders of Old Notes are to be made according to the Automated Tender Offer Program (ATOP) of The Depository Trust Company (DTC) pursuant to the procedures set forth in the Prospectus under the caption The Exchange Offer Procedures for Tendering. DTC participants that are accepting the Exchange Offer must transmit their acceptance to DTC, which will verify the acceptance and execute a book-entry delivery to the Exchange Agents DTC account. DTC will then send a computer-generated message known as an agents message to the Exchange Agent for its acceptance. For you to validly tender your Old Notes in the Exchange Offer, the Exchange Agent must receive, prior to the Expiration Date, an agents message under the ATOP procedures confirming that:
Annex A-1
DTC has received your instructions to tender your Old Notes; and
You agree to be bound by the terms of this Letter of Transmittal.
BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER, YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF YOU HAD SIGNED IT.
Ladies and Gentlemen:
1. By tendering Old Notes in the Exchange Offer, you acknowledge receipt of the Prospectus and this Letter of Transmittal.
2. Tenders of Old Notes will be accepted only in minimum denominations of $2,000 and integral multiples of $1,000. By tendering Old Notes in the Exchange Offer, you represent and warrant that you have full authority to tender the Old Notes described above and will, upon request, execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the tender of Old Notes.
3. You understand that the tender of the Old Notes pursuant to all of the procedures set forth in the Prospectus will constitute an agreement between the undersigned and the Issuer as to the terms and conditions set forth in the Prospectus.
4. By tendering Old Notes in the Exchange Offer, you acknowledge that the Exchange Offer is being made in reliance upon interpretations contained in no-action letters issued to third parties by the staff of the Securities and Exchange Commission (the SEC), including Exxon Capital Holdings Corp., SEC No-Action Letter (available April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that the New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof without compliance with the registration and prospectus delivery provisions of the Securities Act (other than a broker-dealer who purchased Old Notes exchanged for such New Notes directly from the Issuer to resell pursuant to Rule 144A or any other available exemption under the Securities Act of 1933, as amended (the Securities Act) and any such holder that is an affiliate of the Issuer within the meaning of Rule 405 under the Securities Act), provided that such New Notes are acquired in the ordinary course of such holders business and such holders are not participating in, and have no arrangement with any other person to participate in, the distribution of such New Notes.
5. By tendering Old Notes in the Exchange Offer, you hereby represent and warrant that:
a. the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of your business, whether or not you are the holder;
b. you have no arrangement or understanding with any person to participate in the distribution of Old Notes or New Notes within the meaning of the Securities Act;
c. you are not an affiliate, as such term is defined under Rule 405 promulgated under the Securities Act, of the Issuer;
d. if you are not a broker-dealer, that you are not engaged in, and do not intend to engage in, the distribution of the New Notes; and
e. if you are a broker-dealer, that you will receive the New Notes for your own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities and that you acknowledge that you will deliver a prospectus in connection with any resale of such New Notes.
6. You may, if you are unable to make all of the representations and warranties contained in Item 5 above and as otherwise permitted in the Registration Rights Agreement (as defined below), elect to have your Old Notes registered in the shelf registration statement described in the Registration Rights Agreement, dated
Annex A-2
as of December 17, 2010 (the Registration Rights Agreement), by and among the Issuer, the Guarantors (as defined therein) and the Initial Purchasers (as defined therein). Such election may be made by notifying the Issuer in writing at 1021 Main, Suite 2626, Houston, Texas 77002, Attention: Ben Marchive. By making such election, you agree, as a holder of Old Notes participating in a shelf registration, to indemnify and hold harmless the Issuer, each of the directors of the Issuer, each of the officers of the Issuer who signs such shelf registration statement, each person who controls the Issuer within the meaning of either the Securities Act or the Securities Exchange Act of 1934, as amended (the Exchange Act), and each other holder of Old Notes, from and against any and all losses, claims, damages or liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any shelf registration statement or prospectus, or in any supplement thereto or amendment thereof, or caused by the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; but only with respect to information relating to you furnished in writing by you or on your behalf expressly for use in a shelf registration statement, a prospectus or any amendments or supplements thereto. Any such indemnification shall be governed by the terms and subject to the conditions set forth in the Registration Rights Agreement, including, without limitation, the provisions regarding notice, retention of counsel, contribution and payment of expenses set forth therein. The above summary of the indemnification provision of the Registration Rights Agreement is not intended to be exhaustive and is qualified in its entirety by the Registration Rights Agreement.
7. If you are a broker-dealer that will receive New Notes for your own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, you acknowledge by tendering Old Notes in the Exchange Offer, that you will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, you will not be deemed to admit that you are an underwriter within the meaning of the Securities Act. The Issuer have agreed to that, for a period of up to 180 days after the consummation of the Exchange Offer, they will make the Prospectus, as amended or supplemented, promptly available to any broker-dealer for use in connection with any such resale of the New Notes. Requests for copies of the Prospectus should be directed to the Issuer in writing at 1021 Main, Suite 2626, Houston, Texas 77002, Attention: Ben Marchive. If you are a broker-dealer and Old Notes held for your own account were not acquired as a result of market-making or other trading activities, such Old Notes cannot be exchanged pursuant to the Exchange Offer.
8. Any of your obligations hereunder shall be binding upon your successors, assigns, executors, administrators, trustees in bankruptcy and legal and personal representatives.
1. Book-Entry Confirmations.
Any confirmation of a book-entry transfer of Old Notes to the Exchange Agents account at DTC (a Book-Entry Confirmation), as well as any agents message and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein prior to 5:00 P.M., New York City time, on the Expiration Date.
2. Partial Tenders.
The entire principal amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise communicated to the Exchange Agent. If the entire principal amount of all Old Notes is not tendered, then Old Notes for the principal amount of Old Notes not tendered and New Notes issued in exchange for any Old Notes accepted will be delivered to the holder via the facilities of DTC promptly after the Old Notes are accepted for exchange.
3. Validity of Tenders.
All questions as to the validity, form, eligibility (including time of receipt), acceptance, and withdrawal of tendered Old Notes will be determined by the Issuer, in its sole discretion, which determination will be final and binding. The Issuer reserves the absolute right to reject any or all tenders not in proper form or the acceptance for exchange of which may, in the opinion of counsel for the Issuer, be unlawful. The Issuer also reserves the absolute right to waive any of the conditions of the Exchange Offer or any defect or irregularity
Annex A-3
in the tender of any Old Notes. The Issuers interpretation of the terms and conditions of the Exchange Offer (including the instructions on the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Issuer shall determine. Although the Issuer intend to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Issuer, the Exchange Agent, nor any other person shall be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date.
4. Waiver of Conditions.
The Issuer reserves the absolute right to waive, in whole or part, up to the expiration of the Exchange Offer, any of the conditions to the Exchange Offer set forth in the Prospectus or in this Letter of Transmittal.
5. No Conditional Tender.
No alternative, conditional, irregular or contingent tender of Old Notes will be accepted.
6. Request for Assistance or Additional Copies.
Requests for assistance or for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the cover page of this Letter of Transmittal. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer.
7. Withdrawal.
Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption The Exchange Offer Withdrawal of Tenders.
8. No Guarantee of Late Delivery.
There is no procedure for guarantee of late delivery in the Exchange Offer.
IMPORTANT: BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. YOU WILL, HOWEVER, BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS.
Annex A-4
Section 145 of the Delaware General Corporation Law (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 the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best 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 the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. the Companys certificate of incorporation and bylaws provide that indemnification shall be to the fullest extent permitted by the DGCL for all its current or former directors or officers. As permitted by the DGCL, the Companys certificate of incorporation provides that the Company will indemnify its directors against liability to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except (1) for any breach of the directors duty of loyalty to the Company or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (3) under Section 174 of the DGCL or (4) for any transaction from which a director derived an improper personal benefit.
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Exhibit Number | Description | Originally Filed as Exhibit | File Number | |||
4.1 | Indenture, dated February 25, 2011, by and among Energy XXI Gulf Coast, Inc., the Guarantors named therein and Wells Fargo Bank, N.A., as trustee | 4.1 to Energy XXI (Bermuda) Limiteds current report on Form 8-K filed on February, 28, 2011 | 001-33628 | |||
4.2 | Registration Rights Agreement, dated as of February 25, 2011, by and among Energy XXI Gulf Coast, Inc., the Guarantors named therein and the Initial Purchaser named therein. | 4.2 to Energy XXI (Bermuda) Limiteds current report on Form 8-K filed on February 28, 2011 | 001-33628 | |||
5.1 | Opinion of Vinson & Elkins L.L.P. as to the legality of certain of the securities being registered |
II-1
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Exhibit Number | Description | Originally Filed as Exhibit | File Number | |||
5.2 | Opinion of Appleby as to the legality of certain of the guarantees being registered | |||||
12.1 | Ratio of Earnings to Fixed Charges | |||||
23.1* | Consent of UHY LLP | |||||
23.2* | Consent of Netherland, Sewell & Associates, Inc. | |||||
23.3 | Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto) | |||||
23.4 | Consent of Appleby (contained in Exhibit 5.2 hereto) |
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24.1 | Powers of Attorney | |||||
25.1 | Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of the Trustee under the Indenture with respect to the 7.75% Senior Notes due 2019 |
* | Filed herewith. |
| Previously filed. |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of any Registrant, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by any Registrant of expenses incurred or paid by a director, officer or controlling person of such 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, such 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.
Each registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(a) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(b) to 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 than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement; and
II-2
(c) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall 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.
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.
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrants are subject to Rule 430C, 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.
That, for the purpose of determining liability of the registrants under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, in a primary offering of securities of the undersigned registrants pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrants will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(a) any preliminary prospectus or prospectus of the undersigned registrants relating to the offering required to be filed pursuant to Rule 424;
(b) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrants or used or referred to by the undersigned registrants;
(c) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrants or their securities provided by or on behalf of the undersigned registrants; and
(d) any other communication that is an offer in the offering made by the undersigned registrants to the purchaser.
That, for purposes of determining any liability under the Securities Act of 1933, each filing of a registrant annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall 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.
To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
II-3
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated below.
Pursuant to the requirements of the Securities Act of 1933, each 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 May 16, 2011.
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ENERGY XXI GULF COAST, INC. | ||
By: /s/ BEN MARCHIVE | ||
ENERGY XXI (BERMUDA) LIMITED | ||
By: /s/ JOHN D. SCHILLER, JR. | ||
ENERGY XXI GOM, LLC | ||
ENERGY XXI ONSHORE, LLC | ||
ENERGY XXI TEXAS ONSHORE, LLC | ||
ENERGY XXI PIPELINE, LLC | ||
By: /s/ BEN MARCHIVE |
II-4
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Signature | Title | Date | ||
*![]() Ben Marchive |
President (Principal Executive Officer) |
May 16, 2011 | ||
*![]() Rick Fox |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
May 16, 2011 | ||
*![]() John D. Schiller, Jr. |
Director | May 16, 2011 | ||
*![]() D. West Griffin |
Director | May 16, 2011 | ||
* By: /s/ Bo Boyd |
II-5
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Signature | Title | Date | ||
*![]() John D. Schiller, Jr. |
Chairman and Chief Executive Officer (Principal Executive Officer) |
May 16, 2011 | ||
*![]() D. West Griffin |
Chief Financial Officer (Principal Financial Officer) |
May 16, 2011 | ||
*![]() Hugh A. Menown |
Senior Vice President, Chief Accounting Officer and Chief Information Officer (Principal Accounting Officer) |
May 16, 2011 | ||
*![]() William Colvin |
Director | May 16, 2011 | ||
*![]() Paul Davison |
Director | May 16, 2011 | ||
*![]() David M. Dunwoody |
Director | May 16, 2011 | ||
*![]() Cornelius Dupre II |
Director | May 16, 2011 | ||
*![]() Hill A. Feinberg |
Director | May 16, 2011 | ||
*![]() Kevin Flannery |
Director | May 16, 2011 | ||
* By: /s/ Bo Boyd |
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||
Signature | Title | Date | ||
*![]() Ben Marchive |
President (Principal Executive Officer) |
May 16, 2011 | ||
*![]() Rick Fox |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
May 16, 2011 | ||
*![]() John D. Schiller, Jr. |
Director | May 16, 2011 | ||
*![]() D. West Griffin |
Director | May 16, 2011 | ||
* By: /s/ Bo Boyd |
II-6
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Exhibit Number |
Description | Originally Filed as Exhibit | File Number | |||
4.1 | Indenture, dated December 17, 2010, by and among Energy XXI Gulf Coast, Inc., the Guarantors named therein and Wells Fargo Bank, N.A., as trustee | 4.1 to Energy XXI (Bermuda) Limiteds current report on Form 8-K filed on December 22, 2010 | 001-33628 | |||
4.2 | Registration Rights Agreement, dated as of December 17, 2010, by and among Energy XXI Gulf Coast, Inc., the Guarantors named therein and the Initial Purchasers named therein. | 4.2 to Energy XXI (Bermuda) Limiteds current report on Form 8-K filed on December 22, 2010 | 001-33628 | |||
5.1 | Opinion of Vinson & Elkins L.L.P. as to the legality of certain of the securities being registered | |||||
5.2 | Opinion of Appleby as to the legality of certain of the guarantees being registered | |||||
12.1 | Ratio of Earnings to Fixed Charges | |||||
23.1* | Consent of UHY LLP | |||||
23.2* | Consent of Netherland, Sewell & Associates, Inc. | |||||
23.3 | Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto) | |||||
23.4 | Consent of Appleby (contained in Exhibit 5.2 hereto) |
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24.1 | Powers of Attorney (included in the signature pages to this registration statement) |
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25.1 | Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of the Trustee under the Indenture with respect to the 9.25% Senior Notes due 2017 |
* | Filed herewith. |
| Previously filed. |
II-7
NETHERLAND, SEWELL & ASSOCIATES, INC. | ||
By: | /s/ Danny D. Simmons | |
Danny D. Simmons, P.E. President and Chief Operating Officer |
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end
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