ATN Atlas Energy Resources Llc

 

Filed Pursuant to Rule No. 424(b)(5)

Registration No. 333-160483

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

Filed Pursuant to Rule No. 424(b)(5)

Registration No. 333-160483

Prospectus supplement

(To prospectus dated July 8, 2009)

 

Atlas Energy Operating Company, LLC

Atlas Energy Finance Corp.

$200,000,000

12.125% Senior Notes due 2017

Issue Price 98.116%

Interest payable February 1 and August 1.

 

The notes will mature on August 1, 2017. Interest will accrue from July 16, 2009, and the first interest payment date will be February 1, 2010.

 

At any time prior to August 1, 2013, the Issuers may redeem some or all of the notes at a “make whole” redemption price set forth under “Description of the notes—Optional redemption.” On or after August 1, 2013, the Issuers may redeem some or all of the notes at the redemption prices set forth under “Description of the notes—Optional redemption.” In addition, at any time prior to August 1, 2012, the Issuers may redeem up to 35% of the notes with the proceeds received from certain equity offerings at the price set forth under “Description of the notes—Optional redemption.” The redemption prices are more fully described beginning on page S-43. If we sell certain assets and do not reinvest the proceeds or repay senior indebtedness or if we experience specific kinds of changes of control, the Issuers must offer to repurchase the notes.

 

The notes will be senior unsecured obligations of the Issuers and will initially be guaranteed by Atlas Energy Resources, LLC, the direct parent of the Issuers, and each of the Issuers’ subsidiaries that also guarantees the credit facility of Atlas Energy Operating Company, LLC . The notes and guarantees will rank senior in right of payment to all of the Issuers’ and guarantors’ existing and future debt that is expressly subordinated in right of payment to the notes. The notes and guarantees will rank equally in right of payment with all of the Issuers’ and guarantors’ existing and future senior debt, will be effectively subordinated to all of the Issuers’ and guarantors’ secured debt (to the extent of the value of the collateral securing such debt) and will be structurally subordinated to all of the liabilities of any of the Issuers’ subsidiaries that do not guarantee the notes.

 

 

See “Risk factors” beginning on page S-18 for a discussion of certain risks that you should consider in connection with an investment in the notes.

 

 

The notes will not be listed on any securities exchange. Currently, there is no public market for the notes.

 

We expect that delivery of the notes to purchasers will be made on or about July 16, 2009 in book entry form through The Depository Trust Company for the account of its participants, including Clearstream Banking société anonyme and Euroclear Bank, S.A./N.V.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these notes or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

Joint book-running managers

 

 

 

 

 

 

 

Co-managers

 

 

July 13, 2009

 

You should rely only on the information contained in or incorporated by reference in this prospectus supplement, the accompanying prospectus and any related free writing prospectus. We have not authorized anyone to provide you with different information.

 

We are not and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

 

You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the front of this prospectus supplement.

 

 

Table of contents

 

Prospectus supplement

 

 

Prospectus

 

 

This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering. The second part is the accompanying base prospectus, which gives more general information, some of which may not apply to this offering of notes. Generally, when we refer only to the “prospectus,” we are referring to both parts combined. If information varies between this prospectus supplement and the accompanying base prospectus, you should rely on the information in this prospectus supplement.

 

Any statement made in this prospectus supplement or in a document incorporated or deemed to be incorporated by reference into this prospectus supplement will be deemed to be modified or superseded for purposes of this prospectus supplement to the extent that a statement contained in this prospectus supplement or in any other subsequently filed document that is also incorporated by reference into this prospectus supplement modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement. Please read “Where you can find more information” and “Incorporation of certain documents by reference” in this prospectus supplement.

 

Forward-looking statements

 

This prospectus includes statements that constitute forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of us and our affiliates. These statements may relate to, but are not limited to, information or assumptions about capital and other expenditures, dividends, financing plans, capital structure, cash flow, pending legal and regulatory proceedings and claims, including environmental matters, future economic performance, operating income, cost savings, management’s plans, strategies, goals and objectives for future operations and growth. These forward-looking statements generally are accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “expect,” “should,” “seek,” “project,” “plan” or similar expressions. It should be understood that these forward-looking statements are necessarily estimates reflecting the best judgment of our senior management, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements may relate to various financial and operational matters, including, among other things: fluctuations in demand or the prices received for our natural gas and oil; the amount, nature and timing of capital expenditures; drilling of wells; competition and government regulations; timing and amount of future production of natural gas and oil; costs of exploiting and developing our properties and conducting other operations, in the aggregate and on a per unit equivalent basis; increases in proved reserves; operating costs and other expenses; cash flow and anticipated liquidity; estimates of proved reserves, exploitation or property acquisitions; marketing of natural gas and oil; and general economic conditions and the other risks and uncertainties discussed in this prospectus and the documents incorporated by reference herein.

 

Undue reliance should not be placed on forward-looking statements, which speak only as of the date of this prospectus supplement.

A description of certain risks relating to us and investment in the notes appears under the heading “Risk factors” in this prospectus supplement.

 

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless the securities laws require us to do so.

 

Terms used in this prospectus supplement

 

We include a glossary of some of the industry terms used in this prospectus supplement in Appendix A. Unless otherwise noted or indicated by the context, in this prospectus:

 

 

Prospectus supplement summary

		As of December 31, 2008																				Quarter ended
																		Standardized				March 31, 2009
														Percent				measure				Average daily
		Natural gas				Oil				Equivalent				proved				value				production
		(Bcf)				(MMBbls)				(Bcfe)				developed				($mm)				(MMcfe/d)
Michigan/Indiana			627.3				—				627.3				71%				877.5				58.3
Appalachia			363.7				1.7				373.9				40%				254.5				42.3
Total			991.0				1.7				1,001.2				60%				1,132.0				100.6

	•	Merger superior to alternatives.  The special committee’s belief that the merger was superior to other alternatives available to us because, among other things:

	•	the special committee’s belief that general industry, economic and market conditions posed increased risks to our financial condition, results of operations and prospects as

		a standalone business, including potential liquidity and credit agreement issues and lack of capital to accelerate development of the Marcellus Shale;

	•	the special committee’s belief that a potential reduction in or elimination of our distributions of available cash would likely be necessary, which reduction or elimination, in the absence of a strategic transaction, could result in a material negative impact on the price of our units; and
	•	the special committee’s belief that other standalone alternatives, such as maintaining the status quo, eliminating cash distributions while remaining a limited liability company, converting to a C-corporation, or an outright sale to a third party or a joint venture were not achievable or in our best interests and would not enhance the value of the common units held by unaffiliated unitholders as much as the merger on the terms set forth in the Merger Agreement.

	•	Stronger balance sheet; lower cost of capital; improved liquidity. The special committee’s belief that a merger with Atlas America would create a stronger balance sheet and capital structure, along with a lower cost of capital and improved liquidity.
	•	Reduction in debt; acceleration of Marcellus Shale; improved access to capital markets. The special committee’s belief that, as a result of the merger with Atlas America, we could reduce our outstanding debt and accelerate drilling of the Marcellus Shale pursued through a combination of cash available at Atlas America, the retention and investment of future cash otherwise applied to funding cash distributions to unitholders, and better access to the equity capital markets than could be achieved as a limited liability company.
	•	Continued participation in assets.  The special committee’s belief that our public unitholders would be able to continue to participate in the future profitability of the merged entity, which would be enhanced as a result of the improved liquidity situation and the other factors described in this section.
	•	Elimination of voting block and value of management incentive interests. The special committee’s belief that the merger will enhance value to our unaffiliated unitholders by eliminating the concentration of ownership represented by Atlas America’s approximate 47% common unit ownership and by eliminating the voting and economic effect on our public unitholders resulting from Atlas America’s ownership of our Class A units and management incentive interests, all of which provided Atlas America with significant control over us and provide value to Atlas America not shared by our public unitholders.
	•	Synergies.  The special committee’s belief that the merger would allow Atlas America and us to achieve synergies in the form of cost savings and other efficiencies.
	•	Feasibility.  The special committee’s belief that the merger has the greatest likelihood of success of achieving in the short term the goals outlined above, as compared to other possible alternatives.

(1)		Guarantor of existing notes, the notes offered hereby and the credit facility.
(2)		Co-issuer of the existing notes and the notes offered hereby.
(3)		Co-issuer of the existing notes and the notes offered hereby and borrower under the credit facility.

Issuers		Atlas Energy Operating Company, LLC and Atlas Energy Finance Corp.
Securities		$200,000,000 aggregate principal amount of 12.125% Senior Notes due 2017.
Maturity		The notes will mature on August 1, 2017.
Interest Payment Dates		February 1 and August 1 of each year, commencing February 1, 2010. Interest will accrue from July 16, 2009.
Optional Redemption		At any time prior to August 1, 2012, the Issuers may redeem up to 35% of the notes with the net cash proceeds of certain equity offerings at the redemption price set forth under “Description of the notes - Optional redemption”.
		At any time prior to August 1, 2013, the Issuers may redeem the notes, in whole or in part, at a “make whole” redemption price, plus accrued and unpaid interest and additional interest, if any, to the date of redemption as set forth under “Description of the notes—Optional redemption”. On and after August 1, 2013, the Issuers may redeem the notes, in whole or in part, at the redemption prices set forth under “Description of the notes—Optional redemption”.
Guarantees		The notes initially will be guaranteed by Atlas Energy Resources, LLC, our direct parent, and each of our subsidiaries that guarantees our credit facility.
Ranking		The notes will be senior unsecured obligations of the Issuers and will rank senior in right of payment to all of the Issuers’ existing and future debt that is expressly subordinated in right of payment to the notes. The notes will rank equal in right of payment with all of the Issuers’ existing and future senior debt and will be effectively subordinated to all of the Issuers’ secured debt to the extent of the value of the collateral securing such debt and structurally subordinated to all of the liabilities of any of the Issuers’ subsidiaries that do not guarantee the notes.
		The guarantees will be general unsecured obligations of the guarantors and will rank senior in right of payment to all their existing and future debt that is expressly subordinated in right of payment to the guarantees. The

		guarantees will rank equal in right of payment with all existing and future liabilities of such guarantors that are not so subordinated and will be effectively subordinated to all of such guarantors’ secured debt to the extent of the collateral securing such debt and structurally subordinated to all of the liabilities of any of our subsidiaries that do not guarantee the notes.
		As of March 31, 2009, after giving effect to this offering and the use of proceeds therefrom, we would have had total indebtedness of approximately $947.1 million, consisting of $200.0 million of notes, $400.0 million of existing notes and approximately $347.1 million of secured indebtedness under our credit facility.
Covenants		We will issue the notes under an indenture to be dated July 16, 2009, as further supplemented and amended by a supplemental indenture among us, the guarantors and U.S. Bank National Association, as trustee. The indenture, as further supplemented and amended by a supplemental indenture, which we collectively refer to as the indenture, will, among other things, restrict our ability and the ability of our restricted subsidiaries to:
		• incur certain additional indebtedness and issue preferred stock;
		• make certain distributions, investments and other restricted payments;
		• sell certain assets;
		• agree to any restrictions on the ability of restricted subsidiaries to make payments to us;
		• create certain liens;
		• merge, consolidate or sell substantially all of our assets; and
		• enter into certain transactions with affiliates.
		These covenants are subject to important exceptions and qualifications described under the heading “Description of the notes.”
Mandatory Offer to Repurchase		If specific kinds of changes of control occur and the Issuers have not previously exercised their right to redeem all of the outstanding notes as described under “Description of the notes—Redemption,” the Issuers must offer to repurchase the notes at a redemption price equal to 101% of the principal amount thereof plus any accrued and unpaid interest.

No Public Market		The notes are a series of securities for which there is currently no established trading market. The underwriters have advised us that they presently intend to make a market in the notes. However, you should be aware that they are not obligated to make a market and may discontinue their market-making activities at any time without notice. As a result, a liquid market for the notes may not be available if you try to sell your notes. We do not intend to apply for a listing of the notes on any securities exchange or any automated dealer quotation system.
Use of Proceeds		We intend to use the net proceeds from this offering to reduce outstanding indebtedness under our credit facility. See “Use of proceeds.” Affiliates of certain of the underwriters are currently lenders under our credit facility and, accordingly, they will receive a portion of the proceeds from the sale of the notes in this offering. See “Underwriting.”
Form		The notes will be represented by registered global securities registered in the name of Cede & Co., the nominee of the depositary, The Depository Trust Company, or DTC. Beneficial interests in the notes will be shown on, and transfers will be effected through, records maintained by DTC and its participants.
Risk Factors		See “Risk factors” beginning on page S-18 of this prospectus supplement for important information regarding us and an investment in the notes.

		Years ended December 31,												Three months ended March 31,
(dollars in thousands)		2006				2007				2008				2008				2009
														(unaudited)
Income statement data:
Revenues:
Gas and oil production		$	88,449			$	180,125			$	311,850			$	76,226			$	71,943
Partnership management:
Well construction and completion			198,567				321,471				415,036				104,138				112,368
Administration and oversight			11,762				18,138				19,362				5,017				3,852
Well services			12,953				17,592				20,482				4,798				5,093
Gathering(1)			9,251				14,314				20,670				4,410				4,724
Gain on mark-to-market derivatives			—				26,257				—				—				—
Total revenues			320,982				577,897				787,400				194,589				197,980
Operating costs:
Gas and oil production(1)			13,881				32,193				59,579				13,081				14,582
Partnership management:
Well construction and completion			172,666				279,540				359,609				90,555				95,397
Well services			7,337				9,062				10,654				2,412				2,424
Gathering(1)			—				214				441				96				177
Gathering fee—Atlas Pipeline(1)			29,545				13,781				19,098				4,027				4,316
Total direct costs			223,429				334,790				449,381				110,171				116,896
Segment margin(2):
Gas and oil production			74,568				174,189				252,271				63,145				57,361
Partnership management			22,985				68,918				85,748				21,273				23,723
Total segment margin			97,553				243,107				338,019				84,418				81,084

		Years ended December 31,												Three months ended March 31,
(dollars in thousands)		2006				2007				2008				2008				2009
														(unaudited)
Other operating costs:
General and administrative			23,367				39,414				44,659				11,792				14,549
Net reimbursement—affiliate			1,237				—				—				—				—
Depreciation, depletion and amortization			22,491				56,942				95,434				21,810				28,028
Operating income			50,458				146,751				197,926				50,816				38,507
Other income (expense):
Interest expense			—				(30,096	)			(56,306	)			(13,305	)			(12,984	)
Other—net			1,369				881				1,223				53				80
Total other income (expense)			1,369				(29,215	)			(55,083	)			(13,252	)			(12,904	)
Net income before cumulative
effect of accounting change(7)			51,827				117,536				142,843				37,564				25,603
Cumulative effect of accounting change			6,355				—				—				—				—
Net income(7)			58,182				117,536				142,843				37,564				25,603
Income attributable to non-controlling
interests(7)			—				(32	)			(64	)			(21	)			(15	)
Income attributable to members’ interests		$	58,182			$	117,504			$	142,779			$	37,543			$	25,588

		Years ended December 31,												Three months ended March 31,
(dollars in thousands)		2006				2007				2008				2008				2009
														(unaudited)
Balance sheet data (at period end):
Cash and cash equivalents		$	8,833			$	25,258			$	5,655			$	7,612			$	6,371
Total assets(3)			424,077				1,905,918				2,291,317				1,924,254				2,379,398
Total debt			68				740,030				873,655				829,022				944,472
Total equity(8)			212,682				836,357				1,039,523				731,599				1,104,452
Cash flow data:
Net cash flow provided by (used in):
Operating activities(9)		$	84,622			$	235,416			$	256,604			$	(17,973	)		$	26,850
Investing activities(9)			(79,674	)			(1,472,868	)			(347,789	)			(55,599	)			(57,036	)
Financing activities			(17,033	)			1,253,877				71,582				55,926				30,902
Other financial data:
EBITDA(4)		$	74,318			$	204,542			$	294,519			$	72,658			$	66,600
Adjusted EBITDA(4)			94,949				199,099				312,434				79,006				69,732
Capital expenditures(9)			79,721				201,169				347,656				55,617				57,207
Ratio of Adjusted EBITDA to interest expense(5)																			5.4	x
Ratio of earnings to fixed charges(5)(6)																			2.6	x

(1)		We charge gathering fees to our investment partnership wells that are connected to Laurel Mountain’s gathering systems. Prior to the date of our initial public offering, our predecessor paid these fees, plus an additional amount to bring the total gathering charge up to, generally, 16% of the gas sales price, to Atlas Pipeline in accordance with its gathering agreements with it. Upon the completion of our initial public offering, Atlas America assumed our obligation to paid gathering fees to Atlas Pipeline. We were obligated to pay the gathering fees we receive from our investment partnerships to Atlas America, with the result that our gathering revenues and expenses within our partnership management segment net to $0. We also paid our proportionate share of gathering fees based on our percentage interest in the well, which are included in gas and oil production and exploration expense. Upon the completion of Atlas Pipeline’s sale of its gathering systems to Laurel Mountain in June 2009, Atlas America’s assumption of our obligation to pay gathering fees to Atlas Pipeline terminated, and we entered into new gathering agreements with Laurel Mountain. See “—Competitive Strengths—Our relationship with Laurel Mountain Midstream, LLC gives us reliable access to the markets we serve and reduces capital expenditures we would otherwise incur in Appalachia.” We also owned several small gathering systems before the completion of our initial public

		offering which we no longer own. The expenses associated with these systems are shown as gathering fees on our combined statements of income.
(2)		We define segment margin as total operating revenues less total related direct operating costs, excluding direct depreciation, depletion and amortization, for each of our operating segments. Our segment margin equals the sum of our gas and oil production and partnership management segments’ gross margins. We include segment margin as a supplemental disclosure because it represents the aggregate results of our operating segments. As an indicator of our operating performance, segment margin should not be considered an alternative to, or more meaningful than, net income or cash flow as determined in accordance with GAAP. Our segment margin may not be comparable to a similarly titled measure of another company because other entities may not calculate segment margin in the same manner. The following reconciles segment margin to our gross margin for the periods indicated:

		Years ended December 31,												Three months ended March 31,
(dollars in thousands)		2006				2007				2008				2008				2009
Segment margin:
Gas and oil production		$	74,568			$	174,189			$	252,271			$	63,145			$	57,361
Partnership management:
Well construction and completion			25,901				41,931				55,427				13,583				16,971
Administration and oversight			11,762				18,138				19,362				5,017				3,852
Well services			5,616				8,530				9,828				2,386				2,669
Gathering			(20,294	)			319				1,131				287				231
Total partnership management			22,985				68,918				85,748				21,273				23,723
Total segment margin			97,553				243,107				338,019				84,418				81,084
Less segment depreciation, depletion and amortization			(22,491	)			(56,942	)			(95,434	)			(21,810	)			(28,028	)
Gross margin		$	75,062			$	186,165			$	242,585			$	62,608			$	53,056

(3)		Certain pre-development costs and joint-venture receivables previously netted with “Liabilities associated with drilling contracts” of $8.6 million, $14.7 million, $20.6 million, and $14.9 million as of December 31, 2006, 2007, 2008 and March 31, 2008, respectively, have been reclassified from “Liabilities associated with drilling contracts” to oil and gas properties and accounts receivable to conform to the presentation of “Total assets” as of March 31, 2009.
(4)		We define EBITDA as net income before cumulative effect of accounting change, interest, taxes, depreciation, depletion and amortization. We calculate Adjusted EBITDA by adjusting EBITDA for other non-cash items such as equity-based compensation. EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with GAAP. Although not prescribed under GAAP, we believe the presentation of EBITDA and Adjusted EBITDA are relevant and useful because they help our investors to understand our operating performance and makes it easier to compare our results with other companies that have different financing and capital structures or tax rates. EBITDA and Adjusted EBITDA should not be considered in isolation of, or as a substitute for, net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. Adjusted EBITDA, as we calculate it, may not be comparable to Adjusted EBITDA measures reported by other companies and our EBITDA calculation here may be different from the EBITDA calculation under our credit facility and the consolidated EBITDA calculation under the indenture. In addition, EBITDA and Adjusted EBITDA do not represent funds available for discretionary use. The following reconciles our net income before taxes and cumulative effect of accounting change to our EBITDA and Adjusted EBITDA for the periods indicated:

		Years ended December 31,												Three months ended March 31,
(dollars in thousands)		2006				2007				2008				2008				2009
Net income before cumulative effect of accounting change(7)		$	51,827			$	117,536			$	142,843			$	37,564			$	25,603
Less: Income attributable to non-controlling interests(7)			—				(32	)			(64	)			(21	)			(15	)
Plus interest expense			—				30,096				56,306				13,305				12,984
Plus depreciation, depletion and amortization			22,491				56,942				95,434				21,810				28,028
EBITDA			74,318				204,542				294,519				72,658				66,600
Non-recurring derivative fees			—				3,873				—				—				—
Non-cash compensation expense			337				4,684				5,485				1,320				1,528
Adjustment to reflect cash impact of derivatives(a)			—				(14,000	)			12,430				5,028				1,604
Gathering fee(b)			20,294				—				—				—				—
Adjusted EBITDA		$	94,949			$	199,099			$	312,434			$	79,006			$	69,732

(a)		Represents net cash proceeds received from the recognition and settlement of ineffective derivative gains recognized in connection with the acquisition of our Michigan assets in June 2007 but not reflected in our consolidated statements of income for the years ended December 31, 2007 and 2008 respectively, and for the three months ended March 31, 2008 and 2009, respectively.
(b)		See note (1) above.

(5)		There was no interest expense in periods prior to the year ended December 31, 2007.
(6)		For purposes of this computation, the ratio of earnings to fixed charges represents income from continuing operations before income taxes, non-controlling interest and accounting changes plus fixed charges. Fixed charges means interest expense.

(7)		Net income before cumulative effect of accounting change and Net income have been restated (increased) by $32 thousand and $64 thousand for the years ended December 31, 2007 and 2008, respectively, and $21 thousand for the three months ended March 31, 2008, to reflect our adoption of Statement of Financial Accounting Standards No. 160, “Noncontrolling Interest in Consolidated Financial Statements-an amendment of ARB No 51 “(“SFAS No. 160”), in the first quarter of 2009, which required us to segregate our noncontrolling interest (minority interest) previously reported in “Other-net” and combined in net income to show separate items of net income attributable to both the parent and the noncontrolling interest.
(8)		Total equity as of December 31, 2007 and 2008 and as of March 31, 2008 has been restated (increased) by $242 thousand, $187 thousand and $206 thousand, respectively, to reflect our adoption of SFAS No. 160 which required us to report our noncontrolling interest in a subsidiary previously reported separately as equity in our consolidated balance sheets.
(9)		Net cash flows provided by operating activities, net cash flows used in investing activities and capital expenditures have been restated for the years ended December 31, 2006, 2007 and 2008 to conform to the current presentation as of March 31, 2009 (see note 3 above). As a result, net cash flows provided by operating activities and capital expenditures have been increased by $4.1 million, $4.4 million and $6.7 million for the years ended December 31, 2006, 2007 and 2008, respectively, and net cash flows used in investing activities has been decreased by the same amount for the respective periods.

(dollars in millions,		Years ended December 31,
except per unit data)		2006				2007				2008
Reserve data:
Estimated net proved reserves:
Natural gas (Bcf)			168.5				884.8				990.8
Oil (MMBbls)			2.1				2.0				1.7
Total (Bcfe)			181.0				896.7				1,001.2
Percentage proved developed reserves(1)			66.4%				67.6%				59.6%
Standardized measure value(2)		$	283.4			$	1,481.2			$	1,131.9
Weighted average reserve natural gas and oil prices(2):
Natural gas—per Mcf		$	6.33			$	6.93			$	5.71
Oil—per Bbl		$	57.26			$	90.30			$	44.80

		Years ended December 31,												Three months ended March 31,
		2006				2007				2008				2008				2009
Net production:
Total production (Mmcfe)			9,850				21,884				34,853				8,351				9,050
Average daily production (Mcfe/d)			26,989				89,425				95,227				91,772				100,546
Average natural gas sales prices per Mcf:
Average sales prices (including hedges)		$	8.83			$	8.66			$	9.13			$	9.58			$	8.09
Average sales prices (excluding hedges)		$	7.90			$	7.22			$	9.23			$	8.32			$	5.21
Average oil sales prices per Bbl:
Average sales prices (including hedges)		$	62.30			$	70.16			$	92.35			$	91.03			$	64.52
Average unit costs per Mcfe:
Production costs		$	1.41			$	1.47			$	1.71			$	1.56			$	1.61
Depletion		$	2.08			$	2.49			$	2.64			$	2.52			$	2.98

(1)		The balance of our reserves are proved undeveloped. Our ownership in these reserves in Appalachia is subject to reduction as we generally contribute leasehold acreage associated with our proved undeveloped reserves to our investment partnerships in exchange for an approximate 30% equity interest in these partnerships which effectively will reduce our ownership interest in these reserves from 100% to 30% as we make these contributions.
(2)		Natural gas and oil prices were based on NYMEX prices per Mcf and Bbl at the applicable date, with the representative price of natural gas adjusted for basis premium and Btu content to arrive at the appropriate net price. Amounts shown include physical hedges but not financial hedging transactions.

 

Investing in the notes involves risks. You should carefully consider the following risk factors together with all of the other information included or incorporated by reference in this prospectus supplement and the accompanying prospectus.

 

Risks related to the notes

 

We have distributed in the past and, if we do not consummate the merger with Atlas America, we may continue to distribute a significant portion of our cash flows to our unitholders, and we are not required to accumulate cash for the purpose of meeting our future obligations to our noteholders, which may limit the cash available to service the notes.

 

Subject to the limitations on restricted payments contained in the indentures governing the notes, and the existing notes and in our credit facility, and the restrictions in the merger agreement prohibiting us from paying distributions without Atlas America’s consent until consummation of the merger or termination of the agreement, we will distribute all of our “available cash” each quarter to Atlas Energy Resources unitholders. “Available cash” is defined in our operating agreement, and it generally means, for each fiscal quarter:

 

 

 

 

Working capital borrowings are generally borrowings that are made under our credit facility and in all cases are used solely for working capital purposes or to pay distributions to unitholders. As a result, we may not accumulate significant amounts of cash. Depending on the timing and amount of our cash distributions, these distributions could significantly reduce the cash available to us in subsequent periods to make payments on the notes.

 

We may not be able to generate sufficient cash to service our debt obligations, including our obligations under the notes.

 

Our ability to make payments on and to refinance our indebtedness, including the notes, will depend on our financial and operating performance, which may fluctuate significantly from quarter to quarter based on, among other things:

 

 

 

We may not be able to generate sufficient cash flow and may not be able to borrow funds in amounts sufficient to enable us to service our indebtedness, or to meet our working capital and capital expenditure requirements. If we are not able to generate sufficient cash flow from operations or to borrow sufficient funds to service our indebtedness, we may be required to sell assets or issue equity, reduce capital expenditures, or refinance all or a portion of our existing indebtedness. We may not be able to refinance our indebtedness, sell assets or issue equity, or borrow more funds on terms acceptable to us, if at all.

 

We have a substantial amount of indebtedness which could adversely affect our financial position and prevent us from fulfilling our obligations under the notes.

 

We currently have, and following this offering will continue to have, a substantial amount of indebtedness. As of March 31, 2009, after giving effect to the issuance of the notes offered hereby and the application of the net proceeds from the offering, we would have had total debt of approximately $947.1 million, consisting of $200.0 million of notes, $400.0 million of existing notes and $347.1 million of borrowings under our credit facility. In addition, we would have approximately $251.8 million of available borrowing capacity under our credit facility. We may also incur significant additional indebtedness in the future. Our substantial indebtedness may:

 

 

Despite our current level of indebtedness, we may still be able to incur substantially more indebtedness. This could exacerbate the risks associated with our substantial indebtedness.

 

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the credit facility and indenture governing the existing notes limit, and the supplemental indenture governing the notes offered hereby will limit, but do not prohibit, us or our subsidiaries from incurring additional indebtedness. If we incur any additional indebtedness that ranks equally with the notes and the guarantees, the holders of that indebtedness will be entitled to share ratably with the holders of the notes and the guarantees in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. This may have the effect of reducing the amount of proceeds paid to you. If new indebtedness is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.

The notes offered hereby and the related guarantees will be unsecured and effectively subordinated to our and the guarantors’ existing and future secured indebtedness.

 

The notes offered hereby and the related guarantees will be general unsecured obligations ranking effectively junior in right of payment to all of our existing and future secured indebtedness and that of each guarantor, including indebtedness under our credit facility. Additionally, the supplemental indenture governing the notes will permit us to incur additional secured indebtedness in the future. In the event that we or a guarantor is declared bankrupt, becomes insolvent or is liquidated or reorganized, any indebtedness that is effectively senior to the notes and the guarantees will be entitled to be paid in full from our assets or the assets of the guarantor, as applicable, securing such indebtedness before any payment may be made with respect to the notes or the affected guarantees. Holders of the notes will participate ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as the notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor, in our remaining assets. As of March 31, 2009, after giving effect to the issuance of the notes offered hereby and the contemplated use of proceeds, the notes and the guarantees would have been effectively subordinated to $347.1 million of senior secured indebtedness under our credit facility and we would have been able to incur an additional $251.8 million of indebtedness under our credit facility on such date, subject to compliance with financial covenants in the credit facility, all of which would have also been effectively senior to the notes and the guarantees.

 

Claims of noteholders will be structurally subordinate to claims of creditors of our subsidiaries that do not guarantee the notes.

 

The notes will not be guaranteed by Anthem Securities or by certain future subsidiaries that we designate as “unrestricted” in accordance with the terms of the indenture. Accordingly, claims of holders of the notes will be structurally subordinated to the claims of creditors of these nonguarantor subsidiaries, including trade creditors. All obligations of our non-guarantor subsidiaries will have to be satisfied before any of the assets of these subsidiaries would be available for distribution, upon a liquidation or otherwise, to us or a guarantor of the notes. Although all of our subsidiaries, other than Anthem Securities, will guarantee the notes, the guarantees are subject to release under certain circumstances and we may have subsidiaries that are not guarantors. In the event of the liquidation, dissolution, reorganization, bankruptcy or similar proceeding of the business of a subsidiary that is not a guarantor, creditors of that subsidiary would generally have the right to be paid in full before any distribution is made to us or the holders of the notes. In any of these events, we may not have sufficient assets to pay amounts due on the notes with respect to the assets of that subsidiary. Our non-guarantor subsidiaries accounted for none of our total net revenues for the year ended December 31, 2008 and the three months ended March 31, 2009. These subsidiaries had substantially no net income, assets or liabilities as of and for the three months ended March 31, 2009.

 

Your ability to transfer the notes offered hereby will be limited by the absence of an active trading market.

 

The notes are a series of securities for which there is currently no established trading market. The underwriters have advised us that they intend to make a market in the notes as permitted by applicable laws and regulations; however, the underwriters are not obligated to make a market in the notes, and they may discontinue their market-making activities at anytime without notice. Therefore, an active market for the notes may not develop or, if developed, such a market may not continue. In addition, subsequent to their initial issuance, the notes may trade

at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar notes, our performance and other factors.

 

We do not intend to apply for listing or quotation of the notes on any securities exchange or stock market. The liquidity of any market for the notes will depend on a number of factors, including:

 

 

Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of these securities. We cannot assure you that the market for the notes will be free from similar disruptions. Any such disruptions could have an adverse effect on holders of the notes.

 

A subsidiary guarantee could be voided if it constitutes a fraudulent transfer under U.S. bankruptcy or similar state law, which would prevent the holders of the notes from relying on that subsidiary to satisfy claims.

 

Under U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee can be voided, or claims under the guarantee may be subordinated to all other debts of that guarantors if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee or, in some states, when payments become due under the guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and:

 

 

A guarantee may also be voided, without regard to these factors, if a court finds that the guarantor entered into the guarantee with the actual 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 if the guarantor did not substantially benefit directly or indirectly from the issuance of the guarantees. If a court were to void a guarantee, you would no longer have a claim against the guarantor. Sufficient funds to repay the notes may not be available from other sources, including the remaining guarantors, if any. In addition, the court might direct you to repay any amounts that you already received from the subsidiary guarantor. The measures of insolvency for purposes of fraudulent transfer laws vary depending upon the governing law. Generally, a guarantor would be considered insolvent if:

 

 

 

Each subsidiary guarantee will contain a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer. This provision may not be effective to protect the subsidiary guarantees from being voided under fraudulent transfer law.

 

Upon a change of control, we may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing the notes, which would violate the terms of the notes.

 

Upon the occurrence of a change of control, holders of the notes will have the right to require us to purchase all or any part of the notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. We may not have sufficient financial resources available to satisfy all of obligations under the notes in the event of a change in control. Further, we are contractually restricted under the terms of our credit facility from repurchasing all of the notes tendered upon a change of control. Accordingly, we may be unable to satisfy our obligations to purchase the notes unless we are able to refinance or obtain waivers under our credit facility. Our failure to purchase the notes as required under the indenture would result in a default under the indenture and a cross-default under our credit facility, each of which could have material adverse consequences for us and the holders of the notes. In addition, the credit facility provides that a change of control is a default that permits lenders to accelerate the maturity of borrowings under it. See “Description of the notes—Change of control.”

 

Covenants in our debt agreements restrict our business in many ways.

 

The indenture governing the existing notes and our credit facility contain, and the supplemental indenture governing the notes offered hereby will contain, various covenants that limit our ability and/or our restricted subsidiaries’ ability to, among other things:

 

 

In addition, our credit facility contains restrictive covenants and requires us to maintain specified financial ratios and limits our ability to make capital expenditures. Our ability to meet those

financial ratios can be affected by events beyond our control, and we may be unable to meet those tests. A breach of any of these covenants could result in a default under our credit facility, the notes and/or the existing notes. Upon the occurrence of an event of default under our credit facility, the lenders could elect to declare all amounts outstanding under our credit facility to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under our credit facility. If the lenders under our credit facility accelerate the repayment of borrowings, we may not have sufficient assets to repay our credit facility and our other indebtedness, including the notes. See “Description of certain indebtedness.” Our borrowings under our credit facility are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.

 

The merger with Atlas America may not be completed .

 

Completion of our merger with Atlas America is subject to the approval of the Atlas Energy Resources unitholders and Atlas America stockholders. Neither we nor Atlas America has yet scheduled a special meeting of our unitholders to vote on the merger, pending SEC review of our joint proxy statement. There can be no assurance that both of these approvals will occur. If the merger does not occur some or all of the benefits we anticipate from combining the companies may not be realized.

 

Lawsuits have been filed against us, some of our officers and members of our board of directors and Atlas America challenging the merger, and any adverse judgment may prevent the merger from becoming effective or from becoming effective within the expected timeframe.

 

We, some of our officers and members of our board of directors and Atlas America are named as defendants in five purported class action lawsuits brought by our unitholders in Delaware Chancery Court challenging the proposed merger, seeking, among other things, to enjoin the defendants from consummating the merger on the agreed-upon terms. On June 15, 2009, the Chancery Court issued an order of consolidation. Plaintiffs filed a Verified Consolidated Class Action Complaint on July 1, 2009, which has superseded all prior complaints. The complaint advances claims of breach of fiduciary duty in connection with the Merger Agreement and violation of disclosure obligations in the preliminary proxy filed by Atlas America, and seeks monetary damages, injunctive relief, or both. Predicting the outcome of this lawsuit is difficult.

 

In addition, one of the conditions to the completion of the merger is that no judgment, order, injunction, decision, opinion or decree issued by a court or other governmental entity that makes the merger illegal or prohibits the consummation of the merger shall be in effect. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger. An adverse judgment for monetary damages could have a material adverse effect on the operations of the combined company after the merger.

 

The combined company may fail to realize the anticipated cost savings, growth opportunities and synergies and other benefits anticipated from the merger, which could adversely affect our ability to service our debt obligations, including the notes.

 

We and Atlas America currently operate as separate public companies. The success of the merger will depend, in part, on our ability to realize the anticipated synergies and growth opportunities

from combining the businesses, as well as the projected stand-alone cost savings and revenue growth trends identified by each company. In addition, on a combined basis, we and Atlas America expect to benefit from operational synergies resulting from the consolidation of capabilities and elimination of redundancies as well as greater efficiencies from increased scale. Management also intends to focus on revenue synergies for the combined entity. However, management must successfully combine our businesses in a manner that permits these cost savings and synergies to be realized. In addition, it must achieve the anticipated savings without adversely affecting current revenues and our investments in future growth. If it is not able to successfully achieve these objectives, the anticipated cost savings, revenue growth and synergies may not be realized fully or at all, or may take longer to realize than expected

 

The guarantee of the notes by Atlas Energy Resources, LLC does not provide significant additional assurance of payment to the noteholders.

 

Upon issuance, the notes will be guaranteed by Atlas Energy Resources, a parent company of the Issuers. However, Atlas Energy Resources is a holding company and has no operations separate from its investment in the Issuers and its other subsidiaries. Therefore, if the Issuers and their subsidiaries should be unable to meet their payment obligations with respect to the notes, it is unlikely that Atlas Energy Resources would be able to do so either.

 

Risks related to our business

 

If commodity prices decline significantly, our cash flow from operations will decline.

 

Our revenue, profitability and cash flow substantially depend upon the prices and demand for natural gas and oil. The natural gas and oil markets are very volatile and a drop in prices can significantly affect our financial results and impede our growth. Changes in natural gas and oil prices will have a significant impact on the value of our reserves and on our cash flow. Prices for natural gas and oil may fluctuate widely in response to relatively minor changes in the supply of and demand for natural gas or oil, market uncertainty and a variety of additional factors that are beyond our control, such as:

 

 

In the past, the prices of natural gas and oil have been extremely volatile, and we expect this volatility to continue. For example, during the year ended December 31, 2008, the NYMEX Henry Hub natural gas index price ranged from a high of $13.11 per MMBtu to a low of $6.47 per MMBtu, and West Texas Intermediate oil prices ranged from a high of $134.02 per Bbl to a low of $42.04 per Bbl.

 

Recent instability in the financial markets has increased the cost of capital while the availability of funds from those markets has diminished significantly, which may affect our ability to raise capital and reduce the amount of cash available to fund our operations.

 

Recent instability in the financial markets has increased the cost of capital while the availability of funds from those markets has diminished significantly. This may affect our ability to raise capital and reduce the amount of cash available to fund our operations. We rely on our cash flow from operations and our credit facility to execute our growth strategy and to meet our financial commitments and other short-term liquidity needs. We cannot be certain that additional capital will be available to the extent required and on acceptable terms.

 

A decrease in natural gas prices could subject our oil and gas properties to a non-cash impairment loss under generally accepted accounting principles.

 

Generally accepted accounting principles require oil and gas properties and other long-lived assets to be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Long-lived assets are reviewed for potential impairments at the lowest levels for which there are identifiable cash flows that are largely independent of other groups of assets. We test our oil and gas properties on a field-by-field basis, by determining if the historical cost of proved properties less the applicable accumulated depletion, depreciation and amortization and abandonment is less than the estimated expected undiscounted future cash flows. The expected future cash flows are estimated based on our own economic interests and our plans to continue to produce and develop proved reserves. Expected future cash flow from the sale of production of reserves is calculated based on estimated future prices. We estimate prices based on current contracts in place at the impairment testing date, adjusted for basis differentials and market related information, including published futures prices. The estimated future level of production is based on assumptions surrounding future levels of prices and costs, field decline rates, market demand and supply, and the economic and regulatory climates. Accordingly, further declines in the price of natural gas may cause the carrying value of our oil and gas properties to exceed the expected future cash flows, and a non-cash impairment loss would be required to be recognized in the financial statements for the difference between the estimated fair market value, (as determined by discounted future cash flows) and the carrying value of the assets.

 

Unless we replace our reserves, our reserves and production will decline, which would reduce our cash flow from operations and impair our ability to make payments on our debt.

 

Producing natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Based on our December 31, 2008 reserve reports, our average annual decline rate for proved developed producing reserves is approximately 7.8% during the first five years, approximately 5.3% in the next five years and less than 5.5% thereafter. Because our total estimated proved reserves include proved undeveloped reserves at December 31, 2008, production will decline at this rate even if those proved undeveloped reserves are developed and the wells produce as expected. This rate of decline will change if production from our existing wells declines in a different manner than we have estimated and can change when we drill additional wells, make acquisitions and under other circumstances. Thus, our future

natural gas reserves and production and, therefore, our cash flow and income are highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves. Our ability to find and acquire additional recoverable reserves to replace current and future production at acceptable costs depends on our generating sufficient cash flow from operations and other sources of capital, including our investment partnerships, all of which are subject to the risks discussed elsewhere in this section.

 

Our estimated reserves are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

 

Underground accumulations of natural gas and oil cannot be measured in an exact way. Natural gas and oil reserve engineering requires subjective estimates of underground accumulations of natural gas and oil and assumptions concerning future natural gas prices, production levels, and operating and development costs. As a result, estimated quantities of proved reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. Our independent petroleum engineers prepare estimates of our proved reserves. Over time, our internal engineers may make material changes to reserve estimates, taking into account the results of actual drilling and production. Some of our reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a long-term production history. Also, we make certain assumptions regarding future natural gas prices, production levels, and operating and development costs that may prove incorrect. Any significant variance from these assumptions by actual figures could greatly affect our estimates of reserves, the economically recoverable quantities of natural gas and oil attributable to any particular group of properties, the classifications of reserves based on risk of recovery and estimates of the future net cash flows. For example, if natural gas prices decline by $1.00 per Mcf, then the standardized measure value of our proved reserves as of December 31, 2008 would decrease from $1.128 billion to approximately $800.0 million. Our standardized measure is calculated using natural gas prices that include our physical hedges but not our financial hedges. Numerous changes over time to the assumptions on which our reserve estimates are based, as described above, often result in the actual quantities of natural gas and oil we ultimately recover being different from our reserve estimates. The present value of future net cash flows from our proved reserves is not necessarily the same as the current market value of our estimated natural gas reserves. We base the estimated discounted future net cash flows from our proved reserves on prices and costs in effect on the day of estimate. However, actual future net cash flows from our natural gas properties also will be affected by factors such as:

 

 

The timing of both our production and our incurrence of expenses in connection with the development and production of natural gas properties will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the natural gas and oil industry in general. Any significant variance in our assumptions could materially affect the quantity and value of reserves, the amount of

standardized measure described in this report, and our financial condition and results of operations. In addition, our reserves or standardized measure may be revised downward or upward based upon production history, results of future exploitation and development activities, prevailing natural gas and oil prices and other factors. A material decline in prices paid for our production can reduce the estimated volumes of our reserves because the economic life of our wells could end sooner. Similarly, a decline in market prices for natural gas or oil may reduce our standardized measure.

 

We will be required to make substantial capital expenditures to increase our asset base. If we are unable to obtain needed capital or financing on satisfactory terms, our ability to make payments on the notes may be diminished.

 

The natural gas and oil industry is capital intensive. We intend to finance our future capital expenditures with capital raised through equity and debt offerings, our investment partnerships, cash flow from operations and bank borrowings. If we are unable to obtain sufficient capital funds on satisfactory terms, we may be unable to increase or maintain our inventory of properties and reserve base, or be forced to curtail drilling or other activities. This would result in a decline in our revenues and our ability to service the notes may be diminished. If we do not make sufficient or effective expansion capital expenditures, including with funds from third-party sources, we will be unable to expand our business operations.

 

The scope and costs of the risks involved in making acquisitions may prove greater than estimated at the time of the acquisition.

 

Any acquisition involves potential risks, including, among other things:

 

 

The scope and cost of these risks may ultimately be materially greater than estimated at the time of the acquisition. Further, our future acquisition costs may be higher than those we have achieved historically. Any of these factors could adversely affect our future growth and our ability to increase distributions.

 

We may be unsuccessful in integrating the operations from any future acquisitions with our operations and in realizing all of the anticipated benefits of these acquisitions.

 

We have an active, on-going program to identify other potential acquisitions. The integration of previously independent operations with ours can be a complex, costly and time-consuming process. The difficulties of combining these systems, as well as any operations we may acquire in the future, with us include, among other things:

 

 

 

If we have a future acquisition, there can be no assurance that any benefits or that the acquisition will not result in the deterioration or loss of our business. Costs incurred and liabilities assumed in connection with an acquisition and increased capital expenditures and overhead costs incurred to expand our operations could harm our business or future prospects, and result in significant decreases in our gross margin and cash flows.

 

The DTE Gas & Oil acquisition has substantially changed our business, making it difficult to evaluate our business based upon our historical financial information.

 

The DTE Gas & Oil acquisition in June 2007 has significantly increased our size, redefined our business plan, increased our reserve life, expanded our geographic market and resulted in large increases to our revenues and expenses. As a result of this acquisition, and our continued plan to acquire and integrate additional companies that we believe present attractive opportunities, our financial results for any period or changes in our results across periods may continue to dramatically change. Our historical financial results, therefore, should not be relied upon to accurately predict our future operating results, thereby making the evaluation of our business more difficult.

 

We have limited experience in drilling wells to the Marcellus Shale, less information regarding reserves and decline rates in the Marcellus Shale than in other areas of our Appalachian operations and wells drilled to the Marcellus Shale will be deeper, more expensive and more susceptible to mechanical problems in drilling and completing than wells in the other areas.

 

We have limited experience in drilling development wells to the Marcellus Shale. As of March 31, 2009, we have drilled 142 gross wells to the Marcellus Shale, of which 126 gross wells have been turned on-line but these wells have been producing for only a short period of time. Other operators in the Appalachian Basin also have limited experience in drilling wells to the Marcellus Shale. Thus, we have much less information with respect to the ultimate recoverable reserves and the production decline rate in the Marcellus Shale than we have in our other areas of operation. In addition, the wells to be drilled in the Marcellus Shale will be drilled deeper than in our other primary areas, which makes the Marcellus Shale wells more expensive to drill and complete. The wells will also be more susceptible to mechanical problems associated with the drilling and completion of the wells, such as casing collapse and lost equipment in the wellbore. In addition, the fracturing of the Marcellus Shale will be more extensive and complicated than fracturing the geological formations in our other areas of operation and requires greater volumes of water than conventional gas wells. The management of water and the treatment of produced water from Marcellus Shale wells may be more costly than the management of produced water from other geologic formations.

Changes in tax laws may impair our ability to obtain capital funds through investment partnerships.

 

Under current federal tax laws, there are tax benefits to investing in investment partnerships such as those we sponsor, including deductions for intangible drilling costs and depletion deductions. Changes to federal tax law that reduce or eliminate these benefits may make investment in our investment partnerships less attractive and, thus, reduce our ability to obtain funding from this significant source of capital funds.

 

Recently proposed severance taxes in Pennsylvania could materially increase our liabilities.

 

In 2008, our liabilities for severance taxes in the states in which we operate, other than Pennsylvania, were approximately $12.2 million. While Pennsylvania has historically not imposed a severance tax, with a focus on its budget deficit and the increasing exploitation of the Marcellus Shale, Pennsylvania’s governor recently proposed a tax of 5% of the value of natural gas at the wellhead plus $0.047 per Mcf beginning October 1, 2009. If adopted, these taxes may materially increase our operating costs in Pennsylvania.

 

We may not be able to continue to raise funds through our investment partnerships at the levels we have recently experienced, which may in turn restrict our ability to maintain our drilling activity at the levels recently experienced.

 

We have sponsored limited and general partnerships to raise funds from investors to finance our development drilling activities in Appalachia. During the fourth quarter of 2008, we began development drilling activities for us and our partnership investors in Indiana. Accordingly, the amount of development activities we undertake depends in large part upon our ability to obtain investor subscriptions to invest in these partnerships. During the past three years we have raised successively larger amounts of funds through these investment partnerships, raising $218.5 million, $363.3 million and $438.4 million, in calendar 2006, 2007 and 2008, respectively. In the future, we may not be successful in raising funds through these investment partnerships at the same levels we have recently experienced, and we also may not be successful in increasing the amount of funds we raise as we have done in recent years. Our ability to raise funds through our investment partnerships depends in large part upon the perception of investors of their potential return on their investment and their tax benefits from investing in them, which perception is influenced significantly by our historical track record of generating returns and tax benefits to the investors in our existing partnerships.

 

In the event that our investment partnerships do not achieve satisfactory returns on investment or the anticipated tax benefits, we may have difficulty in continuing to increase the amount of funds we raise through these partnerships or in maintaining the level of funds we have recently raised through these partnerships. In this event, we may need to obtain financing for our drilling activities on a less attractive basis than the financing we realize through these partnerships or we may determine to reduce our drilling activity.

 

Our fee-based revenues may decline if we are unsuccessful in continuing to sponsor investment partnerships, and our fee-based revenue may not increase at the same rate as recently experienced if we are unable to raise funds at the same or higher levels as we have recently experienced.

 

Our fee-based revenues are based on the number of investment partnerships we sponsor and the number of partnerships and wells we manage or operate. If we are unsuccessful in

sponsoring future investment partnerships, our fee-based revenues may decline. Additionally, our fee-based revenue may not increase at the same rate as recently experienced if we are unable to raise funds at the same or higher levels as we have recently experienced.

 

Our revenues may decrease if investors in our investment partnerships do not receive a minimum return.

 

We have agreed to subordinate up to 50% of our share of production revenues to specified returns to the investor partners in our investment partnerships, typically 10% per year for the first five years of distributions. Thus, our revenues from a particular partnership will decrease if it does not achieve the specified minimum return and our ability to make distributions to unit holders may be impaired. For the three months ended March 31, 2009, we subordinated net revenues of $172,400. There were no subordinated net revenues for the years ended December 31, 2008, 2007, or 2006. We subordinated net revenues of $91,000 and $335,000 in fiscal year ended September 30, 2005 and 2004, respectively.

 

Competition in the natural gas and oil industry is intense, which may hinder our ability to acquire gas and oil properties and companies and to obtain capital, contract for drilling equipment and secure trained personnel.

 

We operate in a highly competitive environment for acquiring properties and other natural gas and oil companies, attracting capital through our investment partnerships, contracting for drilling equipment and securing trained personnel. We will also compete with the exploration and production divisions of public utility companies for natural gas and oil property acquisitions. Our competitors may be able to pay more for natural gas and oil properties and drilling equipment and to evaluate, bid for and purchase a greater number of properties than our financial or personnel resources permit. Moreover, our competitors for investment capital may have better track records in their programs, lower costs or better connections in the securities industry segment that markets oil and gas investment programs than we do. All of these challenges could make it more difficult for us to execute our growth strategy. We may not be able to compete successfully in the future in acquiring leasehold acreage or prospective reserves or in raising additional capital.

 

Furthermore, competition arises not only from numerous domestic and foreign sources of natural gas and oil but also from other industries that supply alternative sources of energy. Competition is intense for the acquisition of leases considered favorable for the development of natural gas and oil in commercial quantities. Product availability and price are the principal means of competition in selling natural gas and oil. Many of our competitors possess greater financial and other resources than ours, which may enable them to identify and acquire desirable properties and market their natural gas and oil production more effectively than we do.

 

We depend on certain key customers for sales of our natural gas. To the extent these customers reduce the volumes of natural gas they purchase from us, our revenues and cash available for distribution could decline.

 

In Appalachia, our natural gas is sold under contracts with various purchasers. Under a natural gas supply agreement with Hess Corporation, Hess has a last right of refusal to buy all of the natural gas produced and delivered by our affiliates and us, including our investment partnerships. During calendar year 2008, natural gas sales to Hess accounted for approximately 10% of our total Appalachian oil and gas revenues. In Michigan, during calendar year 2008, gas under

contracts to a former affiliate of Atlas Gas & Oil, which expire at various dates through 2012, accounted for approximately 49% of our total Michigan oil and gas revenues. To the extent these and other key customers reduce the amount of natural gas they purchase from us, our revenues and cash available servicing the notes could temporarily decline in the event we are unable to sell to additional purchasers.

 

Our Appalachia business depends on the gathering and transportation facilities of Laurel Mountain. Any limitation in the availability of those facilities would interfere with our ability to market the natural gas we produce and could reduce our revenues and cash available for distribution.

 

Laurel Mountain gathers more than 90% of our current Appalachia production and approximately 50% of our total production. The marketability of our natural gas production depends in part on the availability, proximity and capacity of gathering and pipeline systems owned by Atlas Pipeline and other third parties. The amount of natural gas that can be produced and sold is subject to curtailment in circumstances such as pipeline interruptions due to scheduled and unscheduled maintenance or excessive pressure or physical damage to the gathering or transportation system. The curtailments arising from these and similar circumstances may last from a few days to several months.

 

Shortages of drilling rigs, equipment and crews could delay our operations.

 

Higher natural gas and oil prices generally increase the demand for drilling rigs, equipment and crews and can lead to shortages of, and increasing costs for, drilling equipment, services and personnel. Over the past three years, we and other natural gas and oil companies have experienced higher drilling and operating costs. Shortages of, or increasing costs for, experienced drilling crews and oil field equipment and services could restrict our ability to drill the wells and conduct the operations which we currently have planned. Any delay in the drilling of new wells or significant increase in drilling costs could reduce our revenues.

 

Because we handle natural gas and oil, we may incur significant costs and liabilities in the future resulting from a failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment.

 

The operations of our wells and other facilities are subject to stringent and complex federal, state and local environmental laws and regulations. These include, for example:

 

 

Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. Certain environmental statutes, including the RCRA, CERCLA, the federal Oil Pollution Act and analogous state laws and regulations, impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed of or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the environment.

 

There is an inherent risk that we may incur environmental costs and liabilities due to the nature of our business and the substances we handle. For example, an accidental release from one of our wells could subject us to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies may be enacted or adopted and could significantly increase our compliance costs and the cost of any remediation that may become necessary. We may not be able to recover remediation costs under our insurance policies.

 

Many of our leases are in areas that have been partially depleted or drained by offset wells.

 

Our key project areas are located in active drilling areas in the Appalachian Basin. As a result, many of our leases are in areas that have already been partially depleted or drained by earlier offset drilling. This may inhibit our ability to find economically recoverable quantities of natural gas in these areas.

 

Our identified drilling location inventories are susceptible to uncertainties that could materially alter the occurrence or timing of our drilling activities, which may result in lower cash from operations.

 

Our management has specifically identified and scheduled drilling locations as an estimation of our future multi-year drilling activities on our existing acreage. As of December 31, 2008, we had identified over 3,626 potential shallow drilling locations in Appalachia. These identified drilling locations represent a significant part of our growth strategy. Our ability to drill and develop these locations depends on a number of factors, including the availability of capital, seasonal conditions, regulatory approvals, natural gas prices, costs and drilling results. Of the 3,626 potential shallow drilling locations, our independent petroleum engineering consultants have assigned reserves to 358 proved undeveloped locations. Of the remaining drilling locations we have identified, there may exist greater uncertainty with respect to the success of drilling wells at these drilling locations. Our final determination on whether to drill any of these drilling locations will be dependent upon the factors described above as well as, to some degree, the results of our drilling activities with respect to our proved drilling locations. Because of these uncertainties, we do not know if the numerous drilling locations we have identified will be drilled within our expected timeframe or will ever be drilled or if we will be able to produce natural gas and oil from these or any other potential drilling locations. As such, our actual drilling activities may materially differ from our anticipated drilling activities.

 

Some of our undeveloped leasehold acreage is subject to leases that may expire in the near future.

 

Leases covering approximately 85,140 of our 422,900 shallow net acres, or 20%, are scheduled to expire on or before December 31, 2009. An additional 40% of our shallow net acres are scheduled to expire in the years 2010 and 2011. If we are unable to renew these leases or any leases scheduled for expiration beyond December 31, 2009, on favorable terms, we will lose the right to develop the acreage that is covered by an expired lease and our production would decline, which would reduce our cash flows from operations and could impair our ability to make future distribution payments on our debt. We do not expect that we will have significant difficulty in renewing or replacing these leases or similar leasehold acreage.

 

Drilling for and producing natural gas are high-risk activities with many uncertainties.

 

Our drilling activities are subject to many risks, including the risk that we will not discover commercially productive reservoirs. Drilling for natural gas can be uneconomic, not only from dry holes, but also from productive wells that do not produce sufficient revenues to be commercially viable. In addition, our drilling and producing operations may be curtailed, delayed or canceled as a result of other factors, including:

 

 

Any one or more of the factors discussed above could reduce or delay our receipt of drilling and production revenues, thereby reducing our earnings, and could reduce revenues in one or more of our investment partnerships, which may make it more difficult to finance our drilling operations through sponsorship of future partnerships. In addition, any of these events can cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution, environmental contamination, loss of wells and regulatory penalties.

 

Although we will maintain insurance against various losses and liabilities arising from our operations, insurance against all operational risks is not available to us. Additionally, we may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks presented. Losses could, therefore, occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could reduce our results of operations.

Properties that we buy may not produce as projected and we may be unable to determine reserve potential, identify liabilities associated with the properties or obtain protection from sellers against such liabilities.

 

One of our growth strategies is to capitalize on opportunistic acquisitions of natural gas reserves. However, our reviews of acquired properties are inherently incomplete because it generally is not feasible to review in depth every individual property involved in each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well we acquire. Potential problems, such as deficiencies in the mechanical integrity of equipment or environmental conditions that may require significant remedial expenditures, are not necessarily observable even when we inspect a well. Any unidentified problems could result in material liabilities and costs that negatively affect our financial condition and results of operations.

 

Even if we are able to identify problems with an acquisition, the seller may be unwilling or unable to provide effective contractual protection or indemnity against all or part of these problems. Even if a seller agrees to provide indemnity, the indemnity may not be fully enforceable and may be limited by floors and caps on such indemnity.

 

Hedging transactions may limit our potential gains or cause us to lose money.

 

Pricing for natural gas and oil has been volatile and unpredictable for many years. To limit exposure to changing natural gas and oil prices, we use financial and physical hedges for our natural gas, and to a lesser extent, our oil production. Physical hedges are not deemed hedges for accounting purposes because they require firm delivery of natural gas and are considered normal sales of natural gas. We generally limit these arrangements to smaller quantities than those projected to be available at any delivery point. In addition, we may enter into financial hedges, which may include purchases of regulated NYMEX futures and options contracts and non-regulated over-the-counter futures contracts with qualified counterparties. The futures contracts are commitments to purchase or sell natural gas at future dates and generally cover one-month periods for up to six years in the future. By removing the price volatility from a significant portion of our natural gas production, and to a lesser extent, our oil production, we have reduced, but not eliminated, the potential effects of changing natural gas and oil prices on our cash flow from operations for those periods. Furthermore, while intended to help reduce the effects of volatile natural gas and oil prices, such transactions, depending on the hedging instrument used, may limit our potential gains if natural gas and oil prices were to rise substantially over the price established by the hedge. Under circumstances in which, among other things, production is substantially less than expected, the counterparties to our futures contracts fail to perform under the contracts or a sudden, unexpected event materially impacts natural gas or oil prices, we may be exposed to the risk of financial loss.

 

Due to the accounting treatment of our derivative contracts, increases in prices for natural gas and crude oil could result in non-cash balance sheet reductions .

 

With the objective of enhancing the predictability of future revenues, from time to time we enter into natural gas and crude oil derivative contracts. We elected to designate these derivative contracts as cash flow hedges under the provisions of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”. Due to the mark-to-market accounting treatment for these contracts, we could recognize incremental hedge liabilities between reporting periods resulting from increases in reference prices for natural gas and crude oil, which could result in our recognizing a non-cash loss in our

accumulated other comprehensive income (loss) and a consequently non-cash decrease in our members’ equity between reporting periods. Any such decrease could be substantial.

 

We may be exposed to financial and other liabilities as the managing general partner in investment partnerships.

 

We serve as the managing general partner of 95 investment partnerships and will be the managing general partner of new investment partnerships that we sponsor. As a general partner, we are contingently liable for the obligations of these partnerships to the extent that partnership assets or insurance proceeds are insufficient. We have agreed to indemnify each investor partner in our investment partnerships from any liability that exceeds such partner’s share of the investment partnership’s assets.

 

We are subject to comprehensive federal, state, local and other laws and regulations that could increase the cost and alter the manner or feasibility of our doing business.

 

 

Our operations are regulated extensively at the federal, state and local levels. Environmental and other governmental laws and regulations have increased the costs to plan, design, drill, install, operate and abandon natural gas and oil wells. Under these laws and regulations, we could also be liable for personal injuries, property damage and other damages. Failure to comply with these laws and regulations may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, public interest in environmental protection has increased in recent years, and environmental organizations have opposed, with some success, certain drilling projects.

 

 

Part of the regulatory environment in which we operate includes, in some cases, legal requirements for obtaining environmental assessments, environmental impact studies and/or plans of development before commencing drilling and production activities. In addition, our activities are subject to the regulations regarding conservation practices and protection of correlative rights. These regulations affect our operations and limit the quantity of natural gas we may produce and sell. A major risk inherent in our drilling plans is the need to obtain drilling permits from state and local authorities. Delays in obtaining regulatory approvals or drilling permits, the failure to obtain a drilling permit for a well or the receipt of a permit with unreasonable conditions or costs could inhibit our ability to develop our properties. Additionally, the natural gas and oil regulatory environment could change in ways that might substantially increase the financial and managerial costs of compliance with these laws and regulations and, consequently, reduce our profitability. Furthermore, we may be put at a competitive disadvantage to larger companies in our industry who can spread these additional costs over a greater number of wells and larger operating staff.

 

We expect to receive net proceeds of approximately $190.9 million from this offering (excluding accrued interest), after the underwriters’ discounts and estimated offering expenses payable by us. We intend to use all of the net proceeds from this offering to repay a portion of the indebtedness and accrued interest outstanding under our revolving credit facility. We may reborrow under this credit facility subject to our borrowing base. As of March 31, 2009, our credit facility had outstanding borrowings of approximately $538.0 million at a weighted average interest rate of 2.5% and matures in June 2012.

 

The following table sets forth our consolidated capitalization as of March 31, 2009 on a historical basis and on an as adjusted basis to give effect to this notes offering and application of the net proceeds therefrom.

 

This table should be read in conjunction with “Use of proceeds” included elsewhere in this prospectus supplement, and “Management’s discussion and analysis of financial condition and results of operations” and our audited and consolidated financial statements and related notes included or incorporated by reference in this prospectus.

 

 

 

Our revolving credit facility

 

We have a credit facility with a syndicate of banks with a borrowing base of $650.0 million that matures in June 2012 ($538.0 million outstanding at March 31, 2009). The borrowing base is redetermined semiannually on April 1 and October 1 subject to changes in our oil and gas reserves. Upon completion of this offering, after giving effect to the offering, the borrowing base will reduce by 25% of the aggregate stated amount of notes offered hereby to $600.0 million. At March 31, 2009, on an as adjusted basis after giving effect to this offering and the application of net proceeds from this offering, our remaining borrowing availability would have been approximately $251.8 million, subject to compliance with the financial covenants. The facility is secured by substantially all of our assets and is guaranteed by each of our subsidiaries and bears interest at either the base rate plus the applicable margin or at adjusted LIBOR plus the applicable margin, elected at our option. At March 31, 2009, the weighted average interest rate on outstanding borrowings was 2.5%. The credit facility requires us to maintain a ratio of current assets (as defined in the credit facility) to current liabilities (as defined in the credit facility) of not less than 1.0 to 1.0, and a ratio of total debt (as defined in the credit facility) to earnings before interest, taxes, depreciation, depletion and amortization of not more than 3.75 to 1.0, decreasing to 3.5 to 1.0 commencing January 1, 2010 and thereafter. According to the definitions contained in our credit facility, our ratio of current assets to current liabilities was 1.2 to 1.0 and our ratio of total debt to EBITDA was 3.2 to 1.0, at March 31, 2009.

 

Our credit facility will be amended effective upon the consummation of the merger. The material terms of the amendment are:

 

 

If an event of default exists under the credit facility, the lenders will be able to accelerate the maturity of the credit facility and exercise other customary rights and remedies. Each of the following is an event of default:

 

 

 

 

 

Our existing notes

 

In January 2008, we completed a private placement of $250.0 million of our 10.75% senior unsecured notes due 2018 to institutional buyers pursuant to rule 144A under the Securities Act of 1933. In May 2008, we issued an additional $150.0 million of 10.75% senior notes at a price of 104.75%. Both issues of senior unsecured notes were subsequently registered for resale on September 19, 2008. We received proceeds of approximately $398.0 million from these offerings, including a $7.1 million premium and net of $9.2 million in underwriting fees. In addition, we received approximately $4.7 million related to accrued interest. We used the net proceeds to reduce the balance outstanding on our revolving credit facility. Interest on the existing notes is payable semi-annually in arrears on February 1 and August 1 of each year. The existing notes are redeemable at any time at specified redemption prices, together with accrued and unpaid interest to the date of redemption. In addition, before February 1, 2011, we may redeem up to 35% of the aggregate principal amount of the existing notes with the proceeds of equity offerings at a stated redemption price. The existing notes are also subject to repurchase by us at a price equal to 101% of their principal amount, plus accrued and unpaid interest, upon a change of control or upon certain asset sales if we do not reinvest the net proceeds within 360 days. The existing notes are effectively subordinated to our secured debt, including our obligations under our credit facility to the extent of the assets secured thereby. The indenture governing the notes contains covenants, including limitations of our ability to: incur certain liens; engage in sale/leaseback transactions; incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all of our assets. We are in compliance with these covenants as of the date of this prospectus supplement.

 

You will find the definitions of capitalized terms used in this description of notes under the heading “Certain definitions.” For purposes of this description, references to Holdings refers only to Atlas Energy Resources, LLC and not any of its subsidiaries, “the Company,” “we,” “our” and “us” refer only to Atlas Energy Operating Company, LLC and not to any of its subsidiaries and “the Issuers” refers to the Company and Atlas Energy Finance Corp. and not to any of their respective subsidiaries.

 

The Issuers will issue the Notes under an Indenture dated as of July 16, 2009 (as supplemented by the Supplemental Indenture thereto to be dated the Issue Date (as so supplemented the “Indenture”)) among the Issuers, the Guarantors and U.S. Bank, National Association, as trustee (the “Trustee”). The terms of the Notes include those expressly set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). The Indenture is unlimited in aggregate principal amount, although the issuance of Notes in this offering will be limited to $200.0 million. We may issue an unlimited principal amount of additional notes having identical terms and conditions as the Notes (the “Additional Notes”). We will only be permitted to issue such Additional Notes in compliance with the covenant described under the subheading “—Certain covenants—Limitation on Indebtedness and Preferred Stock.” Any Additional Notes will be part of the same issue as the Notes that we are currently offering and will vote on all matters with the holders of the Notes. Unless the context otherwise requires, for all purposes of the Indenture and this description of notes, references to the Notes include any Additional Notes actually issued.

 

This description of notes is intended to be a useful overview of the material provisions of the Notes and the Indenture. Since this description of notes is only a summary, you should refer to the Indenture for a complete description of the obligations of the Issuers and your rights.

 

General

 

The Notes. The Notes:

 

 

 

Interest. Interest on the Notes will compound semi-annually and will:

 

 

If an interest payment date falls on a day that is not a Business Day, the interest payment to be made on such interest payment date will be made on the next succeeding Business Day with the same force and effect as if made on such interest payment date, and no additional interest will accrue as a result of such delayed payment.

 

Payments on the notes; paying agent and registrar

 

We will pay principal of, premium, if any, and interest on the Notes at the office or agency designated by the Issuers in the City and State of New York, except that we may, at our option, pay interest on the Notes by check mailed to holders of the Notes at their registered addresses as they appear in the registrar’s books. We have initially designated the corporate trust office of the Trustee in New York, New York to act as our paying agent and registrar. We may, however, change the paying agent or registrar without prior notice to the holders of the Notes, and either of the Issuers or any of their respective Restricted Subsidiaries may act as paying agent or registrar.

 

We will pay principal of, premium, if any, and interest on, Notes in global form registered in the name of or held by The Depository Trust Company or its nominee in immediately available funds to The Depository Trust Company or its nominee, as the case may be, as the registered holder of such global Note.

 

Transfer and exchange

 

A holder may transfer or exchange Notes in accordance with the Indenture. The registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of Notes. No service charge will be imposed by the Issuers, the Trustee or the registrar for any registration of transfer or exchange of Notes, but the Issuers may require a holder to pay a sum sufficient to cover any transfer tax or other governmental taxes and fees required by law or permitted by the Indenture. The Issuers are not required to transfer or exchange any Note selected for redemption. Also, the Issuers are not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed.

 

The registered holder of a Note will be treated as the owner of it for all purposes.

Optional redemption

 

On and after August 1, 2013, we may redeem all or, from time to time, a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount of the Notes) plus accrued and unpaid interest on the Notes, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on August 1 of the years indicated below:

 

 

Prior to August 1, 2012 we may, at our option, on any one or more occasions redeem up to 35% of the aggregate principal amount of the Notes (including Additional Notes) issued under the Indenture with the Net Cash Proceeds of one or more Equity Offerings at a redemption price of 112.125% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided that

 

(1) at least 65% of the original principal amount of the Notes issued on the Issue Date remains outstanding after each such redemption; and

 

(2) the redemption occurs within 90 days after the closing of the related Equity Offering.

 

In addition, the Notes may be redeemed, in whole or in part, at any time prior to August 1, 2013 at the option of the Issuers upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder of Notes at its registered address, 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 to, the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

 

“Applicable Premium” means, with respect to any Note on any applicable redemption date, the greater of:

 

(1) 1.0% of the principal amount of such Note; and

 

(2) the excess, if any, of:

 

(a) the present value at such redemption date of (i) the redemption price of such Note at August 1, 2013 (such redemption price being set forth in the table appearing above under the caption “Optional redemption”) plus (ii) all required interest payments (excluding accrued and unpaid interest to such redemption date) due on such Note through August 1, 2013, computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over

 

(b) the principal amount of such Note.

 

“Treasury Rate” means, as of any redemption date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become

publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to August 1, 2013; provided , however , that if the period from the redemption date to August 1, 2013 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 August 1, 2013 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.

 

Selection and notice

 

If the Issuers are redeeming less than all of the outstanding Notes, the Trustee will select the Notes for redemption in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed, then on a pro rata basis, by lot or in accordance with the procedures of DTC, although no Note of $2,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note will state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the partially redeemed Note. On and after the redemption date, interest will cease to accrue on Notes or the portion of them called for redemption unless we default in the payment thereof.

 

Mandatory redemption; offers to purchase; open market purchases

 

We are not required to make mandatory redemption payments or sinking fund payments with respect to the Notes. However, under certain circumstances, we may be required to offer to purchase Notes as described under the captions “—Change of control” and “—Certain covenants—Limitation on sales of assets and Subsidiary stock.”

 

We may acquire Notes by means other than a redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisition does not otherwise violate the terms of the Indenture. However, other existing or future agreements of Holdings or its Subsidiaries may limit the ability of Holdings, the Issuers or their respective Subsidiaries to purchase Notes prior to maturity.

 

Ranking

 

The Notes will be general unsecured obligations of the Issuers that rank senior in right of payment to all existing and future Indebtedness that is expressly subordinated in right of payment to the Notes. The Notes will rank equally in right of payment with all existing and future liabilities of each of the Issuers that are not so subordinated, including the Existing Notes, and will be effectively subordinated to all of our secured Indebtedness, including Indebtedness Incurred under the Senior Secured Credit Agreement (to the extent of the value of the collateral securing such Indebtedness) and liabilities of any of our Subsidiaries that do not guarantee the Notes. In the event of bankruptcy, liquidation, reorganization or other winding up of the Issuers or the Guarantors or upon a default in payment with respect to, or the acceleration of, any Indebtedness under the Senior Secured Credit Agreement or other secured Indebtedness, the assets of the Issuers and the Guarantors that secure secured Indebtedness will be available to pay obligations on the Notes and the Guarantees only after all Indebtedness under such Credit

Facility and other secured Indebtedness has been repaid in full from such assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the Notes and the Guarantees then outstanding.

 

As of March 31, 2009, on an as adjusted basis after giving effect to this offering and the application of net proceeds from this offering as more fully described in “Use of proceeds”:

 

 

Guarantees

 

The Guarantors, as primary obligors and not merely as sureties, will, jointly and severally, fully and unconditionally guarantee on a senior unsecured basis our obligations under the Notes and all obligations under the Indenture. The obligations of Guarantors under the Guarantees will rank equally in right of payment with other Indebtedness of such Guarantor, except to the extent such other Indebtedness is expressly subordinate to the obligations arising under the Guarantee.

 

As of March 31, 2009, on an as adjusted basis and after giving effect to this offering, the application of net proceeds from this offering and as more fully described under “Use of proceeds,” outstanding Indebtedness of the Guarantors would have been $947.1 million, of which $347.1 million would have been secured.

 

Although the Indenture will limit the amount of Indebtedness that Restricted Subsidiaries may Incur, such Indebtedness may be substantial and such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the Incurrence by such Subsidiaries of liabilities that are not considered Indebtedness under the Indenture. See “—Certain covenants—Limitation on Indebtedness and Preferred Stock.”

 

The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law, although no assurance can be given that a court would give the holder the benefit of such provision. See “Risk factors—Risks relating to the notes —A subsidiary guarantee could be voided if it constitutes a fraudulent transfer under U.S. bankruptcy or similar state law, which would prevent the holders of the notes from relying on that subsidiary to satisfy claims.” If a Subsidiary Guarantee were rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor’s liability on its Subsidiary Guarantee could be reduced to zero. If the obligations of a Subsidiary Guarantor under its Subsidiary Guarantee were avoided, holders of Notes would have to look to the assets of any remaining Subsidiary Guarantors for payment. There can be no assurance in that event that such assets would suffice to pay the outstanding principal and interest on the Notes.

 

In the event a Subsidiary Guarantor is sold or disposed of (whether by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all of its assets (other than by

lease)) and whether or not the Subsidiary Guarantor is the surviving corporation in such transaction to a Person which is not Holdings or a Restricted Subsidiary, such Subsidiary Guarantor will be released from its obligations under its Subsidiary Guarantee if the sale or other disposition does not violate the covenants described under “Certain covenants—Limitation on sales of assets and Subsidiary stock.”

 

In addition, a Subsidiary Guarantor will be released from its obligations under the Indenture, its Subsidiary Guarantee upon the release or discharge of the Guarantee that resulted in the creation of such Subsidiary Guarantee pursuant to the covenant described under “—Future subsidiary guarantors,” except a release or discharge by or as a result of payment under such Guarantee if the Issuers designate such Subsidiary as an Unrestricted Subsidiary and such designation complies with the other applicable provisions of the Indenture or in connection with any legal defeasance or satisfaction and discharge of the Notes as provided below under the captions “Defeasance” and “Satisfaction and discharge.”

 

Change of Control

 

If a Change of Control occurs, unless the Issuers have previously or concurrently exercised their right to redeem all of the Notes as described under “Optional redemption,” each holder will have the right to require the Issuers to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess of $2,000) of such holder’s Notes at a purchase price in cash equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

 

Within 30 days following any Change of Control, unless we have previously or concurrently exercised our right to redeem all of the Notes as described under “Optional redemption,” we will mail a notice (the “Change of Control Offer”) to each holder, with a copy to the Trustee, stating:

 

(1) that a Change of Control has occurred and that such holder has the right to require us to purchase such holder’s Notes at a purchase price in cash equal to 101% of the principal amount of such Notes plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date) (the “Change of Control Payment”);

 

(2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Change of Control Payment Date”);

 

(3) that any Note not properly tendered will remain outstanding and continue to accrue interest;

 

(4) that unless we default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Payment Date;

 

(5) that holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender such Notes, with the form entitled “Option of Holder to Elect Purchase” on the reverse of such Notes completed, to the paying agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;

 

(6) that holders will be entitled to withdraw their tendered Notes and their election to require us to purchase such Notes; provided that the paying agent receives, not later than

the close of business on the 30th day following the date of the Change of Control notice, a telegram, telex, facsimile transmission or letter setting forth the name of the holder of the Notes, the principal amount of Notes tendered for purchase, and a statement that such holder is withdrawing its tendered Notes and its election to have such Notes purchased;

 

(7) that if we are repurchasing less than all of the Notes, the holders of the remaining Notes will be issued new Notes and such new Notes will be equal in principal amount to the unpurchased portion of the Notes surrendered. The unpurchased portion of the Notes must be equal to a minimum principal amount of $2,000 and an integral multiple of $1,000 in excess of $2,000; and

 

(8) the procedures determined by us, consistent with the Indenture, that a holder must follow in order to have its Notes repurchased.

 

On the Change of Control Payment Date, the Issuers will, to the extent lawful:

 

(1) accept for payment all Notes or portions of Notes (in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess of $2,000) properly tendered pursuant to the Change of Control Offer;

 

(2) 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 not properly withdrawn; and

 

(3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuers.

 

The paying agent will promptly mail to each holder of Notes properly tendered and not properly withdrawn the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess of $2,000.

 

If the Change of Control Payment Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no further interest will be payable to holders who tender pursuant to the Change of Control Offer.

 

The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders to require that the Issuers repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

 

We will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by us and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

 

A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon the occurrence of a Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer.

We will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of the Indenture, or compliance with the Change of Control provisions of the Indenture would constitute a violation of any such laws or regulations, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations described in the Indenture by virtue of our compliance with such securities laws or regulations.

 

Our ability to repurchase Notes pursuant to a Change of Control Offer may be limited by a number of factors. The occurrence of certain of the events that constitute a Change of Control would constitute a default under the Senior Secured Credit Agreement. In addition, certain events that may constitute a change of control under the Senior Secured Credit Agreement and cause a default under that agreement will not constitute a Change of Control under the Indenture. Future Indebtedness of Holdings and its Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of their right to require the Issuers 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 Issuers. Finally, the Issuers’ ability to pay cash to the holders upon a repurchase may be limited by the Issuers’ then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases.

 

Even if sufficient funds were otherwise available, the terms of the Senior Secured Credit Agreement will, and other and/or future Indebtedness may, prohibit the Issuers’ prepayment or repurchase of Notes before their scheduled maturity. Consequently, if the Issuers are not able to prepay the Indebtedness under the Senior Secured Credit Agreement and any such other Indebtedness containing similar restrictions or obtain requisite consents, the Issuers will be unable to fulfill their repurchase obligations if holders of Notes exercise their repurchase rights following a Change of Control, resulting in a default under the Indenture. A default under the Indenture may result in a cross-default under the Senior Secured Credit Agreement.

 

The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving Holdings. The Change of Control purchase feature is a result of negotiations between the initial purchasers and us. As of the Issue Date, we have no present intention to engage in a transaction involving a Change of Control, although it is possible that we could decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional Indebtedness are contained in the covenants described under “Certain covenants—Limitation on Indebtedness and Preferred Stock” and “Certain covenants—Limitation on Liens.” Such restrictions in the Indenture can be waived only with the consent of the holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture will not contain any covenants or provisions that may afford holders of the Notes protection in the event of a highly leveraged transaction.

 

The definition of “Change of Control” includes a disposition of all or substantially all of the property and assets of Holdings and the Restricted Subsidiaries taken as a whole to any Person. Although there is a limited body of case law interpreting the phrase “substantially all,” there is

no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of “all or substantially all” of the property or assets of a Person. As a result, it may be unclear as to whether a Change of Control has occurred and whether a holder of Notes may require the Issuers to make an offer to repurchase the Notes as described above. In a recent decision, the Chancery Court of Delaware raised the possibility that a change of control as a result of a failure to have “continuing directors” compromising a majority of the Board of Directors may be unenforceable on public policy grounds.

 

The provisions under the Indenture relative to our obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified or terminated with the written consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes) prior to the occurrence of such Change of Control.

 

Certain covenants

 

Limitation on Indebtedness and Preferred Stock

 

Holdings will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness) and Holdings will not permit any of the Restricted Subsidiaries to issue Preferred Stock; provided , however , that Holdings may Incur Indebtedness and the Company and any of the Subsidiary Guarantors may Incur Indebtedness and issue Preferred Stock if on the date thereof:

 

(1) the Consolidated Coverage Ratio for Holdings and the Restricted Subsidiaries is at least 2.25 to 1.00, determined on a pro forma basis (including a pro forma application of proceeds); and

 

(2) no Default will have occurred or be continuing or would occur as a consequence of Incurring the Indebtedness or transactions relating to such Incurrence.

 

The first paragraph of this covenant will not prohibit the Incurrence of the following Indebtedness or issuance of the following Preferred Stock, as the case may be:

 

(1) Indebtedness of the Company Incurred pursuant to one or more Credit Facilities in an aggregate amount not to exceed the greater of (a) $735.0 million less the aggregate amount of all permanent principal repayments since the Original Issue Date under a Credit Facility that are made under clause 3(a) of the first paragraph of the covenant described under “Certain covenants—Limitation on sales of assets and Subsidiary stock,” or (b) 40.0% of Adjusted Consolidated Net Tangible Assets determined as of the date of the Incurrence of such Indebtedness after giving effect to the application of the proceeds therefrom, in each case outstanding at any one time;

 

(2) Guarantees by the Company or Guarantors of Indebtedness of the Company or a Guarantor, as the case may be, Incurred in accordance with the provisions of the Indenture; provided that in the event such Indebtedness that is being Guaranteed is a Subordinated Obligation or a Guarantor Subordinated Obligation, then the related Guarantee shall be subordinated in right of payment to the Notes or the Guarantee to at least the same extent as the Indebtedness being Guaranteed, as the case may be;

 

(3) Indebtedness of Holdings owing to and held by any Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by Holdings or any Restricted Subsidiary; provided , however , that (i) any subsequent issuance or transfer of Capital Stock or any

other event which results in any such Indebtedness being held by a Person other than Holdings or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person other than Holdings or a Restricted Subsidiary shall be deemed, in each case, to constitute an Incurrence of such Indebtedness by Holdings or such Restricted Subsidiary, as the case may be;

 

(4) Indebtedness represented by (a) the Notes issued on the Issue Date, (b) any Indebtedness (other than the Indebtedness described in clauses (1) and, (2)) outstanding on the Original Issue Date, including the Existing Notes issued on the Original Issue Date, and any Indebtedness incurred prior to the Issue Date under the provision of the Existing Notes Indenture similar to that in the first paragraph of this covenant and (c) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (4) or clause (5) or Incurred pursuant to the first paragraph of this covenant;

 

(5) Indebtedness of a Person that becomes a Restricted Subsidiary or is acquired by Holdings or a Restricted Subsidiary or merged into Holdings or a Restricted Subsidiary in accordance with the Indenture and outstanding on the date on which such Person became a Restricted Subsidiary or was acquired by or was merged into Holdings or such Restricted Subsidiary (other than Indebtedness 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 Person became a Restricted Subsidiary or was otherwise acquired by or was merged into Holdings or a Restricted Subsidiary or (b) otherwise in connection with, or in contemplation of, such acquisition); provided , however , that at the time such Person becomes a Restricted Subsidiary or is acquired by or was merged into Holdings or a Restricted Subsidiary, Holdings would have been able to Incur $1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after giving effect to the Incurrence of such Indebtedness pursuant to this clause (5);

 

(6) the Incurrence by Holdings or any Restricted Subsidiary of Indebtedness represented by Capitalized 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 improvements or carrying costs of property used in the business of Holdings or such Restricted Subsidiary, and Refinancing Indebtedness Incurred to Refinance any Indebtedness Incurred pursuant to this clause (6) in an aggregate outstanding principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (6) and then outstanding, will not exceed $40.0 million at any time outstanding;

 

(7) the Incurrence by Holdings, the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, payment obligations in connection with health or other types of social security benefits, unemployment or other insurance or self-insurance obligations, reclamation, statutory obligations, bankers’ acceptances and bid, performance, surety and appeal bonds or other similar obligations incurred in the ordinary course of business, including guarantees and obligations respecting standby letters of credit supporting such obligations, to the extent not drawn (in each case other than an obligation for money borrowed);

 

(8) Capital Stock (other than Disqualified Stock) of Holdings, the Company or any of the Subsidiary Guarantors;

 

(9) Indebtedness owed to Parent not to exceed $50.0 million in the aggregate, provided that all such Indebtedness shall be unsecured and subordinated to the Notes; and

(10) in addition to the items referred to in clauses (1) through (9) above, Indebtedness of Holdings, the Company and its Subsidiary Guarantors in an aggregate outstanding principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (10) and then outstanding, will not exceed the greater of (a) $50.0 million and (b) 4.0% of Adjusted Consolidated Net Tangible Assets determined as of the date of such incurrence, at any time outstanding.

 

For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant:

 

(1) in the event an item of that Indebtedness meets the criteria of more than one of the types of Indebtedness described in the first and second paragraphs of this covenant, the Issuers, in their sole discretion, will classify such item of Indebtedness on the date of Incurrence and, subject to clause (2) below may later reclassify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses;

 

(2) all Indebtedness outstanding on the date of the Indenture under the Senior Secured Credit Agreement shall be deemed Incurred on the Original Issue Date under clause (1) of the second paragraph of this covenant;

 

(3) Guarantees of, or obligations in respect of letters of credit supporting, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included;

 

(4) if obligations in respect of letters of credit are Incurred pursuant to a Credit Facility and are being treated as Incurred pursuant to clause (1) of the second paragraph above and the letters of credit relate to other Indebtedness, then such other Indebtedness shall not be included;

 

(5) the principal amount of any Disqualified Stock of Holdings or a Restricted Subsidiary, or Preferred Stock of a Restricted Subsidiary that is not an Issuer or a Subsidiary Guarantor, will be equal to the greater of the maximum mandatory redemption or repurchase price (not including, in either case, any redemption or repurchase premium) or the liquidation preference thereof;

 

(6) Indebtedness permitted by this covenant need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness; and

 

(7) the amount of Indebtedness issued at a price that is less than the principal amount thereof will be equal to the amount of the liability in respect thereof determined in accordance with GAAP.

 

Accrual of interest, accrual of dividends, the amortization of debt discount or the accretion of accreted value, the payment of interest in the form of additional Indebtedness, the payment of dividends in the form of additional shares of Preferred Stock or Disqualified Stock and unrealized losses or charges in respect of Hedging Obligations (including those resulting from the application of SFAS 133) will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof in the case of any Indebtedness issued with original issue discount and (ii) the principal amount or liquidation preference thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.

If at any time an Unrestricted Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary as of such date (and, if such Indebtedness is not permitted to be Incurred as of such date under this “Limitation on Indebtedness and Preferred Stock” covenant, the Issuers shall be in Default of this covenant).

 

For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness; provided that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Issuers may Incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies. The principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such Refinancing Indebtedness is denominated that is in effect on the date of such refinancing.

 

The Indenture will not treat (1) unsecured Indebtedness as subordinated or junior to secured Indebtedness merely because it is unsecured or (2) senior Indebtedness as subordinated or junior to any other senior Indebtedness merely because it has a junior priority with respect to the same collateral.

 

Limitation on Restricted Payments

 

Holdings will not, and will not permit any of the Restricted Subsidiaries, directly or indirectly, to:

 

(1) declare or pay any dividend or make any payment or distribution on or in respect of Holdings’ Capital Stock (including any payment or distribution in connection with any merger or consolidation involving Holdings or any of the Restricted Subsidiaries) except:

 

(a) dividends or distributions by Holdings payable solely in Capital Stock of Holdings (other than Disqualified Stock) or in options, warrants or other rights to purchase such Capital Stock of Holdings; and

 

(b) dividends or distributions payable to Holdings or a Restricted Subsidiary and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation) so long as Holdings or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution;

 

(2) purchase, redeem, defease, retire or otherwise acquire for value any Capital Stock of Holdings or any direct or indirect parent of Holdings held by Persons other than Holdings or a Restricted Subsidiary (other than in exchange for Capital Stock of Holdings (other than Disqualified Stock);

 

(3) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any

Subordinated Obligations or Guarantor Subordinated Obligations (other than (x) Indebtedness permitted under clause (3) of the second paragraph of the covenant “—Limitation on indebtedness and Preferred Stock” or (y) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations or Guarantor Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase, redemption, defeasance or other acquisition or retirement); or

 

(4) make any Restricted Investment in any Person;

 

(any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Restricted Investment referred to in clauses (1) through (4) shall be referred to herein as a “Restricted Payment”). Notwithstanding the foregoing, Holdings or a Restricted Subsidiary may make a Restricted Payment:

 

(I) after the Merger Date if at the time of such Restricted Payment:

 

(a) no Default shall have occurred and be continuing (or would result therefrom);

 

(b) Holdings is able to Incur an additional $1.00 of Indebtedness pursuant to the covenant described under the first paragraph under “—Limitation on Indebtedness and Preferred Stock” after giving effect, on a pro forma basis, to such Restricted Payment; and

 

(c) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Merger Date would not exceed the sum of:

 

(i) 50% of Consolidated Net Income for the period (treated as one accounting period) from the first day of the fiscal quarter beginning after the Merger Date to the last day of the fiscal quarter ending immediately prior to the date of such Restricted Payment for which internal financial statements are in existence (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit);

 

(ii) 100% of the aggregate Net Cash Proceeds, and the fair market value (as determined by Holdings’ Board of Directors in good faith) of property or securities other than cash (including Capital Stock of Persons engaged primarily in the Energy Business or assets used in the Energy Business), in each case received by Holdings from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Merger Date (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to (X) management, employees, directors or any direct or indirect parent of Holdings, to the extent such Net Cash Proceeds have been used to make a Restricted Payment pursuant to clause (5)(a) of the next succeeding paragraph, (y) a Subsidiary of Holdings or (z) an employee stock ownership plan, option plan or similar trust (to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or Guaranteed by Holdings or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination));

 

(iii) the amount by which Indebtedness of Holdings or its Restricted Subsidiaries is reduced on Holdings’ balance sheet upon the conversion or exchange (other than by a Wholly-Owned Subsidiary of Holdings) subsequent to the Merger Date of any Indebtedness of Holdings or the Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock) of Holdings (less the amount of any cash, or the fair market value of any other property (other than such Capital Stock), distributed by Holdings upon such conversion or exchange), together with the net proceeds, if any,

received by Holdings or any of the Restricted Subsidiaries upon such conversion or exchange; and

 

(iv) the amount equal to the aggregate net reduction in Restricted Investments made by Holdings or any of its Restricted Subsidiaries after the Merger Date in any Person resulting from:

 

(A) repurchases, repayments or redemptions of such Restricted Investments by such Person, proceeds realized upon the sale of such Restricted Investment (other than to a Subsidiary of Holdings), repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to Holdings or any Restricted Subsidiary;

 

(B) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by Holdings or any Restricted Subsidiary in such Unrestricted Subsidiary after the Merger Date, which amount in each case under this clause (iv) was included in the calculation of the amount of Restricted Payments; provided, however , that no amount will be included under this clause (iv) to the extent it is already included in Consolidated Net Income; and

 

(C) the sale (other than to Holdings or a Restricted Subsidiary) of the Capital Stock of an Unrestricted Subsidiary or a distribution from an Unrestricted Subsidiary or a dividend from an Unrestricted Subsidiary.

 

(II) on or before the Merger Date if at the time of such Restricted Payment:

 

(a) no Default shall have occurred and be continuing (or would result therefrom); and either

 

(b) (1) if the Consolidated Coverage Ratio for Holdings and the Restricted Subsidiaries on the last day of the immediately preceding fiscal quarter is at least 2.25 to 1.0, the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made during the fiscal quarter in which such Restricted Payment is made does not exceed the result of:

 

(i) Available Cash; plus

 

(ii) without duplication of amounts included in Available Cash, 100% of the aggregate Net Cash Proceeds, and the fair market value (as determined by Holdings’ Board of Directors in good faith) of property or securities other than cash (including Capital Stock of Persons engaged primarily in the Energy Business or assets used in the Energy Business), in each case received by Holdings from the substantially concurrent issue or sale of its Capital Stock (other than Disqualified Stock) or other substantially concurrent capital contributions subsequent to the Issue Date (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to (x) management, employees, directors or any direct or indirect parent of Holdings, to the extent such Net Cash Proceeds have been used to make a Restricted Payment pursuant to clause (5)(a) of the next succeeding paragraph, (y) a Subsidiary of Holdings or (z) an employee stock ownership plan, option plan or similar trust (to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or Guaranteed by Holdings or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination)); plus

(iii) the amount by which Indebtedness of Holdings or the Restricted Subsidiaries is reduced on Holdings’ balance sheet upon the conversion or exchange (other than by a Wholly-Owned Subsidiary of Holdings) subsequent to the Original Issue Date of any Indebtedness of Holdings or the Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock) of Holdings (less the amount of any cash, or the fair market value of any other property (other than such Capital Stock), distributed by Holdings upon such conversion or exchange), together with the net proceeds, if any, received by Holdings or any of the Restricted Subsidiaries upon such conversion or exchange; plus

 

(iv) without duplication of amounts included in Available Cash, the amount equal to the aggregate net reduction in Restricted Investments made by Holdings or any of the Restricted Subsidiaries in any Person subsequent to the Original Issue Date resulting from:

 

(A) repurchases, repayments or redemptions of such Restricted Investments by such Person, proceeds realized upon the sale of such Restricted Investment (other than to a Subsidiary of Holdings), repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to Holdings or any Restricted Subsidiary;

 

(B) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by Holdings or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount in each case under this clause (iv) was included in the calculation of the amount of Restricted Payments; and

 

(C) the sale (other than to Holdings or a Restricted Subsidiary) of the Capital Stock of an Unrestricted Subsidiary or a distribution from an Unrestricted Subsidiary or a dividend from an Unrestricted Subsidiary (items (ii), (iii) and (iv) being referred to as “Incremental Funds” and for purposes of clause (2)(ii) below, items (ii) and (iv) above being referred to as “Special Incremental Funds”); minus

 

(v) the aggregate amount of Incremental Funds previously expended pursuant to this clause (b)(1) or clause (b)(2) below; or

 

(2) if the Consolidated Coverage Ratio for Holdings and the Restricted Subsidiaries as of the last day of the immediately preceding fiscal quarter is less than 2.25 to 1.0, the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made during the fiscal quarter in which such Restricted Payment and other Restricted Payments is made does not exceed:

 

(i) $120.0 million less the aggregate amount of Restricted Payments made since the Original Issue Date pursuant to this clause (b)(2); plus

 

(ii) the aggregate amount of Special Incremental Funds not previously expended pursuant to clause (b)(1) above or this clause (b)(2).

 

Holdings paid a distribution of $39.5 million in respect of the period ending December 31, 2008 pursuant to the preceding clause (II)(b)(1). Under the terms of our Operating Agreement, Available Cash not applied to pay a distribution after any fiscal quarter is reset to $0. We did not pay a distribution in respect of Available Cash as of March 31, 2009 and are restricted by the terms of the Merger Agreement from paying a distribution at any time prior to the Merger Date.

The provisions of the preceding paragraph will not prohibit:

 

(1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of Holdings (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or Guaranteed by Holdings or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination) or a substantially concurrent cash capital contribution received by Holdings from its members; provided , however , that (a) such Restricted Payment will be excluded from subsequent calculations of the amount of Restricted Payments and (b) the Net Cash Proceeds from such sale of Capital Stock or capital contribution will be excluded from Available Cash and clauses (I) (c) (ii) and (II) (b) (1) (ii), as the case maybe, of the preceding paragraph and the definition of Incremental Funds;

 

(2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of the Company or Guarantor Subordinated Obligations of any Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of the Company or any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Guarantor Subordinated Obligations made by exchange for or out of the proceeds of the substantially concurrent sale of Guarantor Subordinated Obligations that, in each case, is permitted to be Incurred pursuant to the covenant described under “—Limitation on Indebtedness and Preferred Stock”; provided , however , that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded from subsequent calculations of the amount of Restricted Payments;

 

(3) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Disqualified Stock of Holdings or a Restricted Subsidiary made by exchange for or out of the proceeds of the substantially concurrent sale of Disqualified Stock of Holdings or such Restricted Subsidiary, as the case may be, that, in each case, is permitted to be Incurred pursuant to the covenant described under “—Limitation on Indebtedness and Preferred Stock”; provided further , however , that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded from subsequent calculations of the amount of Restricted Payments;

 

(4) dividends paid or distributions made within 60 days after the date of declaration if at such date of declaration such dividend or distribution would have complied with this covenant; provided , however , that such dividends and distributions will be included (without duplication) in subsequent calculations of the amount of Restricted Payments (to the extent the declaration thereof has not been previously included); and provided however that for purposes of clarification, this clause (4) shall not include cash payments in lieu of the issuance of fractional shares included in clause (9) below;

 

(5) (a) so long as no Default has occurred and is continuing, the purchase of Capital Stock, or options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock of Parent, Holdings or any Restricted Subsidiary held by any existing or former employees, management or directors of Parent, Holdings or any Subsidiary of Holdings or their assigns, estates or heirs, in each case in connection with the repurchase provisions under employee stock option or stock purchase agreements or other agreements to compensate management, employees or directors; provided that such redemptions or

repurchases since the Original Issue Date pursuant to this subclause (a) or, prior to the Issue Date, such similar provision of the Existing Notes Indenture during any calendar year will not exceed $3.0 million in the aggregate (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the immediately following proviso) of $4.0 million in any calendar year); provided , further, that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds received by Holdings from the sale of Capital Stock of Holdings to members of management or directors of Holdings and the Restricted Subsidiaries that occurs after the Original Issue Date (to the extent the cash proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of the clause (b) of the preceding paragraph or such similar provision of the Existing Notes Indenture), plus (B) the cash proceeds of key man life insurance policies received by Holdings and the Restricted Subsidiaries after the Original Issue Date (to the extent the cash proceeds of key man life insurance policies have not otherwise been applied to the payment of Restricted Payments by virtue of the clause (b) of the preceding paragraph or, with respect to Restricted Payments prior to the Issue Date, such similar provision of the Existing Notes Indenture), less (C) the amount of any Restricted Payments made pursuant to clauses (A) and (B) of this clause (5)(a) since the Original Issue Date; provided further, however, that the amount of any such repurchase or redemption under this subclause (a) will be excluded in subsequent calculations of the amount of Restricted Payments and the proceeds received from any such sale will be excluded from clauses (I) (c) and (II) (b) of the preceding paragraph (including the definition of Incremental Funds); and

 

(b) the cancellation of loans or advances to employees or directors of Holdings or any Subsidiary of Holdings the proceeds of which are used to purchase Capital Stock of Holdings, in an aggregate amount not in excess of $2.0 million at any one time outstanding; provided , however , that Holdings and its Subsidiaries will comply in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith in connection with such loans or advances; provided, further , that the amount of such cancelled loans and advances will be included in subsequent calculations of the amount of Restricted Payments;

 

(6) repurchases, redemptions or other acquisitions or retirements for value of Capital Stock deemed to occur upon the exercise of stock options, warrants, rights to acquire Capital Stock or other convertible securities if such Capital Stock represents a portion of the exercise or exchange price thereof, and any repurchases, redemptions or other acquisitions or retirements for value of Capital Stock made in lieu of withholding taxes in connection with any exercise or exchange of warrants, options or rights to acquire Capital Stock; provided , however , that such repurchases will be excluded from subsequent calculations of the amount of Restricted Payments;

 

(7) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Subordinated Obligation (i) at a purchase price not greater than 101% of the principal amount of such Subordinated Obligation in the event of a Change of Control in accordance with provisions similar to the covenant described under “Change of control” or (ii) at a purchase price not greater than 100% of the principal amount thereof in accordance with provisions similar to the covenant described under “—Limitation on sales of assets and Subsidiary stock”; provided that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, the Issuers have made the Change of Control Offer or Asset Disposition Offer, as applicable, as

provided in such covenant with respect to the Notes and have completed the repurchase or redemption of all Notes validly tendered for payment in connection with such Change of Control Offer or Asset Disposition Offer; provided , however , that such repurchases will be included in subsequent calculations of the amount of Restricted Payments;

 

(8) payments or distributions to dissenting stockholders of acquired businesses pursuant to applicable law or in connection with the settlement or other satisfaction of legal claims made pursuant to or in connection with a consolidation, merger or transfer of assets otherwise permitted under the Indenture; provided , however, that any payment pursuant to this clause (8) shall be excluded from the calculation of the amount of Restricted Payments;

 

(9) cash payments in lieu of the issuance of fractional shares; provided , however , that any payment pursuant to this clause (9) shall be excluded from the calculation of the amount of Restricted Payments; and

 

(10) Permitted Payments; and

 

(11) So long as no Default has occurred and is continuing and solely after the Merger Date, other Restricted Payments made pursuant to this clause (11) in an aggregate amount not to exceed the greater of (x) $30.0 million and (y) 2.0% of Adjusted Consolidated Net Tangible Assets; provided that any payment pursuant to this clause (11) shall be excluded from the calculation of the amount of Restricted Payments.

 

The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of such Restricted Payment of the asset(s) or securities proposed to be paid, transferred or issued by Holdings or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair market value of any cash Restricted Payment shall be its face amount. The fair market value of any non-cash Restricted Payment that is less than $20.0 million shall be determined conclusively by an Officer of the Company and the fair market value of any noncash Restricted Payment that is more than $20.0 million shall be determined conclusively by the Board of Directors of the Company acting in good faith whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, the Issuers shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant described under “Restricted Payments” were computed, together with a copy of any fairness opinion or appraisal required by the Indenture.

 

As of the Issue Date, all of Holdings’ Subsidiaries other than Anthem Securities, Inc. will be Restricted Subsidiaries. We will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the last sentence of the definition of “Unrestricted Subsidiary.” For purpose of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by Holdings and the Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of “Investment.” Such designation will be permitted only if a Restricted Payment in such amount would be permitted at such time, whether pursuant to the first paragraph of this covenant or pursuant to the definition of “Permitted Investments,” and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to any of the restrictive covenants set forth in the Indenture.

Limitation on Liens

 

Holdings will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien (the “Initial Lien”) other than Permitted Liens upon any of its property or assets (including Capital Stock of Restricted Subsidiaries), including any income or profits therefrom, whether owned on the date of the Indenture or acquired after that date, which Lien is securing any Indebtedness, unless contemporaneously with the Incurrence of such Liens effective provision is made to secure the Indebtedness due under the Notes or, in respect of Liens on Holdings’ or any Restricted Subsidiary’s property or assets, any Guarantee of Holdings or such Restricted Subsidiary, as the case may be, equally and ratably with (or senior in priority to in the case of Liens with respect to Subordinated Obligations or Guarantor Subordinated Obligations, as the case may be) the Indebtedness secured by such Lien for so long as such Indebtedness is so secured.

 

Any Lien created for the benefit of the holders of the Notes pursuant to the preceding paragraph shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien.

 

Limitation on restrictions on distributions from Restricted Subsidiaries

 

Holdings will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:

 

(1) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to Holdings or any Restricted Subsidiary (it being understood that the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on Common Stock shall not be deemed a restriction on the ability to make distributions on Capital Stock);

 

(2) make any loans or advances to Holdings or any Restricted Subsidiary (it being understood that the subordination of loans or advances made to Holdings or any Restricted Subsidiary to other Indebtedness Incurred by Holdings or any Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances); or

 

(3) sell, lease or transfer any of its property or assets to Holdings or any Restricted Subsidiary.

 

The preceding provisions will not prohibit:

 

(i) any encumbrance or restriction pursuant to or by reason of (a) an agreement in effect at or entered into on the Original Issue Date, including, without limitation, the Existing Notes Indenture in effect on such date and (b) the Indenture;

 

(ii) any encumbrance or restriction with respect to a Person pursuant to or by reason of an agreement relating to any Capital Stock or Indebtedness Incurred by a Person on or before the date on which such Person was acquired by Holdings or another Restricted Subsidiary (other than Capital Stock or Indebtedness Incurred as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Person was acquired by Holdings or a Restricted Subsidiary or in contemplation of the transaction) and outstanding on such date; provided , that any such encumbrance or restriction shall not extend to any assets or property of Holdings or any other Restricted Subsidiary other than the assets and property so acquired;

(iii) encumbrances and restrictions contained in contracts entered into in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of, or from the ability of Holdings and the Restricted Subsidiaries to realize the value of, property or assets of Holdings or any Restricted Subsidiary in any manner material to Holdings or any Restricted Subsidiary;

 

(iv) any encumbrance or restriction with respect to an Unrestricted Subsidiary pursuant to or by reason of an agreement that the Unrestricted Subsidiary is a party to entered into before the date on which such Unrestricted Subsidiary became a Restricted Subsidiary; provided , that such agreement was not entered into in anticipation of the Unrestricted Subsidiary becoming a Restricted Subsidiary and any such encumbrance or restriction shall not extend to any assets or property of Holdings or any other Restricted Subsidiary other than the assets and property so acquired;

 

(v) with respect to any Foreign Subsidiary, any encumbrance or restriction contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was Incurred if:

 

(a) either (1) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant in such Indebtedness or agreement or (2) the Issuers determine that any such encumbrance or restriction will not materially affect the Issuers’ ability to make principal or interest payments on the Notes, as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive; and

 

(b) the encumbrance or restriction is not materially more disadvantageous to the holders of the Notes than is customary in comparable financing (as determined by the Company);

 

(vi) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refunding, replacement or refinancing of Indebtedness Incurred pursuant to an agreement referred to in clauses (i) through (v) or clause (xii) of this paragraph or this clause (vi) or contained in any amendment, restatement, modification, renewal, supplemental, refunding, replacement or refinancing of an agreement referred to in clauses (i) through (v) or clause (xii) of this paragraph or this clause (vi); provided , however , that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement taken as a whole are no less favorable in any material respect to the holders of the Notes than the encumbrances and restrictions contained in such agreements referred to in clauses (i) through (v) or clause (xii) of this paragraph on the Original Issue Date or the date such Restricted Subsidiary became a Restricted Subsidiary or was merged into a Restricted Subsidiary, whichever is applicable;

 

(vii) in the case of clause (3) of the first paragraph of this covenant, any encumbrance or restriction:

 

(a) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in oil and gas properties), license or similar contract, or the assignment or transfer of any such lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in oil and gas properties), license or other contract;

(b) arising from Permitted Liens securing Indebtedness of Holdings or a Restricted Subsidiary to the extent such encumbrances or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements;

 

(c) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of Holdings or any Restricted Subsidiary;

 

(d) restrictions on cash or other deposits imposed by customers or lessors under contracts or leases entered into in the ordinary course of business;

 

(e) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business that solely affect the assets or property that is the subject of such agreements and provided that in the case of joint venture agreements such provisions solely affect assets or property of the joint venture; or

 

(f) any agreement or instrument relating to any property or assets acquired after the Original Issue Date, so long as such encumbrance or restriction relates only to the property or assets so acquired and is not and was not created in anticipation of such acquisitions.

 

(viii) (a) purchase money obligations for property acquired in the ordinary course of business and (b) Capitalized Lease Obligations permitted under the Indenture, in each case, that impose encumbrances or restrictions of the nature described in clause (3) of the first paragraph of this covenant on the property so acquired;

 

(ix) any encumbrance or restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition;

 

(x) any customary encumbrances or restrictions imposed pursuant to any agreement of the type described in the definition of “Permitted Business Investment”;

 

(xi) encumbrances or restrictions arising or existing by reason of applicable law or any applicable rule, regulation or order; and

 

(xii) the Senior Secured Credit Agreement as in effect as of the Original Issue Date, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Senior Secured Credit Agreement as in effect on the Original Issue Date.

 

Limitation on sales of assets and Subsidiary stock

 

Holdings will not, and will not permit any of the Restricted Subsidiaries to, make any Asset Disposition unless:

 

(1) Holdings or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Disposition at least equal to the fair market value (such fair market value to be determined on the date of contractually agreeing to such Asset Disposition), as

determined in good faith by the Board of Directors (including as to the value of all noncash consideration), of the shares and assets subject to such Asset Disposition;

 

(2) at least 75% of the consideration received by Holdings or such Restricted Subsidiary, as the case may be, from such Asset Disposition is in the form of cash or Cash Equivalents or Additional Assets, or any combination thereof; and

 

(3) except as provided in the next paragraph an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied, within 18 months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, by Holdings or such Restricted Subsidiary, as the case may be:

 

(a) to the extent Holdings or any Restricted Subsidiary, as the case may be, elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Indebtedness of Holdings or the Restricted Subsidiaries under the Senior Secured Credit Agreement, any other Indebtedness of Holdings, an Issuer or a Subsidiary Guarantor that is secured by a Lien permitted to be Incurred under the Indenture or Indebtedness (other than Disqualified Stock) of any Wholly-Owned Subsidiary that is not an Issuer or a Subsidiary Guarantor; provided, however , that, in connection with any prepayment, repayment, redemption or purchase of Indebtedness pursuant to this clause (a), Holdings or such Restricted Subsidiary will retire such Indebtedness and will cause the related commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased; or

 

(b) to invest in Additional Assets;

 

provided that pending the final application of any such Net Available Cash in accordance with this covenant, Holdings and the Restricted Subsidiaries may temporarily reduce Indebtedness or otherwise invest such Net Available Cash in any manner not prohibited by the Indenture, but such proceeds shall not constitute Available Cash prior to such final application.

 

Any Net Available Cash from Asset Dispositions that is not applied or invested as provided in the preceding paragraph together with any Net Available Cash from Asset Dispositions made since the Original Issue Date and before the Issue Date that has not been applied or invested as provided in such similar provisions of the Existing Notes Indenture will be deemed to constitute “Excess Proceeds.” Not later than the day following the date that is 18 months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, if the aggregate amount of Excess Proceeds exceeds $20.0 million, the Issuers will be required to make an offer (“Asset Disposition Offer”) to all holders of Notes and to the extent required by the terms of other Pari Passu Indebtedness, to all holders of other Pari Passu Indebtedness outstanding with similar provisions requiring Holdings or a Restricted Subsidiary to make an offer to purchase such Pari Passu Indebtedness with the proceeds from any Asset Disposition (“Pari Passu Notes”), to purchase the maximum principal amount of Notes and any such Pari Passu Notes to which the Asset Disposition Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount (or, in the event such Pari Passu Indebtedness of Holdings or a Restricted Subsidiary was issued with significant original issue discount, 100% of the accreted value thereof) of the Notes and Pari Passu Notes plus accrued and unpaid interest, if any, (or in respect of such Pari Passu Indebtedness, such lesser price, if any, as may be provided for by the terms of such Indebtedness) to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures set forth in the

Indenture or the agreements governing the Pari Passu Notes, as applicable, in each case in minimum principal amount of $2,000 and integral multiples of $1,000 in excess of $2,000. If the aggregate principal amount of Notes surrendered by holders thereof and other Pari Passu Notes surrendered by holders or lenders, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis on the basis of the aggregate principal amount of tendered Notes and Pari Passu Notes. To the extent that the aggregate amount of Notes and Pari Passu Notes so validly tendered and not properly withdrawn pursuant to an Asset Disposition Offer is less than the Excess Proceeds, the Issuers may use any remaining Excess Proceeds for general company purposes, subject to the other covenants contained in the Indenture. Upon completion of such Asset Disposition Offer, the amount of Excess Proceeds shall be reset at zero.

 

The Asset Disposition Offer will remain open for a period of 20 Business Days following its commencement, except to the extent that a longer period is required by applicable law (the “Asset Disposition Offer Period”). No later than five Business Days after the termination of the Asset Disposition Offer Period (the “Asset Disposition Purchase Date”), the Issuers will purchase the principal amount of Notes and Pari Passu Notes required to be purchased pursuant to this covenant (the “Asset Disposition Offer Amount”) or, if less than the Asset Disposition Offer Amount has been so validly tendered, all Notes and Pari Passu Notes validly tendered in response to the Asset Disposition Offer.

 

If the Asset Disposition Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no further interest will be payable to holders who tender Notes pursuant to the Asset Disposition Offer.

 

On or before the Asset Disposition Purchase Date, the Issuers will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Asset Disposition Offer Amount of Notes and Pari Passu Notes or portions of Notes and Pari Passu Notes so validly tendered and not properly withdrawn pursuant to the Asset Disposition Offer, or if less than the Asset Disposition Offer Amount has been validly tendered and not properly withdrawn, all Notes and Pari Passu Notes so validly tendered and not properly withdrawn, in each case in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess of $2,000. The Issuers will deliver to the Trustee an Officers’ Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this covenant and, in addition, the Issuers will deliver all certificates and notes required, if any, by the agreements governing the Pari Passu Notes. The Issuers or the paying agent, as the case may be, will promptly (but in any case not later than five Business Days after the termination of the Asset Disposition Offer Period) mail or deliver to each tendering holder of Notes or holder or lender of Pari Passu Notes, as the case may be, an amount equal to the purchase price of the Notes or Pari Passu Notes so validly tendered and not properly withdrawn by such holder or lender, as the case may be, and accepted by the Issuers for purchase, and the Issuers will promptly issue a new Note, and the Trustee, upon delivery of an Officers’ Certificate from the Issuers, will authenticate and mail or deliver such new Note to such holder, in a principal amount equal to any unpurchased portion of the Note surrendered; provided that each such new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess of $2,000. In addition, the Issuers will take any and all other actions required by the agreements governing the Pari Passu Notes. Any Note not so accepted will be promptly mailed or delivered by the

Issuers to the holder thereof. The Issuers will publicly announce the results of the Asset Disposition Offer on the Asset Disposition Purchase Date.

 

The Issuers will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to the Indenture. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of its compliance with such securities laws or regulations.

 

For the purposes of clause (2) of the first paragraph of this covenant, the following will be deemed to be cash:

 

(1) the assumption by the transferee of Indebtedness (other than Subordinated Obligations or Disqualified Stock) of the Company or Indebtedness of Holdings or a Restricted Subsidiary of the Company (other than Subordinated Obligations or Disqualified Stock of the Company, Guarantor Subordinated Obligations or Disqualified Stock of any Guarantor) and the release of Holdings or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition (or in lieu of such a release, the agreement of the acquirer or its parent company to indemnify and hold Holdings or such Restricted Subsidiary harmless from and against any loss, liability or cost in respect of such assumed Indebtedness; provided , however , that such indemnifying party (or its long term debt securities) shall have an Investment Grade Rating (with no indication of a negative outlook or credit watch with negative implications, in any case, that contemplates such indemnifying party (or its long term debt securities) failing to have an Investment Grade Rating), in which case Holdings will, without further action, be deemed to have applied such deemed cash to Indebtedness in accordance with clause (3)(a) of the first paragraph of this covenant; and

 

(2) securities, notes or other obligations received by Holdings or any Restricted Subsidiary from the transferee that are converted by Holdings or such Restricted Subsidiary into cash within 180 days after receipt thereof.

 

Notwithstanding the foregoing, the 75% limitation referred to in clause (2) of the first paragraph of this covenant shall be deemed satisfied with respect to any Asset Disposition in which the cash or Cash Equivalents portion of the consideration received therefrom, determined in accordance with the foregoing provision on an after-tax basis, is equal to or greater than what the after-tax proceeds would have been had such Asset Disposition complied with the aforementioned 75% limitation.

 

The requirement of clause (3)(b) of the first paragraph of this covenant above shall be deemed to be satisfied if an agreement (including a lease, whether a capital lease or an operating lease) committing to make the acquisitions or expenditures referred to therein is entered into by Holdings or the Restricted Subsidiary within the specified time period and such Net Available Cash is subsequently applied in accordance with such agreement within six months following such agreement.

 

Limitation on Affiliate Transactions

 

Holdings will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, enter into, make, amend or conduct any transaction (including making a payment to, the purchase, sale, lease or exchange of any property or the rendering of any service), contract,

agreement or understanding with or for the benefit of any Affiliate of Holdings (an “Affiliate Transaction”) unless :

 

(1) the terms of such Affiliate Transaction are no less favorable to Holdings or such Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable transaction at the time of such transaction in arm’s-length dealings with a Person who is not such an Affiliate or, if in the good faith judgment of the independent members of the Board of Directors of Holdings no comparable transaction with an unrelated Person would be available, such independent directors determine in good faith that such Affiliate Transaction is fair to Holdings or such Restricted Subsidiary from a financial point of view;

 

(2) if such Affiliate Transaction involves aggregate consideration in excess of $15.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of Holdings and by a majority of the members of such Board having no personal stake in such transaction, if any (and such majority or majorities, as the case may be, determines that such Affiliate Transaction satisfies the criteria in clause (1) above); and

 

(3) if such Affiliate Transaction involves aggregate consideration in excess of $30.0 million, the Board of Directors of the Company has received a written opinion from an independent investment banking, accounting or appraisal firm of nationally recognized standing that such Affiliate Transaction is fair, from a financial standpoint, to Holdings or such Restricted Subsidiary or is not materially less favorable than those that could reasonably be expected to be obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate.

 

The preceding paragraph will not apply to:

 

(1) any Restricted Payment permitted to be made pursuant to the covenant described under “—Limitation on Restricted Payments” or any Permitted Investment;

 

(2) any issuance of Capital Stock (other than Disqualified Stock), or other payments, awards or grants in cash, Capital Stock (other than Disqualified Stock) or otherwise pursuant to, or the funding of, employment or severance agreements and other compensation arrangements, options to purchase Capital Stock (other than Disqualified Stock) of Holdings, restricted stock plans, long-term incentive plans, stock appreciation rights plans, participation plans or similar employee benefits plans and/or indemnity provided on behalf of officers and employees approved by the Board of Directors of Holdings;

 

(3) loans or advances to employees, officers or directors in the ordinary course of business of Holdings or any of the Restricted Subsidiaries;

 

(4) any transaction between Holdings and a Restricted Subsidiary or between Restricted Subsidiaries and Guarantees issued by Holdings or a Restricted Subsidiary for the benefit of Holdings or a Restricted Subsidiary, as the case may be, in accordance with “—Limitation on Indebtedness and Preferred Stock”;

 

(5) any transaction with a joint venture or similar entity which would constitute an Affiliate Transaction solely because Holdings or a Restricted Subsidiary owns, directly or indirectly, an equity interest in or otherwise controls such joint venture or similar entity;

 

(6) the issuance or sale of any Capital Stock (other than Disqualified Stock) of Holdings or the receipt by Holdings of any capital contribution from its shareholders;

(7) indemnities of officers, directors and employees of Holdings or any of the Restricted Subsidiaries permitted by bylaw or statutory provisions and any employment agreement or other employee compensation plan or arrangement entered into in the ordinary course of business by Holdings or any of the Restricted Subsidiaries;

 

(8) the payment of customary compensation and fees paid to, and benefits and indemnity provided on behalf of, officers or directors of Holdings or any Restricted Subsidiary;

 

(9) the performance of obligations of Holdings or any of the Restricted Subsidiaries under the terms of any agreement to which Holdings or any of the Restricted Subsidiaries is a party as of or on the Original Issue Date, as these agreements may be amended, modified, supplemented, extended or renewed from time to time; provided , however , that any future amendment, modification, supplement, extension or renewal entered into after the Original Issue Date will be permitted to the extent that its terms are not materially more disadvantageous, taken as a whole, to the holders of the Notes than the terms of the agreements in effect on the Original Issue Date;

 

(10) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture which are fair to Holdings and the Restricted Subsidiaries, in the reasonable determination of the Board of Directors of Holdings or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;

 

(11) guarantees of performance by Holdings, the Company and its Restricted Subsidiaries of the Unrestricted Subsidiaries in the ordinary course of business, except for guarantees of Indebtedness in respect of borrowed money;

 

(12) if such Affiliate Transaction is with a Person in its capacity as a holder of Indebtedness or Equity Interests of Holdings, the Company or any Restricted Subsidiary where such Person is treated no more favorably than the holders of such Indebtedness or Equity Interests who are unaffiliated with Holdings, the Company and the Restricted Subsidiaries; and

 

(13) transactions between Holdings or any of its subsidiaries and any Person that would not otherwise constitute an Affiliate Transaction except for the fact that one director of such other Person is also a director of Holdings or its subsidiary, as applicable; provided that such director abstains from voting as a director of Holdings or its subsidiary, as applicable on any matter involving such other Person.

 

SEC reports

 

The Indenture will provide that, whether or not Holdings is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent not prohibited by the Exchange Act, Holdings will file with the SEC, and make available to the Trustee and the registered holders of the Notes without cost to any holder, the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation within the time periods specified therein with respect to a non-accelerated filer. In the event that Holdings is not permitted to file such reports, documents and information with the SEC pursuant to the Exchange Act, Holdings will nevertheless make available such Exchange Act information to the Trustee and the holders of the Notes

without cost to any holder as if Holdings were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act within the time periods specified therein with respect to a non-accelerated filer.

 

If the Issuers have designated any of their respective Subsidiaries as Unrestricted Subsidiaries, then, to the extent material, the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes to the financial statements and in Management’s Discussion and Analysis of Results of Operations and Financial Condition, of the financial condition and results of operations of Holdings and the Restricted Subsidiaries.

 

In addition, the Issuers and the Guarantors have agreed that they will make available to the holders and to prospective investors, upon the request of such holders, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as the Notes are not freely transferable under the Securities Act to the extent not satisfied by the foregoing. For purposes of this covenant, the Issuers and the Guarantors will be deemed to have furnished the reports to the Trustee and the holders of Notes as required by this covenant if they have filed such reports with the SEC via the EDGAR filing system and such reports are publicly available.

 

Merger and consolidation

 

Neither Issuer will consolidate with or merge with or into or wind up into (whether or not such Issuer is the surviving corporation) and Holdings may not convey, transfer or lease all or substantially all of its and the Restricted Subsidiaries’ assets in one or more related transactions to, any Person, unless :

 

(1) the resulting, surviving or transferee Person (the “Successor Company”) will be a corporation, partnership, trust or limited liability company organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and the Successor Company (if not the Company) will expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture;

 

(2) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing;

 

(3) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under “—Limitation on Indebtedness and Preferred Stock”;

 

(4) each Guarantor (unless it is the other party to the transactions above, in which case clause (1) shall apply) shall have by supplemental indenture confirmed that its Guarantee shall apply to such Person’s obligations in respect of the Indenture and the Notes; and

 

(5) the Issuers shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture.

 

For purposes of this covenant, the sale, lease, conveyance, assignment, transfer, or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of Holdings, which properties and assets, if held by Holdings instead of such Subsidiaries, would

constitute all or substantially all of the properties and assets of Holdings on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of Holdings.

 

The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture; and its predecessor company, except in the case of a lease of all or substantially all its assets, will be released from the obligation to pay the principal of and interest on the Notes.

 

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 property or assets of a Person.

 

Notwithstanding the preceding clause (3), (x) any Restricted Subsidiary (other than an Issuer) may consolidate with, merge into or transfer all or part of its properties and assets to Holdings or the Company and the Company may consolidate with, merge into or transfer all or part of its properties and assets to a Wholly-Owned Subsidiary and (y) the Company may merge with an Affiliate formed solely for the purpose of reforming the Company in another jurisdiction; provided that, in the case of a Restricted Subsidiary (other than an Issuer) that consolidates with, merges into or transfers all or part of its properties and assets to the Company, the Company will not be required to comply with the preceding clause (5).

 

Notwithstanding anything herein to the contrary, in the event the Company becomes a corporation or the Company or the Person formed by or surviving any consolidation or merger (permitted in accordance with the terms of the Indenture) is a corporation, Atlas Energy Finance Corp. may be dissolved in accordance with the Indenture and may cease to be an Issuer; provided that, to the extent the Company or any Person formed by or surviving any such consolidation or merger is not a corporation, Atlas Energy Finance Corp. shall not be dissolved and shall not cease to be an Issuer.

 

In addition, the Issuers will not permit any Subsidiary Guarantor to consolidate with or merge with or into, and will not permit the conveyance, transfer or lease of substantially all of the assets of any Subsidiary Guarantor to, any Person (other than the Company or another Subsidiary Guarantor) unless :

 

(1) (a) the resulting, surviving or transferee Person will be a corporation, partnership, trust or limited liability company organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and such Person (if not such Subsidiary Guarantor) will expressly assume, by supplemental indenture, executed and delivered to the Trustee, all the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee and (b) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the resulting, surviving or transferee Person or any Restricted Subsidiary as a result of such transaction as having been Incurred by such Person or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; or

 

(2) the transaction is made in compliance with the covenants described under “Subsidiary Guarantees” and “Certain Covenants—Limitation on sales of assets and Subsidiary stock.”

Future Guarantors

 

If, after the Issue Date, any Restricted Subsidiary that is not already a Subsidiary Guarantor guarantees any other Indebtedness of either of the Issuers or any of the Guarantors under any Credit Facility, then such Subsidiary must become a Subsidiary Guarantor by executing a supplemental indenture satisfactory to the Trustee and delivering an Opinion of Counsel to the Trustee within 30 days of the date on which it became a Restricted Subsidiary or such other guarantee was executed or such Indebtedness incurred, as applicable. Notwithstanding the foregoing, (i) any Guarantee of a Restricted Subsidiary that was incurred pursuant to this paragraph shall provide by its terms that it shall be automatically and unconditionally released upon the release or discharge of the guarantee which resulted in the creation of such Restricted Subsidiary’s Guarantee, except a discharge or release by, or as a result of payment under, such guarantee and except if, at such time, such Restricted Subsidiary is then a guarantor under any other Indebtedness of the Issuers or another Subsidiary and (ii) any Guarantee of a Restricted Subsidiary shall be automatically released if such Restricted Subsidiary is designated an Unrestricted Subsidiary in accordance with the Indenture.

 

Limitation on lines of business

 

Holdings will not, and will not permit any Restricted Subsidiary to, engage in any business other than the Energy Business (which includes certain energy businesses involving “minerals and natural resources” within the parameters of Section 7704(d)(1)(E) of the Code), except to the extent as would not be material to Holdings and the Restricted Subsidiaries taken as a whole.

 

Limitations on Atlas Energy Finance Corp.

 

Atlas Energy Finance Corp. will not hold any material assets, become liable for any material obligations, engage in any trade or business, or conduct any business activity, other than the issuance of Capital Stock to the Company, the incurrence of Indebtedness as a co-obligor or guarantor of Indebtedness incurred by the Company, including the Notes, that is permitted to be incurred by the Company under “—Certain covenants—Limitation on Indebtedness and Preferred Stock” ( provided that the net proceeds of such indebtedness are retained by the Company or loaned to or contributed as capital to one or more Restricted Subsidiaries other than Atlas Energy Finance Corp.), and activities incidental thereto. Neither Holdings nor any Restricted Subsidiary shall engage in any transactions with Atlas Energy Finance Corp. in violation of the immediately preceding sentence.

 

Payments for consent

 

Neither Holdings nor any of the Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fees or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment.

 

Events of Default

 

Each of the following is an Event of Default:

 

(1) default in any payment of interest on any Note when due, continued for 30 days;

(2) default in the payment of principal of or premium, if any, on any Note when due at its Stated Maturity, upon optional redemption or upon required repurchase;

 

(3) failure by an Issuer or any Guarantor to comply with its obligations under “Certain covenants—Merger and consolidation”;

 

(4) failure by an Issuer to comply for 30 days after notice as provided below with any of its obligations under the covenant described under “Change of Control” above or under the covenants described under “Certain covenants” above (in each case, other than a failure to purchase Notes which will constitute an Event of Default under clause (2) above and other than a failure to comply with “Certain covenants—Merger and consolidation” which is covered by clause (3));

 

(5) failure by an Issuer or a Guarantor to comply for 60 days after notice as provided below with their other agreements contained in the Indenture;

 

(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 Holdings or any of the Restricted Subsidiaries (or the payment of which is guaranteed by Holdings or any of the Restricted Subsidiaries), other than Indebtedness owed to Holdings or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default:

 

(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (and any extensions of any grace period) (“payment default”); or

 

(b) results in the acceleration of such Indebtedness prior to its maturity (the “cross acceleration provision”);

 

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $40.0 million or more;

 

(7) certain events of bankruptcy, insolvency or reorganization of Holdings, an Issuer or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for Holdings and the Restricted Subsidiaries), would constitute a Significant Subsidiary (the “bankruptcy provisions”);

 

(8) failure by Holdings, an Issuer or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for Holdings and the Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $40.0 million (to the extent not covered by insurance by a reputable and creditworthy insurer as to which the insurer has not disclaimed coverage), which judgments are not paid, discharged or stayed for any period of 60 consecutive days following entry of such final judgment (the “judgment default provision”); or

 

(9) any Guarantee of Holdings or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for Holdings and the Restricted Subsidiaries) would constitute a Significant Subsidiary ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a judicial proceeding or Holdings or any Subsidiary Guarantor that

is a Significant Subsidiary or group of Subsidiary Guarantors that, taken together (as of the latest audited consolidated financial statements of Holdings and the Restricted Subsidiaries) would constitute a Significant Subsidiary denies or disaffirms (in a manner having legal effect) its obligations under the Indenture or its Guarantee.

 

However, a default under clauses (4) and (5) of this paragraph will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding Notes notify the Issuers in writing and, in the case of a notice given by the holders, the Trustee of the default and the Issuers do not cure such default within the time specified in clauses (4) and (5) of this paragraph after receipt of such notice.

 

If an Event of Default (other than an Event of Default described in clause (7) above) occurs and is continuing, the Trustee by notice to the Issuers, or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Issuers and the Trustee, may, and the Trustee at the request of such holders shall, declare the principal of, premium, if any, accrued and unpaid interest, if any, on all the Notes to be due and payable. If an Event of Default described in clause (7) above occurs and is continuing, the principal of, premium, if any, accrued and unpaid interest, if any, on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders. The holders of a majority in principal amount of the outstanding Notes may waive all past defaults (except with respect to nonpayment of principal, premium, or interest, if any) and rescind any such acceleration with respect to the Notes and its consequences if (1) rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (2) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived.

 

Subject to the provisions of the Indenture relating to the duties of the Trustee, if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless :

 

(1) such holder has previously given the Trustee notice that an Event of Default is continuing;

 

(2) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy;

 

(3) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense;

 

(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and

 

(5) the holders of a majority in principal amount of the outstanding Notes have not waived such Event of Default or otherwise given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period.

 

Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Indenture provides that in the event an Event of Default has occurred and is

continuing, the Trustee will be required in the exercise of its powers to use the degree of care that a prudent person would use in the conduct of its own affairs. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.

 

The Trustee may withhold notice if and so long as a committee of trust officers of the Trustee in good faith determines that withholding notice is in the interests of the holders. In addition, the Issuers are required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Issuers also are required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any events which would constitute certain Defaults, their status and what action the Issuers are taking or proposing to take in respect thereof.

 

Amendments and waivers

 

Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the consent of the holders of a majority in principal amount of the Notes then outstanding (including without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes) and, subject to certain exceptions, any past default or compliance with any provisions may be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). However, without the consent of each holder of an outstanding Note affected, no amendment may, among other things:

 

(1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver;

 

(2) reduce the stated rate of or extend the stated time for payment of interest on any Note;

 

(3) reduce the principal of or extend the Stated Maturity of any Note;

 

(4) reduce the premium payable upon the redemption of any Note as described above under “Optional redemption,” or change the time at which any Note may be redeemed as described above under “Optional redemption,” or make any change to the covenants described above under “Change of control” after the occurrence of a Change of Control, or make any change to the provisions relating to an Asset Disposition Offer that has been made, in each case whether through an amendment or waiver of provisions in the covenants, definitions or otherwise;

 

(5) make any Note payable in money other than that stated in the Note;

 

(6) impair the right of any holder to receive payment of, premium, if any, principal of and interest on such holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration);

(7) make any change in the amendment provisions which require each holder’s consent or in the waiver provisions;

 

(8) modify the Guarantees in any manner adverse to the holders of the Notes; or

 

(9) make any change to or modify the ranking of the Notes that would adversely affect the holders.

 

Notwithstanding the foregoing, without the consent of any holder, the Issuers, the Guarantors and the Trustee may amend the Indenture and the Notes to:

 

(1) cure any ambiguity, omission, defect, mistake or inconsistency;

 

(2) provide for the assumption by a successor corporation of the obligations of the Issuers or any Guarantor under the Indenture;

 

(3) provide for uncertificated Notes in addition to or in place of certificated Notes ( provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f) (2) (B) of the Code);

 

(4) add Guarantees with respect to the Notes, including Subsidiary Guarantees, or release a Subsidiary Guarantor from its Subsidiary Guarantee and terminate such Subsidiary Guarantee; provided , however , that the release and termination is in accord with the applicable provisions of the Indenture;

 

(5) secure the Notes or Guarantees;

 

(6) add to the covenants of the Issuers or a Guarantor for the benefit of the holders or surrender any right or power conferred upon the Issuers or a Guarantor;

 

(7) make any change that does not adversely affect the rights of any holder;

 

(8) comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; or

 

(9) provide for the succession of a successor Trustee.

 

The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. A consent to any amendment or waiver under the Indenture by any holder of Notes given in connection with a tender of such holder’s Notes will not be rendered invalid by such tender. After an amendment under the Indenture becomes effective, the Issuers are required to mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect in the notice will not impair or affect the validity of the amendment.

 

Defeasance

 

The Issuers at any time may terminate all their obligations under the Notes and the Indenture (“legal defeasance”), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. If the Issuers exercises their legal defeasance option, the Guarantees in effect at such time will terminate.

The Issuers at any time may terminate their obligations described under “Change of control” and under covenants described under “Certain covenants” (other than clauses (1), (2), (4) and (5) of “Merger and consolidation”), the operation of the cross default upon a payment default, cross acceleration provisions, the bankruptcy provisions with respect to Significant Subsidiaries of the Company, the judgment default provision and the Guarantee provision described under “Events of default” above and the limitations contained in clause (3) under “Certain covenants—Merger and consolidation” above (“covenant defeasance”).

 

The Issuers may exercise their legal defeasance option notwithstanding their prior exercise of their covenant defeasance option. If the Issuers exercise their legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect to the Notes. If the Issuers exercise their covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (4), (5), (6), (7) (with respect only to Significant Subsidiaries of the Company), (8) or (9) under “Events of default” above or because of the failure of the Issuers to comply with clause (3) under “Certain covenants—Merger and consolidation” above.

 

In order to exercise either defeasance option, the Issuers must, among other things, irrevocably deposit in trust (the “defeasance trust”) with the Trustee money or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel (subject to customary exceptions and exclusions) to the effect that holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. In the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable federal income tax law.

 

Satisfaction and discharge

 

The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when either:

 

(1) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuers and thereafter repaid to the Issuers or discharged from such trust) have been delivered to the Trustee for cancellation, or

 

(2) all Notes that have not been delivered to the Trustee for cancellation have become due and payable or will become due and payable within one year by reason of the giving of a notice of redemption or otherwise and the Issuers or any Guarantor has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust solely for such purpose, cash in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal and accrued interest to the date of maturity or redemption, and in each case certain other requirements set forth in the Indenture are satisfied.

No personal liability of directors, officers, employees and stockholders

 

No director, officer, employee, incorporator or stockholder of an Issuer or any Guarantor, as such, shall have any liability for any obligations of the Issuers 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 by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

 

Concerning the trustee

 

U.S. Bank, National Association will be the Trustee under the Indenture and has been appointed by the Issuers as registrar and paying agent with regard to the Notes.

 

Governing law

 

The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York.

 

Certain definitions

 

“Acquired Indebtedness” means Indebtedness (i) of a Person or any of its Subsidiaries existing at the time such Person becomes or is merged with and into a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case whether or not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to have been Incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes or is merged with and into a Restricted Subsidiary and, with respect to clause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets.

 

“Additional Assets” means:

 

(1) any properties or assets to be used by Holdings or a Restricted Subsidiary in the Energy Business;

 

(2) capital expenditures by Holdings or a Restricted Subsidiary in the Energy Business;

 

(3) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by Holdings or a Restricted Subsidiary; or

 

(4) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary;

 

provided , however , that, in the case of clauses (3) and (4), such Restricted Subsidiary is primarily engaged in the Energy Business.

 

“Adjusted Consolidated Net Tangible Assets” of a Person means (without duplication), as of the date of determination, the remainder of:

 

(a) the sum of:

 

(i) discounted future net revenues from proved oil and gas reserves of such Person and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated by Holdings in a reserve report prepared as of the end of Holdings’ most recently completed fiscal year for which audited financial statements are available, as increased by, as of the date of determination, the estimated discounted future net revenues from

(A) estimated proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and

 

(B) estimated oil and gas reserves attributable to extensions, discoveries and other additions and upward revisions of estimates of proved oil and gas reserves since such year end due to exploration, development or exploitation, production or other activities, which would, in accordance with standard industry practice, cause such revisions,

 

in the case of clauses (A) and (B) calculated in accordance with SEC guidelines (utilizing the prices for the fiscal quarter ending prior to the date of determination),

 

and decreased by, as of the date of determination, the estimated discounted future net revenues from

 

(C) estimated proved oil and gas reserves produced or disposed of since such year end, and

 

(D) estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since such year end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated on a pre-tax basis and substantially in accordance with SEC guidelines

 

in the case of clauses (C) and (D) utilizing the prices for the fiscal quarter ending prior to the date of determination, provided , however , that in the case of each of the determinations made pursuant to clauses (A) through (D), such increases and decreases shall be as estimated by the Company’s petroleum engineers;

 

(ii) the capitalized costs that are attributable to oil and gas properties of such Person and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on such Person’s books and records as of a date no earlier than the date of such Person’s latest available annual or quarterly financial statements;

 

(iii) the Net Working Capital of such Person on a date no earlier than the date of such Person’s latest annual or quarterly financial statements; and

 

(iv) the greater of

 

(A) the net book value of other tangible assets of such Person and its Restricted Subsidiaries, as of a date no earlier than the date of such Person’s latest annual or quarterly financial statement, and

 

(B) the appraised value, as estimated by independent appraisers, of other tangible assets of such Person and its Restricted Subsidiaries, as of a date no earlier than the date of such Person’s latest audited financial statements; provided , that, if no such appraisal has been performed the Company shall not be required to obtain such an appraisal and only clause (iv)(A) of this definition shall apply;

 

minus

 

(b) the sum of:

 

(i) Minority Interests;

(ii) any net gas balancing liabilities of such Person and its Restricted Subsidiaries reflected in such Person’s latest audited balance sheet;

 

(iii) to the extent included in (a)(i) above, the discounted future net revenues, calculated in accordance with SEC guidelines (utilizing the prices utilized in such Person’s year end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of Holdings and the Restricted Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and

 

(iv) the discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of such Person and its Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).

 

If Holdings changes its method of accounting from the successful efforts method of accounting to the full cost or a similar method, “Adjusted Consolidated Net Tangible Assets” will continue to be calculated as if Holdings were still using the successful efforts method of accounting.

 

“Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Asset Disposition” means any direct or indirect sale, lease (other than an operating lease entered into in the ordinary course of the Energy Business), transfer, issuance or other disposition, or a series of related sales, leases, transfers, issuances or dispositions that are part of a common plan, of (A) shares of Capital Stock of a Restricted Subsidiary (other than Preferred Stock of Restricted Subsidiaries issued in compliance with the covenant described under the heading “Certain covenants—Limitation on Indebtedness and Preferred Stock,” and directors’ qualifying shares or shares required by applicable law to be held by a Person other than Holdings or a Restricted Subsidiary), (B) all or substantially all the assets of any division or line of business of Holdings or any Restricted Subsidiary, or (C) any other assets of Holdings or any Restricted Subsidiary outside of the ordinary course of business of Holdings or such Restricted Subsidiary (each referred to for the purposes of this definition as a “disposition”), in each case by Holdings or any of the Restricted Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction.

 

Notwithstanding the preceding, the following items shall not be deemed to be Asset Dispositions:

 

(1) a disposition by a Restricted Subsidiary to Holdings or by Holdings or a Restricted Subsidiary to a Restricted Subsidiary;

 

(2) the sale of cash and Cash Equivalents in the ordinary course of business;

 

(3) a disposition of Hydrocarbons or mineral products inventory in the ordinary course of business;

(4) a disposition of damaged, unserviceable, obsolete or worn out equipment or equipment that is no longer used or useful in the business of Holdings and the Restricted Subsidiaries;

 

(5) transactions in accordance with the covenant described under “Certain covenants—Merger and consolidation”;

 

(6) an issuance of Capital Stock by a Restricted Subsidiary to Holdings or to a Restricted Subsidiary;

 

(7) for purposes of “Certain covenants—Limitation on sales of assets and Subsidiary stock” only, the making of a Permitted Investment or a Restricted Payment (or a disposition that would constitute a Restricted Payment but for the exclusions from the definition thereof) permitted by the covenant described under “Certain covenants—Limitation on Restricted Payments”;

 

(8) an Asset Swap;

 

(9) dispositions of assets with a fair market value of less than $5.0 million;

 

(10) Permitted Liens;

 

(11) dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements;

 

(12) the licensing or sublicensing of intellectual property or other general intangibles and licenses, leases or subleases of other property in the ordinary course of business which do not materially interfere with the business of Holdings and the Restricted Subsidiaries;

 

(13) foreclosure on assets;

 

(14) any Production Payments and Reserve Sales; provided that any such Production Payments and Reserve Sales, other than incentive compensation programs on terms that are reasonably customary in the Energy Business for geologists, geophysicists and other providers of technical services to Holdings or a Restricted Subsidiary, shall have been created, Incurred, issued, assumed or Guaranteed in connection with the financing of, and within 60 days after the acquisition of, the property that is subject thereto;

 

(15) a disposition of oil and natural gas properties in connection with tax credit transactions complying with Section 29 or any successor or analogous provisions of the Code;

 

(16) surrender or waiver of contract rights, oil and gas leases, or the settlement, release or surrender of contract, tort or other claims of any kind;

 

(17) the abandonment, farmout, lease or sublease of developed or undeveloped oil and gas properties in the ordinary course of business; and

 

(18) the sale or transfer (whether or not in the ordinary course of business) of any oil and gas property or interest therein to which no proved reserves are attributable at the time of such sale or transfer.

 

“Asset Swap” means any concurrent purchase and sale or exchange of any oil or natural gas property or interest therein between Holdings or any of the Restricted Subsidiaries and another Person; provided , that any cash received must be applied in accordance with “Certain

covenants—Limitation on sales of assets and Subsidiary stock” as if the Asset Swap were an Asset Disposition.

 

“Available Cash” means, with respect to any fiscal quarter ending prior to the Merger Date and solely to the extent constituting Operating Surplus (as defined in Holdings’ Amended and Restated Operating Agreement, as amended, as in effect on the Original Issue Date):

 

(a) the sum of (i) all cash and Cash Equivalents of Holdings and its Subsidiaries, treated as a single consolidated entity (or Holdings’ proportionate share of cash and Cash Equivalents in the case of Subsidiaries that are not Wholly-Owned Subsidiaries), on hand at the end of such fiscal quarter; and (ii) all additional cash and Cash Equivalents of Holdings and its Subsidiaries (or Holdings proportionate share of cash and Cash Equivalents in the case of Subsidiaries that are not Wholly-Owned Subsidiaries) on hand on the date of determination of Available Cash with respect to such fiscal quarter resulting from working capital borrowings (including borrowings under the Senior Secured Credit Agreement) made subsequent to the end of such fiscal quarter, less

 

(b) the amount of any cash reserves established by the Board of Directors of Holdings to (i) provide for the proper conduct of the business of Holdings and its Subsidiaries (including reserves for Permitted Payments, future capital expenditures including drilling and acquisitions and for anticipated future credit needs of Holdings and its Subsidiaries), (ii) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which Holdings or any Subsidiary is a party or by which it is bound or its assets are subject or (iii) provide funds for distributions pursuant to Sections 6.3(a), 6.4 and 6.5 of the Operating Agreement with respect to any one or more of the next four fiscal quarters; provided , that disbursements made by Holdings or its Subsidiaries or cash reserves established, increased or reduced after the end of such fiscal quarter but on or before the date of determination of Available Cash with respect to such fiscal quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, within such fiscal quarter if the Board of Directors of Holdings so determines.

 

“Average Life” means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments.

 

“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

 

“Board of Directors” means, as to any Person that is a corporation, the board of directors of such Person or any duly authorized committee thereof or as to any Person that is not a corporation, the board of managers or such other individual or group serving a similar function.

 

“Business Day” means each day that is not a Saturday, Sunday or other day on which commercial banking institutions in New York, New York are authorized or required by law to close.

“Capital Stock” of any Person means any and all shares, units, interests, rights to purchase, warrants, options, participation or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.

 

“Capitalized Lease Obligations” means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation at the time any determination thereof is to be made as determined in accordance with GAAP, and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty.

 

“Cash Equivalents” means:

 

(1) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality of the United States ( provided that the full faith and credit of the United States is pledged in support thereof), having maturities of not more than one year from the date of acquisition;

 

(2) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition ( provided that the full faith and credit of the United States is pledged in support thereof) and, at the time of acquisition, having a credit rating of “A” (or the equivalent thereof) or better from either Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc.;

 

(3) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers’ acceptances having maturities of not more than one year from the date of acquisition thereof issued by any commercial bank the long-term debt of which is rated at the time of acquisition thereof at least “A2” or the equivalent thereof by Standard & Poor’s Ratings Services, or “P2” or the equivalent thereof by Moody’s Investors Service, Inc., and having combined capital and surplus in excess of $100.0 million;

 

(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (1), (2) and (3) entered into with any bank meeting the qualifications specified in clause (3) above;

 

(5) commercial paper rated at the time of acquisition thereof at least “A-2” or the equivalent thereof by Standard & Poor’s Ratings Services or “P-2” or the equivalent thereof by Moody’s Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in any case maturing within one year after the date of acquisition thereof; and

 

(6) interests in any investment company or money market fund which invests 95% or more of its assets in instruments of the type specified in clauses (1) through (5) above.

 

“Change of Control” means:

 

(1) any “person” or “group” of related persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) (other than, to the extent a Parent Change of Control has not occurred, Parent or its Subsidiaries), is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the Voting Stock of Holdings (or

its successor by merger, consolidation or purchase of all or substantially all of its assets) (for the purposes of this clause (1), such person or group shall be deemed to Beneficially Own any Voting Stock of Holdings held by a parent entity, if such person or group Beneficially Owns, directly or indirectly, more than 50% of the total voting power of the Voting Stock of such parent entity); or

 

(2) the first day on which a majority of the members of the Board of Directors of Holdings are not (i) nominated by the Board of Directors or (ii) appointed by directors so nominated; or