Item 1.01 Entry into a Material Definitive
Agreement.
Restructuring Support Agreement
On April 14, 2016, Energy XXI Ltd, a Bermuda
exempted company (the “Company”), Energy XXI Gulf Coast, Inc., an indirect wholly-owned subsidiary of the Company (“EGC”),
EPL Oil & Gas, Inc., an indirect wholly-owned subsidiary of the Company (“EPL”) and certain other subsidiaries
of the Company listed on Schedule 1 of the Restructuring Support Agreement (as defined below) (together with the Company, EGC and
EPL, the “Debtors”) filed voluntary petitions for reorganization (the petitions collectively, the “Bankruptcy
Petitions”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy
Court”) seeking relief under the provisions of chapter 11 of Title 11 (“Chapter 11”) of the United States Code
(the “Bankruptcy Code”) under the caption
In re Energy XXI Ltd, et al
., Case No. 16-31928.
Prior to filing the Bankruptcy Petitions,
on April 11, 2016, the Debtors entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”)
with certain holders (the “Second Lien Noteholders”) of EGC’s 11.000% Senior Secured Second Lien Notes due 2020
(the “Second Lien Notes”), providing that the Second Lien Noteholders party thereto will support a restructuring of
the Debtors, subject to the terms and conditions of the Restructuring Support Agreement. The restructuring transactions contemplated
by the Restructuring Support Agreement will be effectuated through a joint prearranged plan of reorganization in accordance with
the terms and conditions of the term sheet dated April 11, 2016 (the “Term Sheet”), a copy of which is attached as
Exhibit A to the Restructuring Support Agreement (as may be amended, restated, supplemented, or otherwise modified from time to
time, the “Plan”). The Plan will represent a settlement of various issues, controversies, and disputes. Capitalized
terms not otherwise defined herein shall have the meanings ascribed thereto in the Restructuring Support Agreement.
The Restructuring Support Agreement provides,
among other things, that:
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Existing common stock and preferred stock of the Company would be extinguished, and existing equity holders would not receive
consideration in respect of their equity interests.
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The Debtors, on behalf of the holders of claims (the “First Lien Claims”) arising on account of the Company’s
Second Amended and Restated First Lien Credit Agreement (the “Revolving Credit Facility”) and subject to further negotiations
with the lenders (the “Lenders”) under the Revolving Credit Facility, will use their best efforts to ensure that at
emergence, the amount drawn under the Revolving Credit Facility either (i) remains outstanding or (ii) is refinanced with a new
facility with terms acceptable to the Second Lien Noteholders party to the Restructuring Support Agreement (the “Restructuring
Support Parties”) who hold, in aggregate, at least 66.6% in principal amount of the Second Lien Notes Claims (as defined
below) held by the Restructuring Support Parties (the “Majority Restructuring Support Parties”); provided, however
that (a) $228 million of letters of credit usage remains outstanding and (b) other terms, including a borrowing base redetermination
holiday, are acceptable to the Debtors and the Majority Restructuring Support Parties. If the Debtors are unable to obtain the
foregoing treatment of the First Lien Claims, then the Debtors will use their best efforts to obtain treatment acceptable to the
Debtors and the Majority Restructuring Support Parties.
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Holders of claims relating to the Second Lien Notes (the “Second Lien Notes Claims”) will receive their
pro
rata
share of 100% of the common stock in the reorganized company (the “New Equity”) on account of such Second
Lien Notes Claims, subject to dilution from the issuance of New Equity in connection with the long-term management incentive plan
for the reorganized Debtors (the “Management Incentive Plan”) and the Warrant Package (as defined below).
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Holders of allowed priority claims (other than a priority tax claim or administrative claim) will receive either: (i) cash
equal to the full allowed amount of such claim or (ii) such other treatment as may otherwise be agreed to by such holder, the Debtors,
and the Majority Restructuring Support Parties.
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Holders of secured claims (other than a priority tax claim, First Lien Claim, or Second Lien Notes Claim) will receive, at
the Debtors’ election and with the consent of the Majority Restructuring Support Parties, either: (i) cash equal to the full
allowed amount of such claim, (ii) reinstatement of such holder’s claim, (iii) the return or abandonment of the collateral
securing such claim to such holder, or (iv) such other treatment as may otherwise be agreed to by such holder, the Debtors, and
the Majority Restructuring Support Parties.
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If the holders of claims relating to the unsecured EGC notes (the “EGC Unsecured Notes Claims”), the unsecured
EPL notes (the “EPL Unsecured Notes Claims”) and the Company’s senior unsecured convertible notes (the “EXXI
Convertible Notes Claims”) vote to accept the Plan, then such holders will receive their
pro rata
share of the package
of out-of-the-money warrants equal to an aggregate of up to up to 10% of the New Equity (subject to dilution from the Management
Incentive Plan) with a maturity of 10 years and an equity strike price equal to (i) the principal amount of the Second Lien Notes
Claims
less
the original issue discount of approximately $53.5 million
plus
(ii) accrued and unpaid interest (the
“Warrant Package”). If, however, the holders of such claims vote to reject the Plan, then such holders will not receive
a distribution under the Plan. Subject to the terms of the Plan, the Warrant Package will be divided amongst the classes of EGC
Unsecured Notes Claims, EPL Unsecured Notes Claims, or EXXI Convertible Notes Claims, consistent with their respective legal entitlements.
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John D. Schiller, Jr. will continue as the New Entity’s Chief Executive Officer and a member of its board of directors.
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The Restructuring Support Agreement also
contains certain milestones (the “Milestones”) for progress in the Chapter 11 proceedings. The Restructuring Support
Agreement contains certain other customary terms and conditions for transactions of this type and may be terminated upon the occurrence
of certain events, which includes, among other things, any failure to meet the Milestones.
A copy of the Restructuring Support Agreement
is attached hereto as Exhibit 10.1 to this Current Report on Form 8-K (this “Form 8-K”). The foregoing description
of the Restructuring Support Agreement is only a summary, does not purport to be complete, and is qualified in its entirety by
reference to the Restructuring Support Agreement.
Waiver to Lease
As previously reported, on June 30, 2015,
Energy XXI GIGS Services, LLC, an indirect wholly-owned subsidiary of the Company (the “Tenant”), entered into a triple-net
lease (the “Lease”) with Grand Isle Corridor, LP, a wholly-owned subsidiary of CorEnergy Infrastructure Trust, Inc.
(“Grand Isle Corridor”), pursuant to which the Tenant will continue to operate the real and personal property constituting
a subsea pipeline gathering system located in the shallow Gulf of Mexico shelf and storage and onshore processing facilities on
Grand Isle, Louisiana sold to Grand Isle Corridor in June 2015.
Under the Lease, an event of default would
be triggered by the Tenant upon (i) the filing by either the Tenant or the Company of a Bankruptcy Petition or (ii) the failure
of either the Tenant or the Company to make any payment of principal or interest with respect to Material Debt (as defined in the
Lease) after giving effect to any applicable cure period or the failure to perform under an agreement or instrument relating to
such Material Debt (collectively, the “Specified Defaults”). Although the Tenant did not file a voluntary petition
for reorganization under Chapter 11 of the Bankruptcy Code, the Company’s Bankruptcy Petition and failure to comply with
its Material Debt instruments, would, among other things, allow Grand Isle Corridor to terminate the Lease.
As a result, the Tenant and Grand Isle Corridor
entered into a Waiver to Lease, dated as of April 13, 2016 (the “Waiver”), whereby Grand Isle Corridor waived its right
to exercise its remedies set forth under the Lease in the event of the Specified Defaults except its ability to exercise observer
rights as detailed in Section 23.2(b)(vii) of the Lease. The Waiver will terminate if any of the following events occur: (i) a
dismissal of the Company’s Bankruptcy Petition, (ii) conversion of the pending case from a Chapter 11 bankruptcy to a chapter
7 bankruptcy case or other liquidation proceeding, (iii) relief from the automatic stay or other relief which allows the creditors
of the Material Debt to take action to enforce such Material Debt against the Company or its property or (iv) a Tenant Event of
Default (as defined in the Lease) under the Lease other than arising out of the Specified Defaults expressly waived.
The foregoing description of the Waiver
is only a summary, does not purport to be complete, and is qualified in its entirety by reference to the Waiver, a copy of which
is filed as Exhibit 10.2 to this Form 8-K and incorporated by reference.
Item 1.03. Bankruptcy or Receivership.
As described above, on April 14, 2016, the
Debtors filed Bankruptcy Petitions in the Bankruptcy Court seeking relief under the provisions of Chapter 11 of the Bankruptcy
Code. The Debtors will continue to operate their businesses and manage their assets as debtors-in-possession under the jurisdiction
of the Bankruptcy Court in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
Concurrently with the filing of the Bankruptcy Petitions, the Company filed a winding-up petition commencing an official liquidation
proceeding under the laws of Bermuda before the Supreme Court of Bermuda.
Court filings and other information related
to the Bankruptcy Petitions are available at a website administered by the Company’s claims agent, Epiq Systems, at http://dm.epiq11.com/EnergyXXI,
or via the Company’s Restructuring Hotline at (844) 807-7712 (toll free) or (503) 520-4464 (international).
The information set forth above in Item
1.01 of this Current Report on Form 8-K is incorporated herein by reference.