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TABLE OF CONTENTS
Table of Contents
As filed with the Securities and Exchange Commission on December 13, 2011
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CLAYTON WILLIAMS ENERGY, INC.
(AND CERTAIN SUBSIDIARIES OF CLAYTON WILLIAMS ENERGY, INC. IDENTIFIED IN
FOOTNOTE (*) BELOW)
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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1311
(Primary Standard Industrial
Classification Code Number)
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75-2396863
(I.R.S. Employer
Identification Number)
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Six Desta DriveSuite 6500
Midland, Texas 79705-5510
(432) 682-6324
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Mel G. Riggs
Executive Vice President and Chief Operating Officer
Clayton Williams Energy, Inc.
Six Desta DriveSuite 6500
Midland, Texas 79705-5510
(432) 682-6324
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
William R. Volk
Milam F. Newby
Vinson & Elkins L.L.P.
2801 Via Fortuna, Suite 100
Austin, Texas 78746
(512) 542-8400
(512) 542-8612 (fax)
Approximate date of commencement of proposed sale of the securities to the public:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General
Instruction G, check the following box.
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If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a
smaller reporting company)
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Smaller reporting company
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If
applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange
Act Rule 13e-4(i) (Cross-Border Issue Tender Offer)
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Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities
to Be Registered
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Amount to be
Registered
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Amount of
Registration Fee(1)
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7.75% Senior Notes due 2019
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$350,000,000
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$40,110
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Guarantees of 7.75% Senior Notes due 2019(2)
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None(3)
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(1)
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Calculated
pursuant to Rule 457(f)(2) under the Securities Act of 1933.
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(2)
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Each
subsidiary of Clayton Williams Energy, Inc. that is listed on the Table of Additional Registrant Guarantors has guaranteed the notes being
registered.
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(3)
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Pursuant
to Rule 457(n) of the Securities Act of 1933, no registration fee is required for the Guarantees.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Table of Contents
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
* The following are co-registrants that guarantee the debt securities:
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Exact Name of Registrant Guarantor(1)
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State or Other
Jurisdiction of
Incorporation or Formation
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IRS Employer
Identification
Number
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Southwest Royalties, Inc.
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Delaware
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75-1917432
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Warrior Gas Co.
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Texas
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75-2470747
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CWEI Acquisitions, Inc.
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Delaware
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75-2531463
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Romere Pass Acquisition L.L.C.
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Delaware
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72-1529502
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CWEI Romere Pass Acquisition Corp.
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Delaware
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83-0378927
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Blue Heel Company
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Delaware
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75-2740345
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Tex-Hal Partners, Inc.
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Delaware
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75-2567750
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Desta Drilling GP, LLC
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Texas
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20-4727861
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Desta Drilling, L.P.
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Texas
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20-4728095
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West Coast Energy Properties GP, LLC
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Texas
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30-0371874
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Clajon Industrial Gas, Inc.
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Texas
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75-1712875
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Clayton Williams Pipeline Corporation
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Delaware
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75-2640527
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(1)
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The
address for each Registrant Guarantor is Six Desta Drive, Suite 6500, Midland, Texas 79705-5510, and the telephone number for
each Registrant Guarantor is (432) 682-6324. The Primary Industrial Classification Code for each Registrant Guarantor is 1311.
Table of Contents
The information in this prospectus is not complete and may be changed. We may not sell these securities
until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated December 13, 2011
PROSPECTUS
Clayton Williams Energy, Inc.
Offer to Exchange
Up To $350,000,000 of
7.75% Senior Notes due 2019
That Have Not Been Registered Under
The Securities Act of 1933
For
Up To $350,000,000 of
7.75% Senior Notes due 2019
That Have Been Registered Under
The Securities Act of 1933
Terms of the New 7.75% Senior Notes due 2019 Offered in the Exchange Offer:
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The terms of the new notes are identical to the terms of the old notes that were issued on March 11, 2011 and
April 26, 2011, except that the new notes will be registered under the Securities Act of 1933 (the "Securities Act") and will not contain restrictions on transfer, registration rights or
provisions for additional interest.
Terms of the Exchange Offer:
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We are offering to exchange up to $350,000,000 of our old notes for new notes with materially identical terms that have
been registered under the Securities Act and are freely tradable.
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We will exchange all old notes that you validly tender and do not validly withdraw before the exchange offer expires for
an equal principal amount of new notes.
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The exchange offer expires at 5:00 p.m., New York City time, on , 2012, unless
extended.
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Tenders of old notes may be withdrawn at any time prior to the expiration of the exchange offer, in accordance with the
procedures set forth herein.
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We believe that the exchange of new notes for old notes will not be a taxable event for U.S. federal income tax purposes.
You should carefully consider the risk factors beginning on page 9 of this prospectus before participating in the exchange offer.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is , 2011.
Table of Contents
This prospectus is part of a registration statement we filed with the Securities and Exchange Commission. In making your
investment
decision, you should rely only on the information contained or incorporated by reference in this prospectus and in the accompanying letter of transmittal. We have not authorized anyone to provide you
with any other information. We are not making an offer to sell these securities or soliciting an offer to buy these securities in any jurisdiction where an offer or solicitation is not authorized or
in which the person making that offer or solicitation is not qualified to do so or to anyone whom it is unlawful to make an offer or solicitation. You should not assume that the information contained
in this prospectus, as well as the information we previously filed with the Securities and Exchange Commission that is incorporated by reference herein, is accurate as of any date other than its
respective date.
TABLE OF CONTENTS
This prospectus incorporates important business and financial information about Clayton Williams Energy, Inc. that is not included or delivered with this
prospectus. Such information is available without charge to holders of old notes upon written or oral request made to the office of Clayton Williams Energy, Inc., Attention: Patti Hollums, Six
Desta Drive, Suite 6500, Midland, Texas 79705-5510 (Telephone (432) 682-6324). To obtain timely delivery of any requested information, holders of old notes
must make any request no later than five business days prior to the expiration of the exchange offer.
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Table of Contents
FORWARD-LOOKING STATEMENTS
This prospectus and the information we incorporate by reference in this prospectus include "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or current facts, that address
activities, events, outcomes and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should,
could or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current expectations and belief, based on currently available information,
as to the outcome and timing of future events and their effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that
future developments affecting us will be those that we anticipate. All statements concerning our expectations for future operating results are based on our forecasts for our existing operations and do
not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties, many of which are beyond our control, and assumptions that
could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from
those in the forward-looking statements include, but are not limited to, those described in (1) our most recent Annual Report on Form 10-K, and, to the extent applicable, our
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, (2) our reports and registration statements filed from time to time with the Securities and
Exchange Commission, and (3) other announcements we make from time to time.
Forward-looking
statements appear in a number of places and include statements with respect to, among other things:
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estimates of our oil and gas reserves;
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estimates of our future oil and gas production, including estimates of any increases or decreases in production;
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planned capital expenditures and the availability of capital resources to fund those expenditures;
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our outlook on oil and gas prices;
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our outlook on domestic and worldwide economic conditions;
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our access to capital and our anticipated liquidity;
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our future business strategy and other plans and objectives for future operations;
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the impact of political and regulatory developments;
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our assessment of counterparty risks and the ability of our counterparties to perform their future obligations;
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estimates of the impact of new accounting pronouncements on earnings in future periods; and
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our future financial condition or results of operations and our future revenues and expenses.
We
caution you that these forward-looking statements are subject to all of the risks and uncertainties incident to the exploration for and development, production and marketing of oil
and gas. These risks include, but are not limited to:
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the possibility of unsuccessful exploration and development drilling activities;
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our ability to replace and sustain production;
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commodity price volatility;
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Table of Contents
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domestic and worldwide economic conditions;
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the availability of capital on economic terms to fund our capital expenditures and acquisitions;
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our level of indebtedness;
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the impact of the past or future economic recessions on our business operations, financial condition and ability to raise
capital;
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declines in the value of our oil and gas properties resulting in a decrease in our borrowing base under our credit
facility and impairments;
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the ability of financial counterparties to perform or fulfill their obligations under existing agreements;
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the uncertainty inherent in estimating proved oil and gas reserves and in projecting future rates of production and timing
of development expenditures;
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drilling and other operating risks;
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hurricanes and other weather conditions;
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lack of availability of goods and services;
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regulatory and environmental risks associated with drilling and production activities;
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the adverse effects of changes in applicable tax, environmental and other regulatory legislation; and
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the other risks described in or incorporated by reference into this prospectus.
Should
one or more of the risks or uncertainties described above or elsewhere or incorporated by reference into this prospectus occur, or should underlying assumptions prove incorrect,
our actual results and plans could differ materially from those expressed in any forward-looking statements.
We
caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus, and we undertake no obligation to update this
information to reflect events or circumstances after the date of this prospectus, except as required by law. All forward-looking statements, expressed or implied, included or incorporated by reference
in this prospectus and attributable to us are expressly qualified in their entirety by these cautionary statements. These cautionary statements should also be considered in connection with any
subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
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Table of Contents
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and the documents incorporated by
reference. Because it is a summary, it does not contain all of the information you should consider before deciding to exchange your old notes for new notes. You should read this entire prospectus and
the documents incorporated by reference and to which we refer you before making an investment decision. You should carefully consider the information set forth under "Risk Factors," the other
cautionary statements described in this prospectus, and the risk factors and other cautionary statements, including those described under the heading "Risk Factors," in our Annual Report on
Form 10-K for the year ended December 31, 2010, which is incorporated by reference in this prospectus, and, to the extent applicable, any subsequently filed Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K. In addition, certain statements include forward-looking information that involves risks and uncertainties. See
"Forward-Looking Statements."
Unless this prospectus otherwise indicates or the context otherwise requires, the terms the "Company," "we," "our," "us," "Clayton Williams Energy," "CWEI," or
other similar terms as used in this prospectus refer to Clayton Williams Energy, Inc. and its consolidated subsidiaries.
In this prospectus we refer to the notes to be issued in the exchange offer as the "new notes" and the notes issued on March 11, 2011 and April 26,
2011 as the "old notes." We refer to the new notes and the old notes collectively as the "notes."
Clayton Williams Energy, Inc.
We are an independent oil and gas company engaged in the exploration for and production of oil and natural gas primarily in Texas,
Louisiana and New Mexico.
Clayton
W. Williams, Jr. beneficially owns, either individually or through his affiliates, approximately 26% of the outstanding shares of our common stock. In addition, The Williams
Children's Partnership, Ltd., a limited partnership of which Mr. Williams' adult children are the limited partners, owns an additional 25% of the outstanding shares of our common stock.
Mr. Williams is also our Chairman of the Board and Chief Executive Officer. As a result, Mr. Williams has significant influence in matters voted on by our shareholders, including the
election of our Board members. Mr. Williams actively participates in all facets of our business and has a significant impact on both our business strategy and daily operations.
Our
principal executive offices are located at Six Desta Drive, Suite 6500, Midland, Texas 79705-5510, and our telephone number at our offices is
(432) 682-6324.
Risk Factors
Investing in the notes involves substantial risks. You should carefully consider all the information contained in this prospectus,
including information in documents incorporated by reference, prior to participating in the exchange offer. In particular, we urge you to consider carefully the factors set forth under "Risk Factors"
beginning on page 8 of this prospectus and those risk factors incorporated by reference to CWEI's Annual Report on Form 10-K for the year ended December 31, 2010 and,
to the extent applicable, any subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
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Table of Contents
The Exchange Offer
On March 11, 2011 and April 26, 2011, we completed private offerings of the old notes. We entered
into registration rights agreements with the initial purchasers in the private offerings in which we agreed to deliver to you this prospectus and to use our reasonable best efforts to complete the
exchange offer within 365 days after the date we first issued the old notes.
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Exchange Offer
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We are offering to exchange new notes for old notes.
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Expiration Date
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The exchange offer will expire at 5:00 p.m., New York City time,
on , 2012, unless we decide to extend it.
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Condition to the Exchange Offer
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The registration rights agreements do not require us to accept old notes for exchange if the exchange offer, or
the making of any exchange by a holder of the old notes, would violate any applicable law or interpretation of the staff of the Securities and Exchange Commission. The exchange offer is not conditioned on a minimum aggregate principal amount of old
notes being tendered.
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Procedures for Tendering Old Notes
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To participate in the exchange offer, you must follow the procedures established by The Depository Trust Company,
which we call "DTC," for tendering notes held in book-entry form. These procedures, which we call "ATOP," require that (i) the exchange agent receive, prior to the expiration date of the exchange offer, a computer generated message known as an
"agent's message" that is transmitted through DTC's automated tender offer program, and (ii) DTC confirms that:
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DTC has received your instructions to
exchange your notes, and
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you agree to be bound by the terms of the
letter of transmittal.
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For more information on tendering your old notes, please refer to the section in this prospectus entitled
"Exchange OfferTerms of the Exchange Offer," "Procedures for Tendering," and "Description of NotesBook Entry; Delivery and Form."
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Guaranteed Delivery Procedures
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None.
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Withdrawal of Tenders
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You may withdraw your tender of old notes at any time prior to the expiration date. To withdraw, you must submit
a notice of withdrawal to the exchange agent using ATOP procedures before 5:00 p.m., New York City time, on the expiration date of the exchange offer. Please refer to the section in this prospectus entitled "Exchange OfferWithdrawal of
Tenders."
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Acceptance of Old Notes and Delivery of New Notes
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If you fulfill all conditions required for proper acceptance of old notes, we will accept any and all old notes that you properly
tender in the exchange offer on or before 5:00 p.m., New York City time, on the expiration date. We will return any old notes that we do not accept for exchange to you without expense promptly after the expiration date and acceptance of the old
notes for exchange. Please refer to the section in this prospectus entitled "Exchange OfferTerms of the Exchange Offer."
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Fees and Expenses
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We will bear the expenses related to the exchange offer. Please refer to the section in this prospectus entitled
"Exchange OfferFees and Expenses."
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Use of Proceeds
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The issuance of the new notes will not provide us with any new proceeds. We are making this exchange offer solely
to satisfy our obligations under our registration rights agreements.
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Consequences of Failure to Exchange Old Notes
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If you do not exchange your old notes in this exchange offer, you will no longer be able to require us to
register the old notes under the Securities Act except in limited circumstances provided under the registration rights agreements. In addition, you will not be able to resell, offer to resell or otherwise transfer the old notes unless we have
registered the old notes under the Securities Act, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act.
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U.S. Federal Income Tax Considerations
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The exchange of new notes for old notes in the exchange offer will not be a taxable event for U.S. federal income
tax purposes. Please read "Material United States Federal Income Tax Consequences."
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Exchange Agent
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We have appointed Wells Fargo Bank, N.A. as exchange agent for the exchange offer. You should direct questions,
requests for assistance, requests for additional copies of this prospectus or the letter of transmittal to the exchange agent addressed as follows:
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by registered or certified mail at Wells
Fargo Bank, N.A., MACN9303-121, Corporate Trust Operations, P.O. Box 1517, Minneapolis, MN 55480-1517, Attn: Reorg; or
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by Overnight Delivery or Regular Mail at
Wells Fargo Bank, N.A, MACN9303-121, Corporate Trust Operations, Sixth Street & Marquette Avenue, Minneapolis, MN 55479, Attn: Reorg;
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Eligible institutions may make requests by facsimile at (612) 667-6282, Attn: Bondholder Communications,
and may confirm facsimile delivery by email at bondholdercommunications@wellsfargo.com or by telephone at (800) 344-5128, Attn: Bondholder Communications.
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Terms of the New Notes
The new notes will be identical to the old notes except that the new notes are registered under the Securities
Act and will not have restrictions on transfer, registration rights or provisions for additional interest. The new notes will evidence the same debt as the old notes, and the same indenture will
govern the new notes and the old notes.
The following summary contains basic information about the new notes and is not intended to be complete. It does not contain all information that is important to
you. For a more complete understanding of the new notes, please refer to the section of this document entitled "Description of Notes."
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Issuer
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Clayton Williams Energy, Inc..
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Securities
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$350,000,000 aggregate principal amount of 7.75% Senior Notes due 2019.
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Maturity
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April 1, 2019.
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Interest Payment Dates
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April 1 and October 1 of each year, commencing on October 1, 2011. Interest on each new note will
accrue from the last interest payment date on which interest was paid on the old note tendered in exchange thereof, or, if no interest has been paid on the old note, from the date of the original issue of the old note.
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Optional Redemption
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The new notes are redeemable at our option, in whole or in part, at any time on or after April 1, 2015 at
the redemption prices set forth in this prospectus under the heading "Description of NotesOptional Redemption" together with accrued and unpaid interest, if any, to the date of redemption.
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In addition, at any time and from time to time prior to April 1, 2014, we may redeem up to 35% of the
aggregate principal amount of the notes using the proceeds of one or more equity offerings at a redemption price of 107.750% of the principal amount of the notes, together with accrued and unpaid interest, if any, to the date of
redemption.
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We may redeem some or all of the notes prior to April 1, 2015, at a price equal to 100% of the principal
amount of the notes plus a "make-whole" premium together with accrued and unpaid interest, if any, to the date of redemption. See "Description of NotesOptional Redemption."
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Guarantees
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The notes are guaranteed by all of our material wholly owned subsidiaries, each of which also guarantees our
obligations under our senior secured revolving credit agreement dated November 29, 2010, among us, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto from time to time. Certain other subsidiaries may also be
required to become guarantors of the notes in the future. The guarantees are unsecured senior indebtedness of our subsidiary guarantors and have the same ranking with respect to indebtedness of our subsidiary guarantors as the notes have with respect
to our indebtedness. See "Description of NotesRanking"
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Ranking
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The new notes:
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are general unsecured, senior
obligations;
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rank equally in right of payment to all
of our existing and future senior indebtedness without giving effect to collateral agreements;
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are effectively junior to our secured
indebtedness, including amounts that may be borrowed under our revolving credit facility, to the extent of the value of the assets securing such debt;
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rank senior in right of payment to all
our existing and future subordinated indebtedness; and
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are structurally subordinated to all of
the existing and future liabilities (including trade payables) of each of our existing and future subsidiaries that do not guarantee the notes.
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As of September 30, 2011:
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we and our subsidiary guarantors had
$165 million in secured indebtedness outstanding under our revolving credit facility; and
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we had total availability under our
revolving credit facility of approximately $181 million, subject to the terms thereof.
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Mandatory Offers to Purchase
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The occurrence of a change of control will be a triggering event requiring us to offer to purchase from you all
or a portion of your notes at a price equal to 101% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase.
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Certain asset dispositions will be triggering events that may require us to use the proceeds from those asset
dispositions to make an offer to purchase the notes at 100% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase if such proceeds are not otherwise used within 360 days to repay certain
indebtedness or to invest in assets related to our business.
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Specified Covenants
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We will issue the new notes under the indenture dated as of March 16, 2011 with Wells Fargo Bank, National
Association, as trustee. The indenture, among other things, limits our ability and the ability of our restricted subsidiaries (as defined under "Description of Notes") to:
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incur, assume or guarantee additional
debt;
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issue redeemable stock and preferred
stock;
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repurchase capital stock;
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make other restricted payments, including
paying dividends and making investments;
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create liens without securing the
notes;
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redeem debt that is junior in right of
payment to the notes;
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sell or otherwise dispose of assets,
including capital stock of subsidiaries;
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enter into agreements that restrict
dividends from subsidiaries;
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enter into mergers or
consolidations;
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enter into transactions with affiliates;
and
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enter into new lines of
business.
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These covenants are subject to a number of important exceptions and qualifications. For more details, see
"Description of Notes."
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Transfer Restrictions; Absence of a Public Market for the New Notes
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The new notes generally will be freely transferable, but will also be new securities for which there will not
initially be a market. There can be no assurance as to the development, maintenance or liquidity of any market for the new notes.
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We do not intend to apply for a listing of the new notes on any securities exchange or any automated dealer
quotation system.
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Risk Factors
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You should carefully consider all of the information included or incorporated by reference in this prospectus. In
particular, you should evaluate the specific risk factors set forth under the heading "Risk Factors" for a discussion of risks involved with an investment in the new notes.
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Ratios of Earnings to Fixed Charges
The following table sets forth our ratios of consolidated earnings to fixed charges for the periods presented:
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Year Ended
December 31,
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Nine
Months
Ended
September 30,
2011
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2006
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2007
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2008
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2009
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2010
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Ratio of earnings to fixed charges(a)
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1.5x
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|
1.2x
|
|
|
5.8x
|
|
|
(b
|
)
|
|
2.5x
|
|
|
5.4x
|
|
-
(a)
-
For
purposes of calculating the ratios of consolidated earnings to fixed charges, "earnings" consists of income (loss) from continuing operations, plus
fixed charges. "Fixed charges" consist of interest and financing expense, amortization of deferred financing costs and the estimated interest factor attributable to rental expense.
-
(b)
-
We
had an earnings to fixed charges deficiency of approximately $116.7 million for the period presented.
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider and evaluate all of the information
and data included or incorporated by reference in this prospectus, including the risks described below, before deciding to participate in the exchange offer. In addition, you should read the risk
factors in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission, which is incorporated herein by reference
and, to the extent applicable, any subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. Our business, financial condition and results
of operations could be materially adversely affected by any of these risks. The trading price of the new notes could decline, and you may lose all or part of your investment. The risks described below
and incorporated by reference herein are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial individually or in the aggregate may also
impair our business operations.
This prospectus and the documents incorporated by reference also contain forward-looking statements that involve risks and uncertainties, some of which are
described in the documents incorporated by reference in this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various
factors, including the risks and uncertainties faced by us described below or incorporated by reference in this prospectus.
If you do not properly tender your old notes, you will continue to hold unregistered old notes and your ability to transfer old notes will remain restricted and may be
adversely affected.
We will only issue new notes in exchange for old notes that you timely and properly tender. Therefore, you should allow sufficient time
to ensure timely delivery of the old notes and you should carefully follow the instructions on how to tender your old notes. Neither we nor the exchange agent is required to tell you of any defects or
irregularities with respect to your tender of old notes.
If
you do not exchange your old notes for new notes pursuant to the exchange offer, the old notes you hold will continue to be subject to the existing transfer restrictions. In general,
you may not offer or sell the old notes except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not plan to register old
notes under the Securities Act unless our registration rights agreements with the initial purchasers of the old notes require us to do so. Further, if you continue to hold any old notes after the
exchange offer is consummated, you may have trouble selling them because there will be fewer of these notes outstanding.
We may not be able to generate sufficient cash to service all of our indebtedness, including the notes, and may be forced to take other actions to satisfy our obligations
under our indebtedness, which may not be successful.
Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which
is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows
from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If
our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek
additional capital or restructure or refinance our indebtedness, including the notes. We cannot assure you that we would be able to take any of these actions, that these actions would be successful
and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements including our revolving credit facility
and the indenture governing the notes. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or
operations to meet our debt service and other obligations. Our revolving credit facility and the indenture governing the notes will restrict
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our
ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these
proceeds may not be adequate to meet any debt service obligations then due.
If
we cannot make scheduled payments on our debt, we will be in default and, as a result:
-
-
our debt holders could declare all outstanding principal and interest to be due and payable;
-
-
the lenders under our revolving credit facility could terminate their commitments to loan us money and foreclose against
the assets securing their borrowings; and
-
-
we could be forced into bankruptcy or liquidation, which could result in you losing your investment in the notes.
Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the notes.
Our high level of indebtedness could have important consequences to you, including the following:
-
-
it may make it difficult for us to satisfy our obligations under the notes and our other indebtedness and contractual and
commercial commitments;
-
-
prevent us from raising the funds necessary to repurchase notes tendered to us if there is a change of control, which
would constitute a default under the indenture governing the notes and our revolving credit facility; and
-
-
it may otherwise limit us in the ways summarized under Item 1A. "Risk FactorsWe have substantial
indebtedness. Our leverage and the covenants in our debt agreements could negatively impact our financial condition, liquidity, results of operations and business prospects." in our Annual Report on
Form 10-K.
Our
ability to make payments with respect to the notes and to satisfy our other debt obligations will depend on our future operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, many of which are beyond our control.
Despite existing debt levels, we and our subsidiaries may still be able to incur substantially more debt, which would increase the risks associated with our leverage.
Even though we are highly leveraged, we may be able to incur substantial amounts of additional debt in the future, including debt under
existing and future credit facilities, which may be secured and therefore effectively senior to the notes. Although the terms of the notes and our revolving credit facility limit our ability to incur
additional debt, such terms do not and will not prohibit us from incurring substantial amounts of additional debt for specific purposes or under certain circumstances. If new debt is added to our and
our subsidiaries' current debt levels, the related risks that we and they now face could intensify. The incurrence of additional debt could adversely impact our ability to service payments on the
notes.
Covenants in our debt agreements restrict our business in many ways.
The indenture governing the notes contains various covenants that limit our ability and/or our restricted subsidiaries' ability to,
among other things:
-
-
incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;
-
-
issue redeemable stock and preferred stock;
-
-
pay dividends or distributions or redeem or repurchase capital stock;
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-
-
prepay, redeem or repurchase debt;
-
-
make loans, investments and capital expenditures;
-
-
enter into agreements that restrict distributions from our subsidiaries;
-
-
sell assets and capital stock of our subsidiaries;
-
-
enter into certain transactions with affiliates;
-
-
consolidate or merge with or into, or sell substantially all of our assets to, another person; and
-
-
enter into new lines of business.
In
addition, our revolving credit facility also contains restrictive covenants and requires us to maintain specified financial ratios and satisfy other financial condition tests. Our
ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those tests. A breach of any of these covenants could result
in a default under our revolving credit facility and/or the notes. Upon the occurrence of an event of default under our revolving credit facility, the lenders could elect to declare all amounts
outstanding under our revolving 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 under
our revolving credit facility 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 revolving
credit facility. If the lenders under our revolving credit facility accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay our revolving credit
facility and our other indebtedness, including the notes. See "Description of Other Indebtedness."
Our
borrowings under our revolving 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 notes and the guarantees are effectively subordinated to all of our secured debt, and, if a default occurs, we may not have sufficient funds to fulfill our obligations
under the notes and the guarantees.
The notes are general senior unsecured obligations that rank equally in right of payment with all of our existing and future
unsubordinated indebtedness. The notes are effectively subordinated to all our and our subsidiary guarantors' secured indebtedness to the extent of the value of the assets securing that indebtedness.
As of September 30, 2011, we and our subsidiary guarantors had $165 million in secured indebtedness outstanding under our revolving credit facility and total availability under our
revolving credit facility of approximately $181 million, subject to the terms thereof. All of those borrowings will be secured by substantially all of our assets and rank effectively senior to
the notes and the guarantees. In addition, the indenture governing the notes, subject to certain limitations, permits us to incur additional secured indebtedness and your notes will be effectively
junior to any additional secured indebtedness we may incur.
In
the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure our secured indebtedness will be available to pay obligations on the notes only
after all secured indebtedness, together with accrued interest, has been repaid in full from our assets. Likewise, because our revolving credit facility is a secured obligation, our failure to comply
with the terms of our revolving credit facility would entitle those lenders to declare all the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable
to repay such indebtedness, the lenders could foreclose on substantially all of our assets that serve as collateral. In this event, our secured lenders would be entitled to be repaid in full from the
proceeds of the liquidation of those assets before those assets would be available for distribution to other creditors,
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including
holders of the notes. Holders of the notes will participate in our remaining assets 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. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the notes then outstanding. The
guarantees of the notes have a similar ranking with respect to secured and unsecured senior indebtedness of the subsidiary guarantors as the notes do with respect to our secured and unsecured senior
indebtedness, as well as with respect to any unsecured obligations expressly subordinated in right of payment to the guarantees.
The notes are structurally subordinated to all indebtedness of our subsidiaries that do not guarantee the notes.
You will not have any claim as a creditor against any of our existing and future subsidiaries that are not or do not become guarantors
of the notes or that are no longer guarantors of the notes. Indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will be effectively senior
to your claims against those subsidiaries. In
addition, the indenture governing the notes, subject to some limitations, permits these subsidiaries to incur additional indebtedness and does not contain any limitation on the amount of other
liabilities, such as trade payables, that may be incurred by these subsidiaries.
We may not be able to repurchase the notes upon a change of control.
Upon the occurrence of specific change of control events, we will be required to offer to repurchase all outstanding notes at 101% of
their principal amount plus accrued and unpaid interest. We may not be able to repurchase the notes upon a change of control because we may not have sufficient funds at such time. Further, we may be
contractually restricted under the terms of our revolving credit facility or other future senior indebtedness from repurchasing all of the notes tendered by holders upon a change of control.
Accordingly, we may not be able to satisfy our obligations to purchase your notes unless we are able to refinance or obtain waivers under our revolving credit facility. Our failure to repurchase the
notes upon a change of control would cause a default under the indenture and a cross default under our revolving credit facility. Our revolving credit facility also provides that a change of control,
as defined therein, will be a default that permits lenders to accelerate the maturity of borrowings thereunder and, if such debt is not paid, to enforce security interests in the collateral securing
such debt, thereby limiting our ability to raise cash to purchase the notes and reducing the practical benefit of the offer-to-purchase provisions to the holders of the notes.
Any of our future debt agreements may contain similar provisions.
In
addition, the change of control provisions in the indenture may not protect you from certain important corporate events, such as a leveraged recapitalization (which would increase the
level of our indebtedness), reorganization, restructuring, merger or other similar transaction, unless such transaction constitutes a "Change of Control" under the indenture. Such a transaction may
not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change that constitutes a "Change of Control" as defined in the indenture that would trigger our
obligation to repurchase the notes. Therefore, if an event occurs that does not constitute a "Change of Control" as defined in the indenture, we will not be required to make an offer to repurchase the
notes and you may be required to continue to hold your notes despite the event. See "Description of NotesChange of Control."
The trading prices for the notes may be affected by our credit rating.
Credit rating agencies continually revise their ratings for companies that they follow, including us. Any ratings downgrade could
adversely affect the trading price of the notes or the trading market for the notes to the extent a trading market for the notes develops. The condition of the financial and credit markets and
prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future.
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Many of the covenants contained in the indenture will be suspended if the notes are rated investment grade by both Standard & Poor's and Moody's and no default or
event of default has occurred and is continuing.
Many of the covenants in the indenture governing the notes will be suspended if the notes are rated investment grade by both
Standard & Poor's and Moody's and no default or event of default has occurred and is continuing. These covenants restrict, among other things, our ability to make certain payments, incur debt
and enter into certain other transactions. Suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force. See
"Description of NotesCertain CovenantsSuspended Covenants."
Federal and state fraudulent transfer laws permit a court to void the notes and the guarantees, and, if that occurs, you may not receive any payments on the notes.
The issuance of the notes and the guarantees may be subject to review under federal and state fraudulent transfer and conveyance
statutes. While the relevant laws may vary from state to state, under such laws the payment of consideration will be a fraudulent conveyance if (1) we paid the consideration with the intent of
hindering, delaying or defrauding creditors or (2) we or any of our subsidiary guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for
issuing either the notes or a guarantee, and, in the case of (2) only, one of the following is also true:
-
-
we or any of our subsidiary guarantors were or was insolvent or rendered insolvent by reason of the incurrence of the
indebtedness;
-
-
payment of the consideration left us or any of our subsidiary guarantors with an unreasonably small amount of capital to
carry on the business; or
-
-
we or any of our subsidiary guarantors intended to, or believed that we or it would, incur debts beyond our or its ability
to pay as they mature.
If
a court were to find that the issuance of the notes or a guarantee was a fraudulent conveyance, the court could void the payment obligations under the notes or such guarantee or
subordinate the notes or such guarantee to presently existing and future indebtedness of ours or such subsidiary guarantor, or require the holders of the notes to repay any amounts received with
respect to the notes or such guarantee. In the event of a finding that a fraudulent conveyance occurred, you may not receive any repayment on the notes. Further, the voidance of the notes could result
in an event of default with respect to our other debt and that of our subsidiary guarantors that could result in acceleration of such debt.
Generally,
an entity would be considered insolvent if, at the time it incurred indebtedness:
-
-
the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets;
-
-
the present fair saleable value of its assets was less than the amount that would be required to pay its probable
liability on its existing debts and liabilities, including contingent liabilities, as they become absolute and mature; or
-
-
it could not pay its debts as they become due.
We
cannot be certain as to the standards a court would use to determine whether or not we or the subsidiary guarantors were solvent at the relevant time or, regardless of the standard
that a court uses, that the issuance of the notes and the guarantees would not be subordinated to our or any subsidiary guarantor's other debt.
If
the guarantees were legally challenged, any guarantee could also be subject to the claim that, since the guarantee was incurred for our benefit, and only indirectly for the benefit of
the subsidiary
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guarantor,
the obligations of the applicable subsidiary guarantor were incurred for less than fair consideration. A court could thus void the obligations under the guarantees, subordinate them to the
applicable subsidiary guarantor's other debt or take other action detrimental to the holders of the notes.
Your ability to transfer the notes may be limited by the absence of an active trading market, and there is no assurance that any active trading market will develop for the
notes.
The old notes have not been registered under the Securities Act, and may not be resold by purchasers thereof unless the old notes are
subsequently registered or an exemption from the registration requirements of the Securities Act is available. However, we cannot assure you that, even following registration or exchange of the old
notes for new notes, that an active trading market for the old notes or the new notes will exist, and we will have no obligation to create such a market. At the time of the private placement of the
old notes, the initial purchasers advised us that they intended to make a market in the old notes and, if issued, the new notes. The initial purchasers are not obligated, however, to make a market in
the old notes or the new notes and any market-making may be discontinued at any time at their sole discretion. No assurance can be given as to the liquidity of or trading market for the old notes or
the new notes.
The
liquidity of any trading market for the notes and the market price quoted for the notes will depend upon the number of holders of the notes, the overall market for high yield
securities, our financial performance or prospects or the prospects for companies in our industry generally, the interest of securities dealers in making a market in the notes and other factors.
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EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
At the closing of each of the offerings of the old notes, we entered into a registration rights agreement with the initial purchasers
pursuant to which we agreed, for the benefit of the holders of the old notes, at our cost, to do the following:
-
-
file an exchange offer registration statement with the SEC with respect to the exchange offer for the new notes, and
-
-
use reasonable best efforts to have the exchange offer completed by March 16, 2012.
Upon
the SEC's declaring the exchange offer registration statement effective, we agreed to offer the new notes in exchange for surrender of the old notes. We agreed to use reasonable
best efforts to cause the exchange offer registration statement to be effective continuously, to keep the exchange offer open for a period of not less than 20 business days and to use reasonable best
efforts to cause the exchange offer to be consummated promptly after the exchange offer registration statement is declared effective by the SEC.
For
each old note surrendered to us pursuant to the exchange offer, the holder of such old note will receive a new note having a principal amount equal to that of the surrendered old
note. Interest on each new note will accrue from the last interest payment date on which interest was paid on the surrendered old note or, if no interest has been paid on such old note, from
March 16, 2011. The registration rights agreements also obligate us to include in the prospectus for the exchange offer certain information necessary to allow a broker-dealer who holds old
notes that were acquired for its own account as a result of market-making activities or other ordinary course trading activities (other than old notes acquired directly from us or one of our
affiliates) to exchange such old notes pursuant to the exchange offer and to satisfy the prospectus delivery requirements in connection with resales of new notes received by such broker-dealer in the
exchange offer. We agreed to amend or supplement the prospectus contained in the exchange offer registration statement for a period of 180 days after the last exchange date, which period may be
extended under certain circumstances.
The
preceding agreement is needed because any broker-dealer who acquires old notes for its own account as a result of market-making activities or other trading activities is required to
deliver a prospectus meeting the requirements of the Securities Act. This prospectus covers the offer and sale of the new notes pursuant to the exchange offer and the resale of new notes received in
the exchange offer by any broker-dealer who held old notes acquired for its own account as a result of market-making activities or other trading activities other than old notes acquired directly from
us or one of our affiliates.
Based
on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the new notes issued pursuant to the exchange offer
would in general be freely tradable after the exchange offer without further registration under the Securities Act. However, any purchaser of old notes who is an "affiliate" of ours or who intends to
participate in the exchange offer for the purpose of distributing the related new notes:
-
-
will not be able to rely on the interpretation of the staff of the SEC,
-
-
will not be able to tender its old notes in the exchange offer, and
-
-
must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale
or transfer of the old notes unless such sale or transfer is made pursuant to an exemption from such requirements.
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Each
holder of the old notes (other than certain specified holders) who desires to exchange old notes for the new notes in the exchange offer will be required to make the representations
described below under "Procedures for TenderingYour Representations to Us."
We
further agreed to file with the SEC a shelf registration statement to register for public resale of old notes held by any holder who provides us with certain information for inclusion
in the shelf registration statement if:
-
-
the exchange offer is not available or may not be completed as soon as practicable after the last exchange date because it
would violate any applicable law or applicable interpretation of the staff of the SEC, or
-
-
upon completion of the exchange offer, any initial purchaser shall so request, no later than the 90th day after the
completion of the exchange offer (provided that such date occurs prior to March 16, 2012), in connection with any offering or sale of notes.
We
have agreed to use reasonable best efforts to keep the shelf registration statement continuously effective until the earlier of March 16, 2012 and such time as all notes
covered by the shelf registration statement have been sold. We refer to this period as the "shelf effectiveness period."
The
registration rights agreements provide that, in the event that either the exchange offer is not completed by March 16, 2012, or the shelf registration statement, if required,
is not declared effective within 60 days after such shelf registration statement is required to be filed, the interest rate on the old notes will be increased by (i) 0.25% per annum for
the first 90-day period that such condition is not satisfied and (ii) an additional 0.25% per annum with respect to each successive 90-day period during which the
condition is not satisfied, up to a maximum additional interest of 0.50% per annum of additional interest until the exchange offer is completed or the shelf registration statement, if required, is
declared effective by the SEC or is no longer required to be effective.
If
the shelf registration statement, if required, has been declared effective and thereafter either ceases to be effective or the prospectus contained therein ceases to be usable at any
time during the shelf effectiveness period, and such failure to remain effective or usable exists for more than 30 days (whether or not consecutive) in the shelf effectiveness period, then the
interest rate on the old notes will be increased by (i) 0.25% per annum for the first 90-day period that such condition is not satisfied and (ii) an additional 0.25% per
annum with respect to each successive 90-day period during which the condition is not satisfied, up to a maximum additional interest of 0.50% per annum of additional interest, commencing
on the 31
st
day in the shelf effectiveness period and ending on the earlier of (a) such date that the shelf registration statement has again been declared effective or the
prospectus again becomes usable, or (b) the date on which the shelf registration statement is no longer required to be effective.
Holders
of the old notes will be required to make certain representations to us (as described in the registration rights agreements) in order to participate in the exchange offer and may
be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the
registration rights agreements in order to have their old notes included in the shelf registration statement.
If
we effect the registered exchange offer, we will be entitled to close the registered exchange offer 20 business days after its commencement as long as we have accepted all old notes
validly tendered in accordance with the terms of the exchange offer and no brokers or dealers continue to hold any old notes.
This
summary of the material provisions of the registration rights agreements does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the
provisions of the
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registration
rights agreements, copies of which are filed as exhibits to the registration statement which includes this prospectus.
Except
as set forth above, after consummation of the exchange offer, holders of old notes which are the subject of the exchange offer have no registration or exchange rights under the
registration rights agreements. See "Consequences of Failure to Exchange."
Terms of the Exchange Offer
Subject to the terms and conditions described in this prospectus and in the letter of transmittal, we will accept for exchange any old
notes properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. We will issue new notes in principal amount equal to the principal amount of old
notes surrendered in the exchange offer. Old notes may be tendered only for new notes and only in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.
The
exchange offer is not conditioned upon any minimum aggregate principal amount of old notes being tendered for exchange.
As
of the date of this prospectus, $350,000,000 in aggregate principal amount of the old notes is outstanding. This prospectus and the letter of transmittal are being sent to all
registered holders of old notes. There will be no fixed record date for determining registered holders of old notes entitled to participate in the exchange offer.
We
intend to conduct the exchange offer in accordance with the provisions of the registration rights agreements, the applicable requirements of the Securities Act and the Securities
Exchange Act of 1934 and the rules and regulations of the SEC. Old notes that the holders thereof do not tender for exchange in the exchange offer will remain outstanding and continue to accrue
interest. These old notes will continue to be entitled to the rights and benefits such holders have under the indenture relating to the notes and the registration rights agreements.
We
will be deemed to have accepted for exchange properly tendered old notes when we have given oral or written notice of the acceptance to the exchange agent and complied with the
applicable provisions of the registration rights agreements. The exchange agent will act as agent for the tendering holders for the purposes of receiving the new notes from us.
If
you tender old notes in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the letter of transmittal, transfer taxes with respect to the
exchange of old notes. We will pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offer. It is important that you read the section
labeled "Fees and Expenses" for more details regarding fees and expenses incurred in the exchange offer.
We
will return any old notes that we do not accept for exchange for any reason without expense to their tendering holder promptly after the expiration or termination of the exchange
offer.
Expiration Date
The exchange offer will expire at 5:00 p.m., New York City time,
on , 2012, unless, in our sole discretion, we
extend it.
Extensions, Delays in Acceptance, Termination or Amendment
We expressly reserve the right, at any time or various times, to extend the period of time during which the exchange offer is open. We
may delay acceptance of any old notes by giving oral or written notice of such extension to their holders. During any such extensions, all old notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange.
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In
order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of old notes of the extension no
later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.
If
any of the conditions described below under "Conditions to the Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion:
-
-
to delay accepting for exchange any old notes,
-
-
to extend the exchange offer, or
-
-
to terminate the exchange offer,
by
giving oral or written notice of such delay, extension or termination to the exchange agent. Subject to the terms of the registration rights agreements, we also reserve the right to amend the terms
of the exchange offer in any manner.
Any
such delay in acceptance, extension, termination or amendment will be followed promptly by oral or written notice thereof to the registered holders of old notes. If we amend the
exchange offer in a manner that we determine to constitute a material change, we will promptly disclose such amendment by means of a prospectus supplement. The supplement will be distributed to the
registered holders of the old notes. Depending upon the significance of the amendment and the manner of disclosure to the registered holders, we may extend the exchange offer. In the event of a
material change in the exchange offer, including the waiver by us of a material condition, we will extend the exchange offer period if necessary so that at least five business days remain in the
exchange offer following notice of the material change.
Conditions to the Exchange Offer
We will not be required to accept for exchange, or exchange any new notes for, any old notes if the exchange offer, or the making of
any exchange by a holder of old notes, would violate applicable law or any applicable interpretation of the staff of the SEC. Similarly, we may terminate the exchange offer as provided in this
prospectus before accepting old notes for exchange in the event of such a potential violation.
In
addition, we will not be obligated to accept for exchange the old notes of any holder that has not made to us the representations described under "Purpose and Effect of
the Exchange Offer," "Procedures for Tendering" and "Plan of Distribution" and such other representations as may be reasonably necessary under applicable SEC rules, regulations or
interpretations to allow us to use an appropriate form to register the new notes under the Securities Act.
We
expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any old notes not previously accepted for exchange, upon the occurrence of any of the
conditions to the exchange offer specified above. We will give prompt oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the old notes as
promptly as practicable.
These
conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time or at various times in our sole discretion. If we fail at any time to
exercise any of these rights, this failure will not mean that we have waived our rights. Each such right will be deemed an ongoing right that we may assert at any time or at various times.
In
addition, we will not accept for exchange any old notes tendered, and will not issue new notes in exchange for any such old notes, if at such time any stop order has been threatened
or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture relating to the notes under the Trust Indenture Act of
1939.
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Procedures for Tendering
In order to participate in the exchange offer, you must properly tender your old notes to the exchange agent as described below. It is
your responsibility to properly tender your notes. We have the right to waive any defects. However, we are not required to waive defects and are not required to notify you of defects in your tender.
If
you have any questions or need help in exchanging your notes, please call the exchange agent, whose address and phone number are set forth in "Prospectus SummaryThe
Exchange OfferExchange Agent."
All
of the old notes were issued in book-entry form, and all of the old notes are currently represented by global certificates held for the account of DTC. We have confirmed
with DTC that the old notes may be tendered using the Automated Tender Offer Program ("ATOP") instituted by DTC. The exchange agent will establish an account with DTC for purposes of the exchange
offer promptly after the commencement of the exchange offer and DTC participants may electronically transmit their acceptance of the exchange offer by causing DTC to transfer their old notes to the
exchange agent using the ATOP procedures. In connection with the transfer, DTC will send an "agent's message" to the exchange agent. The agent's message will state that DTC has received instructions
from the participant to tender old notes and that the participant agrees to be bound by the terms of the letter of transmittal.
By
using the ATOP procedures to exchange old notes, you will not be required to deliver a letter of transmittal to the exchange agent. However, you will be bound by its terms just as if
you had signed it.
There
is no procedure for guaranteed late delivery of the notes.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered
old notes and withdrawal of tendered old notes. Our determination will be final and binding. We reserve the absolute right to reject any old notes not properly tendered or any old notes our acceptance
of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defect, irregularities or conditions of tender as to particular old notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, all defects or irregularities in
connection with tenders of old notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes,
neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of old notes will not be deemed made until such defects or irregularities
have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to
the tendering holder, unless otherwise provided in the letter of transmittal, promptly following the expiration date.
When We Will Issue New Notes
In all cases, we will issue new notes for old notes that we have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
-
-
a book-entry confirmation of such old notes into the exchange agent's account at DTC; and
-
-
a properly transmitted agent's message.
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Return of Old Notes Not Accepted or Exchanged
If we do not accept any tendered old notes for exchange or if old notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged old notes will be returned without expense to their tendering holder. Such non-exchanged old notes will be credited to an
account maintained with DTC. These actions will occur promptly after the expiration or termination of the exchange offer.
Your Representations to Us
By agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:
-
-
any new notes that you receive will be acquired in the ordinary course of your business;
-
-
you have no arrangement or understanding with any person or entity to participate in the distribution of the new notes;
-
-
you are not our "affiliate," as defined in Rule 405 of the Securities Act; and
-
-
if you are a broker-dealer that will receive new notes for your own account in exchange for old notes, you acquired those
notes as a result of market-making activities or other trading activities and you will deliver a prospectus (or to the extent permitted by law, make available a prospectus) in connection with any
resale of such new notes.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw your tender at any time prior to 5:00 p.m., New York City
time, on the expiration date. For a withdrawal to be effective you must comply with the appropriate procedures of DTC's ATOP system. Any notice of withdrawal must specify the name and number of the
account at DTC to be credited with withdrawn old notes and otherwise comply with the procedures of DTC.
We
will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal. Our determination shall be final and binding on all parties. We will
deem any old notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer.
Any
old notes that have been tendered for exchange but are not exchanged for any reason will be credited to an account maintained with DTC for the old notes. This crediting will take
place as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn old notes by following the procedures described under
"Procedures for Tendering" above at any time prior to 5:00 p.m., New York City time, on the expiration date.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional
solicitation by facsimile, telephone, electronic mail or in person by our officers and regular employees and those of our affiliates.
We
have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We
will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.
We
will pay the cash expenses to be incurred in connection with the exchange offer. They include:
-
-
all registration and filing fees and expenses;
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-
-
all fees and expenses of compliance with federal securities and state "blue sky" or securities laws;
-
-
accounting and legal fees, disbursements and printing, messenger and delivery services, and telephone costs; and
-
-
related fees and expenses.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of old notes under the exchange offer. The tendering holder,
however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if a transfer tax is imposed for any reason other than the exchange of old notes
under the exchange offer.
Consequences of Failure to Exchange
If you do not exchange new notes for your old notes under the exchange offer, you will remain subject to the existing restrictions on
transfer of the old notes. In general, you may not offer or sell the old notes unless the offer or sale is either registered under the Securities Act or exempt from the registration under the
Securities Act and applicable state securities laws. Except as required by the registration rights agreements, we do not intend to register resales of the old notes under the Securities Act.
Accounting Treatment
We will record the new notes in our accounting records at the same carrying value as the old notes. This carrying value is the
aggregate principal amount of the old notes less any bond discount, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer.
Other
Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your
financial and tax advisors in making your own decision on what action to take.
We
may in the future seek to acquire untendered old notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans
to acquire any old notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old notes.
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RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratios of consolidated earnings to fixed charges for the periods presented:
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|
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|
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|
|
|
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Year Ended December 31,
|
|
Nine Months
Ended
September 30,
2011
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|
|
|
2006
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|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Ratio of earnings to fixed charges(a)
|
|
|
1.5x
|
|
|
1.2x
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|
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5.8x
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|
(b
|
)
|
|
2.5x
|
|
|
5.4x
|
|
-
(c)
-
For
purposes of calculating the ratios of consolidated earnings to fixed charges, "earnings" consists of income (loss) from continuing operations, plus
fixed charges. "Fixed charges" consist of interest and financing expense, amortization of deferred financing costs and the estimated interest factor attributable to rental expense.
-
(d)
-
We
had an earnings to fixed charges deficiency of approximately $116.7 million for the period presented.
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USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the registration rights agreements. We will not receive any proceeds
from the issuance of the new notes in the exchange offer. In consideration for issuing the new notes as contemplated by this prospectus, we will receive old notes in a like principal amount. The form
and terms of the new notes are identical in all respects to the form and terms of the old notes, except the new notes will be registered under the Securities Act and will not contain restrictions on
transfer, registration rights or provisions for additional interest. Old notes surrendered in exchange for the new notes will be retired and cancelled and will not be reissued. Accordingly, the
issuance of the new notes will not result in any change in outstanding indebtedness.
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BUSINESS
We are an independent oil and gas company engaged in the exploration for and production of oil and natural gas primarily in Texas,
Louisiana and New Mexico.
Clayton
W. Williams, Jr. beneficially owns, either individually or through his affiliates, approximately 26% of the outstanding shares of our common stock. In addition, The Williams
Children's Partnership, Ltd., a limited partnership of which Mr. Williams' adult children are the limited partners, owns an additional 25% of the outstanding shares of our common stock.
Mr. Williams is also our Chairman of the Board and Chief Executive Officer. As a result, Mr. Williams has significant influence in matters voted on by our shareholders, including the
election of our Board members. Mr. Williams actively participates in all facets of our business and has a significant impact on both our business strategy and daily operations.
Our
principal executive offices are located at Six Desta Drive, Suite 6500, Midland, Texas 79705-5510, and our telephone number at our offices is
(432) 682-6324.
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DESCRIPTION OF NOTES
The Company issued the notes under the Indenture dated March 16, 2011 (the "Indenture") among itself, the Subsidiary Guarantors
and Wells Fargo 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. On March 16, 2011 and on April 26, 2011, we issued
$300 million and $50 million, respectively, in aggregate principal amount of notes under the Indenture. References to the "Notes" in this section of this offering memorandum include both
the outstanding notes and the notes offered hereby. 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 if at the time of such issuance, we were in compliance with the covenants contained in the Indenture. Any Additional Notes will be part of the same
issue as the Notes and will vote on all matters with the holders of the Notes.
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 Company and your rights.
You
will find the definitions of capitalized terms used in this Description of Notes under the heading "Certain Definitions." For purposes of this description, references to "the
Company," "we," "our" and "us" refer only to Clayton Williams Energy, Inc. and not to its subsidiaries.
General
The Notes.
The Notes:
-
-
are general unsecured, senior obligations of the Company;
-
-
mature on April 1, 2019;
-
-
will be issued in denominations of $2,000 and integral multiples of $1,000 in excess thereof;
-
-
will be represented by one or more registered Notes in global form, but in certain circumstances may be represented by
Notes in definitive form. See "Book-Entry, Delivery and Form;"
-
-
rank senior in right of payment to all existing and future subordinated Indebtedness of the Company;
-
-
rank equally in right of payment to any existing and future senior Indebtedness of the Company, without giving effect to
collateral arrangements;
-
-
effectively rank junior to any future secured Indebtedness of the Company, including amounts that may be borrowed under
our senior revolving credit facility, to the extent of the value of the collateral securing such Indebtedness; and
-
-
are unconditionally guaranteed on a senior basis by all of the Company's material wholly owned Subsidiaries. See
"Subsidiary Guarantees."
Interest.
Interest on the Notes will compound semi-annually and:
-
-
accrue at the rate of 7.75% per annum;
-
-
accrue from March 16, 2011 or, if interest has already been paid, from the most recent interest payment date;
-
-
be payable in cash semi-annually in arrears on April 1 and October 1, commencing on
October 1, 2011;
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-
-
be payable to the holders of record on the March 15 and September 15 immediately preceding the related
interest payment dates; and
-
-
be computed on the basis of a 360-day year comprised of twelve 30-day months.
We
also will pay additional interest to holders of the Notes if we fail to complete the Exchange Offer described in the Registration Rights Agreements within specified time periods.
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 Company, except that we
may, at our option, pay interest on the Notes by check mailed to holders of the Notes at their registered address as it appears in the registrar's books. We have initially designated the corporate
trust office of the Trustee 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 the Company or any of
its 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. No service charge will be imposed by the Company, the Trustee or the registrar for any registration of transfer or exchange of
Notes, but the Company may require a holder to pay a sum sufficient to cover any transfer tax or other governmental taxes and fees required by law or permitted by the Indenture. The Company is not
required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before the mailing of a notice of redemption of Notes to be
redeemed.
The
registered holder of a Note will be treated as the owner of it for all purposes.
Optional Redemption
Except as described below, the Notes are not redeemable until April 1, 2015. On and after April 1, 2015, the Company may
redeem all or, from time to time, a part of the Notes upon not less than 30 nor more than 60 days' written notice, at the following redemption prices (expressed as a percentage of principal
amount) 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 April 1 of the years indicated below:
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|
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|
Year
|
|
Percentage
|
|
2015
|
|
|
103.875
|
%
|
2016
|
|
|
101.938
|
%
|
2017 and thereafter
|
|
|
100.000
|
%
|
Prior
to April 1, 2014, the Company may on any one or more occasions redeem up to 35% of the original principal amount of the Notes with the Net Cash Proceeds of one or more
Equity Offerings at a redemption price of 107.750% of the principal amount thereof, plus accrued and unpaid interest, if
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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 remains outstanding after each such redemption; and
-
(2)
-
the
redemption occurs within 90 days after the closing of such Equity Offering.
In
addition, before April 1, 2015, the Company may redeem all or, from time to time, a part of the Notes upon not less than 30 nor more than 60 days' written notice, at a
redemption price equal to 100% of the principal amount thereof plus the Applicable Premium 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).
"Applicable
Premium" means, with respect to a Note at any redemption date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of
(A) the present value at such time of (1) the redemption price, excluding accrued interest, of such Note at April 1, 2015 (such redemption price being described above) plus
(2) all required interest payments, excluding accrued interest, due on such
Note through April 1, 2015, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note.
"Treasury
Rate" means 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 or similar market data)) most nearly equal to the period from the redemption date to April 1, 2015;
provided
,
however
, that
if the period from the redemption date to April 1, 2015 is not equal to the constant maturity of a United States Treasury security
for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of
United States Treasury securities for which such yields are given, except that if the period from the redemption date to April 1, 2015 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.
If
the optional redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest, if any, will be paid to the
Person in whose name the Note is registered at the close of business, on such record date, and no additional interest will be payable to holders whose Notes will be subject to redemption by the
Company.
In
the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed, then on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion will deem to be fair and
appropriate and in accordance with the procedures of The Depository Trust Company, although no Note of $1,000 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 original Note.
The
Company 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.
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The Company is not required to make mandatory redemption payments or sinking fund payments with respect to the Notes.
Ranking
The Notes are general unsecured obligations of the Company that rank senior in right of payment to all existing and future Indebtedness
that is expressly subordinated in right of payment to the Notes. The Notes rank equally in right of payment with all existing and future liabilities of the Company that are not so subordinated and
will be effectively subordinated to all of our secured Indebtedness (to the extent of the value of the collateral securing such Indebtedness) and liabilities of our Subsidiaries that do not guarantee
the Notes. In the event of bankruptcy, liquidation, reorganization or other winding up of the Company or its Subsidiary 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 Company and its Subsidiary Guarantors that secure secured Indebtedness will be available to
pay obligations on the Notes and the Subsidiary 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 Subsidiary Guarantees then outstanding.
As
of September 30, 2011:
-
-
we and our subsidiary guarantors had $165 million in secured indebtedness outstanding under our revolving credit
facility; and
-
-
we had total availability under our revolving credit facility of approximately $181 million, subject to the terms
thereof.
Subsidiary Guarantees
The Subsidiary Guarantors have, jointly and severally, unconditionally guaranteed on a senior basis the Company's obligations under the
Notes and all obligations under the Indenture. The obligations of Subsidiary Guarantors under the Subsidiary Guarantees rank equally in right of payment with other Indebtedness of such Subsidiary
Guarantor, except to the extent such other Indebtedness is expressly subordinate to the obligations arising under the Subsidiary Guarantee.
Although
the Indenture limits the amount of indebtedness that Restricted Subsidiaries may Incur, such indebtedness may be substantial.
The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance or
fraudulent transfer under applicable law.
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 the Company or a Restricted Subsidiary of the Company, such
Subsidiary Guarantor will be released from its obligations under its Subsidiary Guarantee if the sale or other disposition does not violate the covenant described under "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 and the Registration Rights Agreements if (i) the Company
designates such Subsidiary as an Unrestricted Subsidiary and such designation complies with the other applicable provisions of the Indenture, (ii) such Subsidiary Guarantor is dissolved or
liquidated, (iii) in connection with any legal or covenant defeasance of the Notes in accordance with the terms of the Indenture, or (iv) if such Subsidiary Guarantor ceases to be a
Restricted Subsidiary.
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Change of Control
If a Change of Control occurs, unless the Company has exercised its right to redeem all of the Notes as described under "Optional
Redemption," each holder will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) 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 the Company has exercised its right to redeem all of the Notes as described under "Optional Redemption," the Company will
send 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 the Company 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 sent) (the "Change of Control
Payment Date"); and
-
(3)
-
the
procedures determined by the Company, consistent with the Indenture, that a holder must follow in order to have its Notes repurchased.
On
the Change of Control Payment Date, the Company will, to the extent lawful:
-
(1)
-
accept
for payment all Notes or portions of Notes (in integral multiples of $1,000) 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 so tendered; and
-
(3)
-
deliver
or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes
or portions of Notes being purchased by the Company.
The
paying agent will promptly send to each holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and send (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 principal amount of $1,000 or an integral multiple thereof.
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, 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 additional interest will be payable to holders who tender pursuant to the Change of Control Offer.
The
Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a
Change of Control, the Indenture does not contain provisions that permit the holders to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar
transaction.
Prior
to sending a Change of Control Offer, and as a condition to such sending (i) the requisite holders of each issue of Indebtedness issued under an indenture or other agreement
that may be violated by such payment shall have consented to such Change of Control Offer being made and waived the event of default, if any, caused by the Change of Control or (ii) the Company
will repay all
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outstanding
Indebtedness issued under an indenture or other agreement that may be violated by a payment to the holders of Notes under a Change of Control Offer or (iii) the Company must offer
to repay all such Indebtedness, and make payment to the holders of such Indebtedness that accept such offer, and obtain waivers of any event of default from the remaining holders of such Indebtedness.
The Company covenants to effect such repayment or obtain such consent within 30 days following any Change of Control, it being a default of the Change of Control provisions if the Company fails
to comply with such covenant. A default under the Indenture will result in a cross-default under the Senior Secured Credit Agreement.
The
Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise
in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change
of Control Offer.
The
Company will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of the Indenture, the Company will
comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations described in the Indenture by virtue of the conflict.
The
Company's 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 those agreements may not constitute a Change of Control under the Indenture. Future Indebtedness of the Company and its Subsidiaries may also contain prohibitions of certain events that
would constitute a Change of Control or require such Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to
pay cash to the holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make
any required repurchases.
Even
if sufficient funds were otherwise available, the terms of the Senior Secured Credit Agreement will (and other Indebtedness may) prohibit the Company's prepayment of Notes before
their scheduled maturity. Consequently, if the Company is not able to prepay the Indebtedness under the Senior Secured Credit Agreement and any such other Indebtedness containing similar restrictions
or obtain requisite consents, as described above, the Company will be unable to fulfill its 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 the Company by increasing the capital required to
effectuate such transactions. The definition of "Change of Control" includes a disposition of all or substantially all of the property and assets of the Company and its Restricted Subsidiaries taken
as a whole to any Person other than a Permitted Holder. 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.
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As
a result, it may be unclear as to whether a Change of Control has occurred and whether a holder of Notes may require the Company to make an offer to repurchase the Notes as described above.
Certain Covenants
Suspended Covenants
During any period when the Company has an Investment Grade Rating and no Default has occurred and is continuing under the Indenture
(the "Covenant Suspension Period"), the Company and its Restricted Subsidiaries will not be subject to the provisions of the Indenture described below under the following
headings:
-
-
"Limitation on Indebtedness,"
-
-
"Limitation on Restricted Payments,"
-
-
"Limitation on Restrictions on Distributions from Restricted Subsidiaries,"
-
-
"Limitation on Sales of Assets and Subsidiary Stock,"
-
-
"Limitation on Affiliate Transactions,"
-
-
Clause (3) of the covenant under "Merger and Consolidation," and
-
-
"Limitation on Lines of Business"
(collectively,
the "Suspended Covenants");
provided
that if the Company and the Restricted Subsidiaries are not subject to the Suspended Covenants for
any period of time as a result of the preceding portion of this sentence and, subsequently, either of the Rating Agencies withdraws its ratings or downgrades the ratings below the Investment Grade
Ratings, or a Default (other than with respect to the Suspended Covenants) occurs and is continuing, the Issuer and the Restricted Subsidiaries will thereafter again be subject to the Suspended
Covenants, subject to the terms, conditions and obligations set forth in the Indenture (each such date of reinstatement being the "Reinstatement Date"). As a result, during any Covenant Suspension
Period, the Notes will be entitled to substantially reduced covenant protection. Compliance with the Suspended Covenants with respect to Restricted Payments made after the Reinstatement Date will be
calculated in accordance with the terms of the covenant described under "Limitation on Restricted Payments" as though such covenant had been in effect during the entire period of time
from which the Notes are issued. However, all Restricted Payments made, Indebtedness incurred and other actions effected during any
period in which covenants are suspended will not cause a default under the Indenture on any Reinstatement Date.
The
Company will provide the Trustee with prompt written notice upon the commencement of a Covenant Suspension Period and of the occurrence of a Reinstatement Date. In addition, during
any period when the Suspended Covenants are suspended the Company will not be permitted to designate or redesignate any of its Subsidiaries pursuant to the definition of "Unrestricted Subsidiary."
Set
forth below are summaries of certain covenants that are contained in the Indenture.
Limitation on Indebtedness
The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (including Acquired
Indebtedness);
provided
,
however
, that the Company and the Restricted Subsidiaries may Incur
Indebtedness if on the date thereof:
-
(1)
-
the
Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.25 to 1.00; and
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-
(2)
-
no
Default or Event of Default will have occurred and 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:
-
(1)
-
Indebtedness
of the Company or a Restricted Subsidiary Incurred pursuant to a Credit Facility in an aggregate principal amount at any time outstanding not
to exceed the greater of (a) $500.0 million and (b) 30% of Adjusted Consolidated Net Tangible Assets;
-
(2)
-
Guarantees
by the Company or Subsidiary Guarantors of Indebtedness Incurred in accordance with the provisions of the Indenture;
-
(3)
-
Indebtedness
of the Company owing to and held by any Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or
any Restricted Subsidiary;
provided
,
however
,
-
(a)
-
any
subsequent issuance or transfer of Capital Stock or any other event which results in any such Indebtedness being beneficially held by a Person other
than the Company or a Restricted Subsidiary of the Company; and
-
(b)
-
any
sale or other transfer of any such Indebtedness to a Person other than the Company or a Restricted Subsidiary of the Company
shall
be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be.
-
(4)
-
Indebtedness
represented by (a) the Notes issued on the Issue Date, the Subsidiary Guarantees and the related exchange notes and exchange guarantees
issued in a registered exchange offer pursuant to the Registration Rights Agreements, (b) any Indebtedness (other than the Indebtedness described in clauses (1), (2), (3), (6), (8),
(9) and (10)) outstanding on the Issue Date and (c) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (4), clause (5) or
clause (11) or Incurred pursuant to the first paragraph of this covenant;
-
(5)
-
Permitted
Acquisition Indebtedness;
-
(6)
-
Indebtedness
under Hedging Obligations that are Incurred in the ordinary course of business (and not for speculative purposes) (1) for the purpose of
fixing or hedging interest rate risk with respect to any Indebtedness Incurred without violation of the Indenture; (2) for the purpose of fixing or hedging currency exchange rate risk with
respect to any currency exchanges; or (3) for the purpose of fixing or hedging commodity price risk with respect to any commodities;
-
(7)
-
the
Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capitalized Lease Obligations, mortgage financings or
purchase money obligations or other Indebtedness, in each case Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvements of property used in
the business of the Company or such Restricted Subsidiary, and Attributable Indebtedness, in an aggregate principal amount not to exceed $20.0 million at any time outstanding;
-
(8)
-
Indebtedness
Incurred in respect of workers' compensation claims, self-insurance obligations, performance, surety and similar bonds and
completion guarantees provided by the Company or a Restricted Subsidiary in the ordinary course of business;
-
(9)
-
Indebtedness
arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar
obligations, in each case, Incurred or assumed in connection with the disposition of any business, assets or Capital Stock of a
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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 that Indebtedness meets the criteria of more than one of the types of Indebtedness described in the first and second paragraphs of this
covenant, the Company, in its sole discretion, will classify such item of Indebtedness on the date of Incurrence and, subject to clause (2) below, may later classify such item of Indebtedness
in any manner that complies with this covenant 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 initially Incurred on the Issue Date
under clause (1) of the second paragraph of this covenant and not the first paragraph or clause (4) of the second paragraph of this covenant;
-
(3)
-
Guarantees
of, or obligations in respect of letters of credit relating to, 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 the Company or a Restricted Subsidiary, or Preferred Stock of a Restricted Subsidiary that is not 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.
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Accrual of interest, accrual of dividends, the accretion of accreted value, the payment of interest in the form of additional Indebtedness and the payment of
dividends in the form of additional shares of Preferred Stock or Disqualified Stock will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant.
In
addition, the Company will not permit any of its Unrestricted Subsidiaries to Incur any Indebtedness other than Non-Recourse Debt. If at any time an Unrestricted
Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary as of such date (and, if such Indebtedness is not permitted to
be Incurred as of such date under this "Limitation on Indebtedness" covenant, the Company shall be in Default of this covenant).
For
purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness
denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness;
provided
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-dominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such
refinancing, such U.S. dollar-dominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of
such Indebtedness being refinanced. Notwithstanding any other provision of
this covenant, the maximum amount of Indebtedness that the Company may Incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange 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.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiaries, directly or indirectly, to:
-
(1)
-
declare
or pay any dividend or make any distribution (whether made in cash, securities or other property) on or in respect of its Capital Stock (including
any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) except:
-
(a)
-
dividends
or distributions payable in Capital Stock of the Company (other than Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock of the Company; and
-
(b)
-
dividends
or distributions payable to the Company or a Restricted Subsidiary (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its
other holders of Capital Stock on a pro rata basis);
-
(2)
-
purchase,
redeem, retire or otherwise acquire for value any Capital Stock of the Company or any direct or indirect parent of the Company held by Persons
other than the Company or a Restricted Subsidiary (other than in exchange for Capital Stock of the Company (other than Disqualified Stock));
-
(3)
-
purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Obligations or Guarantor Subordinated Obligations (other than (x) Indebtedness of the Company owing to and held by any Restricted Subsidiary or Indebtedness of a
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Restricted
Subsidiary owing to and held by the Company or any other Restricted Subsidiary permitted under clause (3) of the second paragraph of the covenant "Limitation on
Indebtedness" 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"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment:
-
(a)
-
a
Default shall have occurred and be continuing (or would result therefrom); or
-
(b)
-
the
Company is not able to Incur an additional $1.00 of Indebtedness pursuant to the first paragraph under the "Limitation on Indebtedness" covenant after
giving effect, on a pro forma basis, to such Restricted Payment; or
-
(c)
-
the
aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to July 20, 2005 would exceed the sum
of:
-
(i)
-
50%
of Consolidated Net Income for the period (treated as one accounting period) from July 1, 2005 to the end of the most recent fiscal quarter
ending prior to the date of such Restricted Payment for which financial statements are in existence (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit);
-
(ii)
-
100%
of the aggregate Net Cash Proceeds and the fair market value of property or securities other than cash (including Capital Stock of Persons engaged
primarily in the Oil and Gas Business or assets used in the Oil and Gas Business), in each case received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or
other capital contributions subsequent July 20, 2005 (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to a Subsidiary of the Company or an employee stock
ownership plan, option plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or Guaranteed by the Company or any Restricted
Subsidiary unless such loans have been repaid with cash on or prior to the date of determination);
-
(iii)
-
the
amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to July 20, 2005 of any Indebtedness of the Company or its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of any cash, or the fair market value of any other property, distributed by the Company upon such conversion or exchange); and
-
(iv)
-
the
amount equal to the net reduction in Restricted Investments made by the Company or any of its Restricted Subsidiaries in any Person resulting
from:
-
(A)
-
repurchases
or redemptions of such Restricted Investments by such Person, proceeds realized upon the sale of such Restricted Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of assets
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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.
The
provisions of the preceding paragraph will not prohibit:
-
(1)
-
any
purchase, repurchase, redemption, defeasance or other acquisition or retirement of Capital Stock, Disqualified Stock or Subordinated Obligations of the
Company or Guarantor Subordinated Obligations of any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (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 the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination);
provided
,
however
, that (a) such purchase, repurchase, redemption, defeasance, acquisition or
retirement will be excluded from subsequent calculations of the amount of Restricted Payments and (b) the Net Cash Proceeds from such sale of Capital Stock will be excluded from
clause (c)(ii) of the preceding paragraph;
-
(2)
-
any
purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of the Company or Guarantor Subordinated
Obligations of any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, 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 that in each case constitutes Refinancing
Indebtedness;
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 the Company or a Restricted Subsidiary made by
exchange for or out of the proceeds of the substantially concurrent sale of Disqualified Stock of the Company or such Restricted Subsidiary, as the case may be, that, in each case, is permitted to be
Incurred pursuant to the covenant described under "Limitation on Indebtedness" and that in each case constitutes Refinancing Indebtedness;
provided
,
however
, that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded from subsequent calculations of the amount
of Restricted Payments;
-
(4)
-
so
long as no Default or Event of Default has occurred and is continuing, any purchase or redemption of Subordinated Obligations or Guarantor Subordinated
Obligations of a Subsidiary Guarantor from Net Available Cash to the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock" below;
provided
,
however
, that such purchase or
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that
any such purchase, repurchase, redemption, defeasance or other acquisition will be excluded from subsequent calculations of the amount of Restricted Payments;
-
(10)
-
distributions
by Employee Partnerships or the SWR Partnerships to the limited partners thereof;
provided
that such distributions will be excluded from subsequent calculations of the amount of Restricted Payments;
-
(11)
-
the
payment of dividends on the Company's common equity (or the payment of dividends or distributions to a direct or indirect company of the Company to
fund the payment by such parent company of dividends or distributions on its common equity) of up to 6.0% per calendar year of the net proceeds received by the Company from any public Equity Offering
or contributed to the Company by a direct or indirect parent company of the Company from any public Equity Offering;
provided
that the amount of any
such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (c)(ii) of the proceeding paragraph; and
-
(12)
-
Restricted
Payments in an amount not to exceed $20.0 million;
provided
that the amount of such
Restricted Payments will be excluded from subsequent calculations 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 the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair market value of any cash Restricted Payment shall be its face
amount and any non-cash Restricted Payment shall be determined conclusively by the Board of Directors of the Company acting in good faith.
As
of the date hereof, the amount available for additional Restricted Payments, pursuant to clause (c) of the first paragraph of this covenant is approximately $84 million.
Limitation on Liens
The Company will not, and will not permit any Subsidiary Guarantor to, directly or indirectly, create, Incur or suffer to exist any
Lien (other than Permitted Liens) upon any of its property or assets (including Capital Stock of Restricted Subsidiaries), 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 Indenture and the Notes or, in
respect of Liens on any Subsidiary Guarantor's property or assets, any Subsidiary Guarantee of such Subsidiary Guarantor, 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.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:
-
(1)
-
pay
dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any Restricted
Subsidiary (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);
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-
(2)
-
make
any loans or advances to the Company or any Restricted Subsidiary (it being understood that the subordination of loans or advances made to the Company
or any Restricted Subsidiary to other Indebtedness Incurred by the Company or any Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances); or
-
(3)
-
transfer
any of its property or assets to the Company or any Restricted Subsidiary.
The
preceding provisions will not prohibit:
-
(i)
-
any
encumbrance or restriction pursuant to an agreement in effect at or entered into on the date of the Indenture, including, without limitation, the
Indenture, the Notes, the exchange notes, the Subsidiary Guarantees and the Senior Secured Credit Agreement (and related documentation) in effect on such date;
-
(ii)
-
any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Capital Stock or Indebtedness Incurred by a
Restricted Subsidiary on or before the date on which such Restricted Subsidiary was acquired by the Company or a 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 Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company 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 the Company or any other Restricted Subsidiary other than the assets and property so acquired;
-
(iii)
-
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 clause (i) or (ii) of this paragraph or this clause (iii) or contained in any amendment, restatement, modification,
renewal, supplement, refunding, replacement or refinancing of an agreement referred to in clause (i) or (ii) of this paragraph or this clause (iii);
provided
,
however
, that the encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such agreement are no less favorable in any material respect, taken as a whole, to the holders of the Notes, in the reasonable judgment of the Company's Board of Directors or senior
management, than the encumbrances and restrictions contained in such agreements referred to in clauses (i) or (ii) of this paragraph on the Issue Date or the date such Restricted
Subsidiary became a Restricted Subsidiary or was merged into a Restricted Subsidiary, whichever is applicable;
-
(iv)
-
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, license or similar
contract, or the assignment or transfer of any such lease, license or other contract;
-
(b)
-
contained
in mortgages, pledges or other security agreements permitted under the Indenture securing Indebtedness of the Company or a Restricted Subsidiary
to the extent such encumbrances or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements; or
-
(c)
-
pursuant
to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any
Restricted Subsidiary;
-
(v)
-
(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
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Limitation on Sales of Assets and Subsidiary Stock
The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition
unless:
-
(1)
-
the
Company or such Restricted Subsidiary, as the case may be, receives consideration 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 non-cash
consideration), of the shares and assets subject to such Asset Disposition; and
-
(2)
-
at
least 75% of the aggregate consideration received by the Company or such Restricted Subsidiary, as the case may be, from such Asset Disposition and all
other Asset Dispositions since the Issue Date, on a cumulative basis, is in the form of cash or Cash Equivalents or Additional Assets, or any combination thereof.
Within
365 days of completion of an Asset Disposition, the Company or a Restricted Subsidiary may apply any Net Available Cash from such Asset
Disposition:
-
(a)
-
to
repay, redeem or purchase Indebtedness of the Company (other than any Disqualified Stock or Subordinated Obligations) or Indebtedness of a Restricted
Subsidiary (other than any Disqualified Stock or Guarantor Subordinated Obligation of a Subsidiary Guarantor) (in each case other than Indebtedness owed to the Company or a Restricted Subsidiary); or
-
(b)
-
to
invest in or acquire Additional Assets.
Pending
the final application of any such Net Available Cash in accordance with clause (a) or clause (b) above, the Company and its Restricted Subsidiaries may temporarily
reduce Indebtedness or otherwise invest such Net Available Cash in any manner not prohibited by the Indenture.
Any
Net Available Cash from Asset Dispositions that are not applied or invested as provided in the preceding paragraph will be deemed to constitute "Excess Proceeds." Not later than the
366th day
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after
the later of the date of an Asset Disposition or the receipt of such Net Available Cash, if the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company 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 the Company 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 of the Notes and Pari Passu Notes plus accrued and unpaid interest 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 integral multiples of $1,000. 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 Company may use any remaining Excess Proceeds for general corporate purposes, subject to other covenants contained in the Indenture. 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 for which it
is Trustee and the Company shall select any other Pari Passu Notes to be purchased on a pro rata basis on the basis of the aggregate principal amount of tendered Notes and Pari Passu Notes. 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 Company 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 will be paid to the
Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to holders who tender Notes pursuant to the Asset Disposition Offer.
On
or before the Asset Disposition Purchase Date, the Company 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 integral multiples of
$1,000. The Company will deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this
covenant and, in addition, the Company will deliver all certificates and notes required, if any, by the agreements governing the Pari Passu Notes. The Company will promptly (but in any case not later
than five Business Days after 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 Company for
purchase, and the Company will promptly issue a new Note, and the Trustee, upon delivery of an Officers' Certificate from the Company, will authenticate and mail or deliver such new Note to such
holder, in a principal amount equal to any
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unpurchased
portion of the Note surrendered;
provided
that each such new Note will be in a principal amount of $2,000 or an integral multiple of $1,000.
In addition, the Company 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 Company to
the holder thereof. The Company will publicly announce the results of the Asset Disposition Offer on the Asset Disposition Purchase Date.
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 a Restricted
Subsidiary (other than Guarantor Subordinated Obligations or Disqualified Stock of any Wholly-Owned Subsidiary that is a Subsidiary Guarantor) and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition (in which case the Company will, without further action, be deemed to have applied such deemed cash to
Indebtedness in accordance with clause (a) above); and
-
(2)
-
securities,
notes or other obligations received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company
or such Restricted Subsidiary into cash.
The
Company will comply, to the extent applicable, with the requirements of Rule 14e-1 under 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 Company 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 any conflict.
Limitation on Affiliate Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or conduct any
transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction")
unless
:
-
(1)
-
the
terms of such Affiliate Transaction are not materially less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that
could be reasonably be expected to be obtained in a comparable transaction at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate;
-
(2)
-
in
the event such Affiliate Transaction involves an aggregate consideration in excess of $20.0 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company having no personal pecuniary interest in such transaction; and
-
(3)
-
in
the event such Affiliate Transaction involves an aggregate consideration in excess of $50.0 million, the Company has received a written opinion
from an independent investment banking, accounting or appraisal firm of recognized standing (as determined in good faith by the Board of Directors of the Company) that such Affiliate Transaction is
either (a) fair from a financial point of view to the Company and its Restricted Subsidiaries or (b) not materially less favorable than those that might reasonably have been obtained in
a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate.
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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 Permitted Investments;
-
(2)
-
any
issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements and
other compensation arrangements, options to purchase Capital Stock of the Company, restricted stock plans, long-term incentive plans, stock appreciation rights plans, participation plans,
bonus plans, Employee Partnerships or similar employee benefits plans and/or indemnity provided on behalf of officers and employees approved by the Board of Directors of the Company;
-
(3)
-
loans
or advances to employees, officers or directors in the ordinary course of business of the Company or any of its Restricted Subsidiaries but in any
event not to exceed $5.0 million in the aggregate outstanding at any one time with respect to all loans or advances made since the Issue Date;
provided
,
however
, that the Company 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 that would be applicable to an issuer with debt securities registered under
the Securities Act relating to such loans and advances;
-
(4)
-
any
transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries and Guarantees issued by the Company or a Restricted
Subsidiary for the benefit of the Company or a Restricted Subsidiary, as the case may be, in accordance with "Certain CovenantsLimitation on Indebtedness;"
-
(5)
-
the
payment of reasonable and customary fees paid to, and indemnity provided on behalf of, directors of the Company or any Restricted Subsidiary;
-
(6)
-
the
existence of, and the performance of obligations of the Company or any of its Restricted Subsidiaries under the terms of any agreement to which the
Company or any of its Restricted Subsidiaries is a party as of or on the Issue Date and identified on a schedule to the Indenture on the 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 Issue Date will be permitted to the extent that its terms are not more disadvantageous to the holders of the Notes than the terms
of the agreements in effect on the Issue Date;
-
(7)
-
transactions
in the ordinary course of the business of the Company and its Restricted Subsidiaries;
provided
that such transactions are on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person;
-
(8)
-
any
issuance or sale of Capital Stock (other than Disqualified Stock) and the granting of registration and other customary rights in connection therewith;
and
-
(9)
-
transactions
with a Person that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, Capital Stock
of such Person.
SEC Reports
Whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will
make available to the Trustee and the registered holders of the Notes the business and financial information required in the annual, quarterly and current reports specified in Sections 13 and
15(d) of the Exchange Act which the Company would be required to file if
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the
Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. The Company will make such information available to the Trustee and the registered holders of
the Notes no later than 60 days after the date on which the Company would have been required to file such reports with the SEC if the Company were subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.
If
the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then 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 the Company and its Restricted Subsidiaries.
In
addition, the Company and the Subsidiary 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. For purposes of this
covenant, the Company and the Subsidiary Guarantors will be deemed to have furnished the reports to the Trustee and the holders of Notes as required by this covenant if it has filed such reports with
the SEC via the EDGAR filing system and such reports are publicly available, provided, however, that the Trustee shall have no responsibility to determine if such filing has occurred.
Merger and Consolidation
The Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any
Person,
unless
:
-
(1)
-
the
resulting, surviving or transferee Person (the "Successor Company") will be a corporation 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 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 or Event of Default shall have
occurred and be continuing;
-
(3)
-
immediately
after giving effect to such transaction, either (a) the Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to the first paragraph of the "Limitation on Indebtedness" covenant, or (b) immediately after giving effect to such transaction on a pro forma basis and any related
financing transactions as if the same had occurred at the beginning of the applicable four quarter period, the Consolidated Coverage Ratio of the Company is equal to or greater than the Consolidated
Coverage Ratio of the Company immediately before such transaction;
-
(4)
-
each
Subsidiary Guarantor (unless it is the other party to the transactions above, in which case clause (1) shall apply) shall have by supplemental
indenture confirmed that its Subsidiary Guarantee shall apply to such Person's obligations in respect of the Indenture and the Notes and its obligations under the Registration Rights Agreements shall
continue to be in effect; and
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-
(5)
-
the
Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture.
For
purposes of this covenant, the sale, lease, conveyance, assignment, transfer, or other disposition of all or substantially all of the properties and assets of one or more
Subsidiaries of the Company, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on
a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.
The
predecessor Company will be released from its obligations under the Indenture and the Successor Company will succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture, but, in the case of a lease of all or substantially all its assets, the predecessor Company will not 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 may consolidate or merge with, merge into or transfer all or part of its properties and assets to
the Company and (y) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction to realize tax benefits;
provided
that, in the
case of a Restricted Subsidiary that merges into the Company, the Company will not be required to comply with the preceding
clause (5).
In
addition, the Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into any person (other than the Company or another Subsidiary Guarantor) and will
not permit the conveyance, transfer or lease of substantially all of the assets of any 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; (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 of Event of Default shall have occurred and be continuing; and (c) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture; or
-
(2)
-
the
transaction is made in compliance with the covenant described under "Limitation on Sales of Assets and Subsidiary Stock" and this
"Merger and Consolidation" covenant.
Future Subsidiary Guarantors
The Company will cause each Restricted Subsidiary (other than an Employee Partnership or a Foreign Subsidiary) created or acquired by
the Company or one or more of its Restricted Subsidiaries after the Issue Date to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will
unconditionally Guarantee, on a joint and several basis, the full and
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prompt
payment of the principal of, premium, if any and interest on the Notes on a senior basis;
provided
,
however
, that Restricted Subsidiaries (other than
Foreign Subsidiaries, Employee Partnerships or SWR Partnerships) that, in the aggregate, own less than
five percent of the Company's Total Assets and account for less than five percent of the Company's Consolidated EBITDAX (in each case, determined on a quarterly basis) shall not be required to execute
and deliver a Subsidiary Guarantee. Notwithstanding the foregoing, the Employee Partnerships and SWR Partnership shall not be required to execute and deliver a Subsidiary Guarantee.
The
obligations of each Subsidiary Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor
(including, without limitation, any guarantees under the Senior Secured Credit Agreement) and after giving effect
to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant
to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
Each
Subsidiary Guarantee shall be released in accordance with the provisions of the Indenture described under "Subsidiary Guarantees."
Limitation on Lines of Business
The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than the Oil and Gas Business,
except as would not be material to the Company and its Restricted Subsidiaries taken as a whole.
Payments for Consent
Neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration in
the form of cash or other property 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 or additional interest (as required by the Registration Rights Agreements) on any Note when due, continued for
30 days;
-
(2)
-
default
in the payment of principal of or premium, if any, on any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise;
-
(3)
-
failure
by the Company or any Subsidiary Guarantor to comply with its obligations under "Certain CovenantsMerger and Consolidation;"
-
(4)
-
failure
by the Company to comply for 30 days after written notice as provided below with any of its obligations under the covenants 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 CovenantsMerger and Consolidation" which is covered by clause (3));
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-
(5)
-
failure
by the Company to comply for 60 days after written notice as provided below with its 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 the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company
or a Restricted Subsidiary, whether such Indebtedness or guarantee 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 ("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 $25.0 million or more;
-
(7)
-
certain
events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary or group of Restricted Subsidiaries that, taken
together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary (the "bankruptcy provisions");
-
(8)
-
failure
by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated
financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $25.0 million (net of any
amounts that a reputable and creditworthy insurance company has acknowledged liability for in writing), which judgments are not paid, discharged or stayed for a period of 60 days (the "judgment
default provision"); or
-
(9)
-
any
Subsidiary Guarantee of a Significant Subsidiary or group of Restricted Subsidiaries that taken together as of the latest audited consolidated financial
statements for the Company and its 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 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 the Company and its Restricted Subsidiaries would constitute a Significant Subsidiary denies or disaffirms its obligations under the Indenture or its Subsidiary 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 Company of the default and the Company does not cure such default within the time specified in clauses (4) and (5) of this paragraph after receipt of such
written notice.
If
an Event of Default (other than an Event of Default described in clause (7) above) occurs and is continuing, the Trustee by written notice to the Company, or the holders of at
least 25% in principal amount of the outstanding Notes by written notice to the Company and the Trustee, may, and the Trustee at the request of such holders shall, declare the principal of, premium,
if any, and accrued and unpaid interest, if any, on all the Notes to be due and payable. Upon such a declaration, such principal, premium and accrued and unpaid interest will be due and payable
immediately. In the event of a declaration of acceleration of the Notes because an Event of Default described in clause (6) under "Events of Default" has occurred and is continuing, the
declaration of acceleration of the Notes shall
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be
automatically annulled if the event of default or payment default triggering such Event of Default pursuant to clause (6) shall be remedied or cured by the Company or a Restricted Subsidiary
or waived by the holders of the relevant Indebtedness within 20 days after the declaration of acceleration with respect thereto and if (1) the annulment of the acceleration of the Notes
would not conflict with any judgment or decree of a court of competent jurisdiction and (2) all existing Events of Default, except nonpayment of principal, premium or interest on the Notes that
became due solely because of the acceleration of the Notes, have been cured or waived. If an Event of Default described in clause (7) above occurs and is continuing, the principal of, premium,
if any, and accrued and unpaid interest 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) 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 indemnity or security satisfactory to the Trustee 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 written 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 security or indemnity satisfactory to the Trustee 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 given the Trustee a written 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.
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The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must send to each holder notice of the Default within
90 days after it occurs. Except in the case of a Default in the payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold notice if and so long as the Trustee
in good faith determines that withholding notice is in the interests of the holders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is 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 Company is taking or proposing to take in respect thereof.
In
the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of
the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture or was required to repurchase the
Notes, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes.
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, supplement or waiver may, among other things:
-
(1)
-
reduce
the amount of Notes whose holders must consent to an amendment;
-
(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 or change the time at which any Note may be redeemed as described above under "Optional
Redemption," except as described above under "Change of Control" or "Certain CovenantsLimitation on Sales of Assets and Subsidiary Stock;"
-
(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;
-
(7)
-
make
any change in the amendment or waiver provisions which require each holder's consent; or
-
(8)
-
modify
the Subsidiary Guarantees in any manner adverse to the holders of the Notes.
Notwithstanding
the foregoing, without the consent of any holder, the Company, the Subsidiary Guarantors and the Trustee may amend the Indenture and the Notes
to:
-
(1)
-
cure
any ambiguity, omission, defect or inconsistency;
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-
(2)
-
provide
for the assumption by a successor corporation of the obligations of the Company or any Subsidiary 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 or release a Subsidiary Guarantor upon its designation as an Unrestricted Subsidiary;
provided
,
however
, that the
designation is in accord with the applicable provisions of the Indenture;
-
(5)
-
secure
the Notes;
-
(6)
-
add
to the covenants of the Company for the benefit of the holders or surrender any right or power conferred upon the Company;
-
(7)
-
make
any change that does not adversely affect the legal rights of any holder in any material respect;
-
(8)
-
comply
with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act;
-
(9)
-
provide
for the issuance of exchange securities which shall have terms substantially identical in all respects to the Notes (except that the transfer
restrictions contained in the Notes shall be modified or eliminated as appropriate) and which shall be treated, together with any outstanding Notes, as a single class of securities;
-
(10)
-
release
a Subsidiary Guarantor from its obligations under its Subsidiary Guarantee or the Indenture in accordance with the applicable provisions of the
Indenture;
-
(11)
-
provide
for the appointment of a successor trustee;
provided
that the successor trustee is otherwise
qualified and eligible to act as such under the terms of the Indenture; or
-
(12)
-
conform
any provision of the Indenture to the "Description of Notes" in the offering memorandum relating to the originally issued Notes, as provided in an
officers' certificate.
The
consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment or supplement. It is sufficient if such consent approves the
substance of the proposed amendment or supplement. A consent to any amendment, supplement or waiver under the Indenture by any holder of Notes given in connection with a tender of such holder's Notes
will not be rendered invalid by such tender. After an amendment or supplement under the Indenture becomes effective, the Company is required to send to the holders a written notice briefly describing
such amendment or supplement. However, the failure to give such notice to all the holders, or any defect in the notice will not impair or affect the validity of the amendment or supplement.
Defeasance
The Company at any time may terminate all its 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 Company exercises its legal defeasance option, the Subsidiary Guarantees in effect at such time will terminate.
The
Company at any time may terminate its obligations described under "Change of Control" and under covenants described under "Certain Covenants" (other than "Merger and Consolidation"),
the operation of the cross-default upon a payment default, cross acceleration provisions, the bankruptcy
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provisions
with respect to Significant Subsidiaries, the judgment default provision and the Subsidiary Guarantee provision described under "Events of Default" above and the limitations contained in
clause (3) under "Certain CovenantsMerger and Consolidation" above ("covenant defeasance").
The
Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment
of the Notes may not be accelerated because of an Event of Default with respect to the Notes. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (4), (5), (6), (7) (with respect only to Significant Subsidiaries), (8) or (9) under
"Events of Default" above or because of the failure of the Company to comply with clause (3) under "Certain CovenantsMerger and Consolidation" above.
In
order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations sufficient (in
the opinion of an independent firm of certified public accountants) 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 and thereafter repaid to the Company) have been delivered to the Trustee for cancellation, or
-
(2)
-
all
Notes that have not been delivered to the Trustee for cancellation have become due and payable or will become due and payable within one year by reason
of the giving of a notice of redemption or otherwise and the Company or any Subsidiary Guarantor has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in
trust solely for the benefit of the holders, 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 the Company or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company under the Notes, the Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation.
Each holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
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Table of Contents
Concerning the Trustee
Wells Fargo Bank, National Association is the Trustee under the Indenture and has been appointed by the Company 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 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 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
property, plant or equipment to be used by the Company or a Restricted Subsidiary in the Oil and Gas Business;
-
(2)
-
capital
expenditures by the Company or a Restricted Subsidiary in the Oil and Gas Business;
-
(3)
-
the
Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or 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 Oil and Gas Business.
"Adjusted
Consolidated Net Tangible Assets" 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 the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines
before any provincial, territorial, state, federal or foreign income taxes, as estimated by the Company in a reserve report prepared as of the end of the Company's most recently completed fiscal year
for which audited financial statements are available, as increased by, as of the date of determination, the estimated discounted future net revenues from
-
(A)
-
estimated
proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and
-
(B)
-
estimated
oil and gas reserves attributable to upward revisions of estimates of proved oil and gas reserves since such year end due to exploration,
development or exploitation activities, in each case calculated in accordance with SEC guidelines (utilizing the prices for the fiscal quarter ending prior to the date of determination),
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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 (utilizing the prices for the fiscal quarter ending prior to the date of determination),
in
each case as estimated by the Company's petroleum engineers or any independent petroleum engineers engaged by the Company for that purpose;
-
(ii)
-
the
capitalized costs that are attributable to oil and gas properties of the Company and its Restricted Subsidiaries to which no proved oil and gas
reserves are attributable, based on the Company's books and records as of a date no earlier than the date of the Company's latest available annual or quarterly financial statements;
-
(iii)
-
the
Net Working Capital on a date no earlier than the date of the Company's latest annual or quarterly financial statements; and
-
(iv)
-
the
greater of
-
(A)
-
the
net book value of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company's latest
annual or quarterly financial statement, and
-
(B)
-
the
appraised value, as estimated by independent appraisers, of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no
earlier than the date of the Company's latest audited financial statements; minus
-
(b)
-
the
sum of:
-
(i)
-
Minority
Interests;
-
(ii)
-
any
net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company's latest audited financial statements;
-
(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
the Company's year end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries
with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and
-
(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 the Company and its Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).
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If
the Company changes its method of accounting from the successful efforts method of accounting to the full cost or a similar method, "Adjusted Consolidated Net Tangible Assets" will
continue to be calculated as if the Company were still using the successful efforts method of accounting.
For
purposes of calculating the amount referred to in clause (1) of the second paragraph of "Limitation on Indebtedness," the Company will be entitled to rely on the
greater of (i) Adjusted Consolidated Net Tangible Assets as calculated as of the date used for determining the borrowing base from time to time under the Company's Senior Secured Credit
Agreement, or (ii) Adjusted Consolidated Net Tangible Assets as determined above as of the date of determination.
"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;
provided
that exclusively for purposes of "Certain
CovenantsLimitation on Affiliate Transactions," beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control.
"Asset
Disposition" means any direct or indirect sale, lease (other than an operating lease entered into in the ordinary course of the Oil and Gas 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 shares of
Capital Stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its
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 of assets by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary,
provided
that in the case of a sale by a Restricted Subsidiary to
another Restricted Subsidiary, the Company directly or indirectly owns an equal or
greater percentage of the Common Stock of the transferee than of the transferor;
-
(2)
-
the
sale of Cash Equivalents in the ordinary course of business;
-
(3)
-
dispositions
of equipment, inventory, accounts receivable or other properties or assets in the ordinary course of business, including any abandonment,
farm-in, farm-out, lease or sublease of any oil and gas properties or the forfeiture or other disposition of such properties pursuant to standard form operating agreements, in
each case in the ordinary course of business in a manner customary in the Oil and Gas Business;
-
(4)
-
a
disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of business;
-
(5)
-
transactions
permitted under "Certain CovenantsMerger and Consolidation;"
-
(6)
-
an
issuance of Capital Stock by a Restricted Subsidiary to the Company or to a Restricted Subsidiary;
-
(7)
-
for
purposes of "Certain CovenantsLimitation on Sales of Assets and Subsidiary Stock" only, the making of a Permitted Investment or a
disposition subject to "Certain CovenantsLimitation on Restricted Payments;"
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-
(8)
-
a
concurrent purchase and sale or exchange of property or assets of the Company or any Restricted Subsidiary for Additional Assets of another person having
reasonably equivalent value as determined by the Company in good faith, provided that any cash received must be applied in accordance with "Limitation on Sales of Assets and Subsidiary Stock;"
-
(9)
-
dispositions
of assets in a single transaction or series of related transactions with an aggregate fair market value of less than $10.0 million;
-
(10)
-
the
creation of a Permitted Lien or dispositions in connection with 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;
-
(13)
-
foreclosure
on assets;
-
(14)
-
any
Production Payments and Reserve Sales; and
-
(15)
-
the
conveyance of assets to Employee Partnerships or the sale or grant of partnership interests in Employee Partnerships to their respective limited
partners, as permitted in the definition of "Employee Partnerships."
"Attributable
Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes,
compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"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.
"Board
of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof.
"Business
Day" means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York or a place of payment are authorized or required by law to
close.
"Capital
Stock" of any Person means any and all shares, 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.
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Table of Contents
"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 equivalent to "A" 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 "A" or the equivalent thereof by
Standard & Poor's Ratings Services or Moody's Investors Service, Inc., and having combined capital and surplus in excess of $100 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)
-
(A)
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 one or more
Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person or group shall be deemed to
have "beneficial ownership" of all shares that any such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than a majority of the total voting power of the Voting Stock of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets) other
than as a result of any merger or consolidation in which the holders of a majority of the Voting Stock of the Company immediately prior to such transaction will, immediately after such transaction,
hold or own Voting Stock of the surviving or successor entity or any parent thereof representing a majority of the voting power of the Voting Stock of such entity (for the purposes of this clause,
such person or group shall be deemed to beneficially own any Voting Stock of the Company held by a parent entity, if such person or group "beneficially owns" (as defined above), directly or
indirectly, more than a majority of the voting power of the Voting Stock of such parent entity); or
-
(2)
-
the
sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets
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Table of Contents
"Code"
means the Internal Revenue Code of 1986, as amended.
"Commodity
Agreements" means, in respect of any Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement in respect of
Hydrocarbons used, produced, processed or sold by such Person that are customary in the Oil and Gas Business and designed to protect such Person against fluctuation in Hydrocarbon prices.
"Common
Stock" means with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of
such Person's common stock whether or not outstanding on the Issue Date, and includes, without limitation, all series and classes of such common stock.
"Consolidated
Coverage Ratio" means as of any date of determination, with respect to any Person, the ratio of (x) the aggregate amount of Consolidated EBITDAX of such Person for
the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which financial statements are in existence to (y) Consolidated Interest
Expense for such four fiscal quarters,
provided
,
however
, that:
-
(1)
-
if
the Company or any Restricted Subsidiary:
-
(a)
-
has
Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving effect on
a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; or
-
(b)
-
has
repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of
determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness, Consolidated EBITDAX and Consolidated Interest Expense
for such period will be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such discharge had
occurred on the first day of such period;
provided
that in making any computation under clauses (a) or (b) above with respect to the Incurrence of any Indebtedness under a
revolving credit facility or any discharge of Indebtedness under a revolving credit facility (unless such Indebtedness has been permanently repaid and the related commitment terminated), the amount of
Indebtedness under any revolving credit facility outstanding on the date of such calculation will be deemed to be the average daily balance of such Indebtedness during such four fiscal quarters or
such shorter period for which such facility was outstanding;
-
(2)
-
if
since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition or disposed of any company, division,
operating unit, segment,
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For
purposes of this definition, whenever pro forma effect is to be given to any calculation under this definition, the pro forma calculations will be determined in good faith by a
responsible financial or accounting officer of the Company (including pro forma expense and cost reductions determined in good faith by an officer of the Company, whether or not in accordance with
Regulation S-X under the Securities Act). If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness will
be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness
if such
Interest Rate Agreement has a remaining term in excess of 12 months). If any Indebtedness that is being given pro forma effect bears an interest rate at the option of the Company, the interest
rate shall be calculated by applying such optional rate chosen by the Company.
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Table of Contents
"Consolidated
EBITDAX" for any period means the Consolidated Net Income for such period, plus, without duplication, the following to the extent deducted in calculating such Consolidated
Net Income:
-
(1)
-
Consolidated
Interest Expense;
-
(2)
-
Consolidated
Income Taxes;
-
(3)
-
consolidated
depletion and depreciation expense;
-
(4)
-
consolidated
amortization expense or impairment charges recorded in connection with the application of Financial Accounting Standard No. 142
"Goodwill and Other Intangibles" and Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets;"
-
(5)
-
other
non-cash charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual
of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation); and
-
(6)
-
consolidated
exploration expenses;
less,
to the extent included in calculating such Consolidated Net Income and in excess of any costs or expenses attributable thereto that were deducted in calculating such Consolidated Net Income, the
sum of (x) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments, and (y) amounts
recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments.
Notwithstanding
the preceding sentence, clauses (2) through (6) relating to amounts of a Restricted Subsidiary that is not a Subsidiary Guarantor will be added to
Consolidated Net Income to compute Consolidated EBITDAX of such Person only to the extent (and in the same proportion) that the net income (loss) of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"Consolidated
Income Taxes" means, with respect to any Person for any period, taxes imposed upon such Person or other payments required to be made by such Person by any governmental
authority which taxes or other payments are calculated by reference to the income or profits of such Person or such Person and its Restricted Subsidiaries (to the extent such income or profits were
included in computing Consolidated Net Income for such period), regardless of whether such taxes or payments are required to be remitted to any governmental authority.
"Consolidated
Interest Expense" means, for any period, the total consolidated interest expense of the Company and its Restricted Subsidiaries, whether paid or accrued, plus, to the
extent not included in such interest expense:
-
(1)
-
interest
expense attributable to Capitalized Lease Obligations and the interest portion of rent expense associated with Attributable Indebtedness in respect
of the relevant lease giving rise thereto, determined as if such lease were a capitalized lease in accordance with GAAP and the interest component of any deferred payment obligations;
-
(2)
-
amortization
of debt discount and debt issuance cost (
provided
that any amortization of bond premium will be
credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Interest Expense);
-
(3)
-
non-cash
interest expense;
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Table of Contents
-
(4)
-
commissions,
discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing;
-
(5)
-
the
interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries;
-
(6)
-
costs
associated with Interest Rate Agreements (including amortization of fees)
provided
,
however
, that if Interest Rate Agreements result in net benefits rather
than costs, such benefits shall be credited to reduce Consolidated Interest
Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income;
-
(7)
-
the
consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period;
-
(8)
-
the
product of (a) all dividends paid or payable, in cash, Cash Equivalents or Indebtedness or accrued during such period on any series of
Disqualified Stock of such Person or on Preferred Stock of its Restricted Subsidiaries that are not Subsidiary Guarantors payable to a party other than the Company or a Wholly-Owned Subsidiary, times
(b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state, provincial and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP; and
-
(9)
-
the
cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest
or fees to any Person (other than the Company and its Restricted Subsidiaries) in connection with Indebtedness Incurred by such plan or trust.
For
the purpose of calculating the Consolidated Coverage Ratio in connection with the Incurrence of any Indebtedness described in the final paragraph of the definition of "Indebtedness,"
the calculation of Consolidated Interest Expense shall include all interest expense (including any amounts described in clauses (1) through (9) above) relating to any Indebtedness of the
Company or any Restricted Subsidiary described in the final paragraph of the definition of "Indebtedness."
For
purposes of the foregoing, total interest expense will be determined (i) after giving effect to any net payments made or received by the Company and its Subsidiaries with
respect to Interest Rate Agreements and (ii) exclusive of amounts classified as other comprehensive income in the balance sheet of the Company. Notwithstanding anything to the contrary
contained herein, commissions, discounts, yield and other fees and charges Incurred in connection with any transaction pursuant to which the Company or its Restricted Subsidiaries may sell, convey or
otherwise transfer or grant a security interest in any accounts receivable or related assets shall be included in Consolidated Interest Expense.
"Consolidated
Net Income" means, for any period, the consolidated net income (loss) of the Company and its Restricted Subsidiaries determined in accordance with GAAP;
provided
,
however
, that there will not be included in such Consolidated Net
Income:
-
(1)
-
any
net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that:
-
(a)
-
subject
to the limitations contained in clauses (3), (4) and (5) below, the Company's equity in the net income of any such Person for
such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (2) below); and
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-
(b)
-
the
Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period will be included in determining such
Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary;
-
(2)
-
any
net income (but not loss) of any Restricted Subsidiary other than a Subsidiary Guarantor if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that:
-
(a)
-
subject
to the limitations contained in clauses (3), (4) and (5) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause); and
-
(b)
-
the
Company's equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income;
-
(3)
-
any
gain (loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Restricted Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of
any Capital Stock of any Person;
-
(4)
-
any
after-tax extraordinary gain or loss;
-
(5)
-
the
after-tax cumulative effect of a change in accounting principles;
-
(6)
-
any
asset impairment writedowns on oil and gas properties under GAAP or SEC guidelines;
-
(7)
-
any
unrealized non-cash gains or losses or charges in respect of Hedging Obligations (including those resulting from the application of FASB ASC
815);
-
(8)
-
any
charge or expense in connection with the early retirement of Indebtedness, including payments or any penalties or redemption premiums; and
-
(9)
-
non-cash
charges relating to employee stock-based compensation.
"Credit
Facility" means, with respect to the Company or any Restricted Subsidiary, one or more debt facilities (including, without limitation, the Senior Secured Credit Agreement),
commercial paper facilities or indentures with banks or other institutional lenders or investors providing for revolving credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), letters of credit or notes, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time (and whether or not with the original administrative agent and lenders or trustee and investors or another
administrative agent or agents or trustee or trustees or other lenders or investors and whether provided under the original Senior Secured Credit Agreement or any other credit or other agreement or
indenture).
"Currency
Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement, currency futures contract, currency option contract or other similar agreement
as to which such Person is a party or a beneficiary.
"Default"
means any event which is, or after notice or passage of time or both would be, an Event of Default.
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"Disqualified
Stock" means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it
is exchangeable) or upon the happening of any event:
-
(1)
-
matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise;
-
(2)
-
is
convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock which is convertible or exchangeable solely at the option of
the Company or a Restricted Subsidiary); or
-
(3)
-
is
redeemable at the option of the holder of the Capital Stock in whole or in part,
in
each case on or prior to the date that is 91 days after the earlier of the date (a) of the Stated Maturity of the Notes or (b) on which there are no Notes outstanding,
provided
that only
the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at
the option of the holder thereof prior to such date will be deemed to be Disqualified Stock;
provided
,
further
that any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require the Company to
repurchase such Capital Stock upon the occurrence of a change of control or asset sale (each defined in a substantially identical manner to the corresponding definitions in the Indenture) shall not
constitute Disqualified Stock if the terms of such Capital Stock (and all such securities into which it is convertible or for which it is ratable or exchangeable) provide that the Company may not
repurchase or redeem any such Capital Stock (and all such securities into which it is convertible or for which it is ratable or exchangeable) pursuant to such provision prior to compliance by the
Company with the provisions of the Indenture described under the captions "Change of Control" and "Limitation on Sales of Assets and Subsidiary Stock" and such repurchase or redemption complies with
"Certain CovenantsLimitation on Restricted Payments."
"Dollar-Denominated
Production Payments" means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in
connection therewith.
"Employee
Partnerships" means partnerships, participation agreements or trusts formed in connection with the Company's APO Incentive Plan as in effect on the Issue Date or similar
partnerships or trusts with employees or consultants intended to provide compensation or incentives through the sale or grant of partnership interests representing interests in oil and gas properties
or prospects of the Company
and its Restricted Subsidiaries, in each case as approved by the Compensation Committee of the Board of Directors of the Company,
provided
, that, after
the Issue Date, the Company and its Restricted Subsidiaries shall not sell or grant to or under any such partnership, participation agreement or trust more than 10% of their respective interests in
any particular oil and gas property or prospect.
"Equity
Offering" means (i) a public offering for cash by the Company of its Capital Stock (other than Disqualified Stock), other than public offerings registered on
Form S-4 or S-8 or (ii) a private offering to one or more institutional investors for cash by the Company of its Capital Stock (other than Disqualified Stock).
"Exchange
Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
"Foreign
Subsidiary" means any Restricted Subsidiary that is not organized under the laws of the United States of America or any state thereof or the District of Columbia.
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"GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture will be computed in
conformity with GAAP.
"Guarantee"
means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person:
-
(1)
-
to
purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise); or
-
(2)
-
entered
into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part);
provided
,
however
, that the term "Guarantee" will not include
endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor
Subordinated Obligation" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is expressly subordinate in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement.
"Hedging
Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Agreement.
"holder"
means a Person in whose name a Note is registered on the registrar's books.
"Hydrocarbons"
means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or
compounds thereof and products refined or processed therefrom.
"Incur"
means issue, create, assume, Guarantee, incur or otherwise become liable for;
provided
,
however
, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by merger,
consolidation, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms "Incurred" and "Incurrence" have
meanings correlative to the foregoing.
"Indebtedness"
means, with respect to any Person on any date of determination (without duplication):
-
(1)
-
the
principal of and premium (if any) in respect of indebtedness of such Person for borrowed money;
-
(2)
-
the
principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
-
(3)
-
the
principal component of all obligations of such Person in respect of letters of credit, bankers' acceptances or other similar instruments (including
reimbursement obligations with respect thereto except to the extent such reimbursement obligation relates to a trade payable and such obligation is satisfied within 30 days of Incurrence);
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-
(4)
-
the
principal component of all obligations of such Person to pay the deferred and unpaid purchase price of property (except trade payables), which purchase
price is due more than six months after the date of placing such property in service or taking delivery and title thereto;
-
(5)
-
Capitalized
Lease Obligations and all Attributable Indebtedness of such Person;
-
(6)
-
the
principal component or liquidation preference of all obligations of such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary that is not a Subsidiary Guarantor, any Preferred Stock (but excluding, in each case, any accrued dividends);
-
(7)
-
the
principal component of all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person;
provided
,
however
, that the amount of such Indebtedness will be the lesser of
(a) the fair market value of such asset at such date of determination and (b) the amount of such Indebtedness of such other Persons;
-
(8)
-
the
principal component of Indebtedness of other Persons to the extent Guaranteed by such Person; and
-
(9)
-
to
the extent not otherwise included in this definition, net obligations of such Person under Commodity Agreements, Currency Agreements and Interest Rate
Agreements (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at
such time).
Notwithstanding
the preceding, Indebtedness shall not include Volumetric Production Payments. The amount of Indebtedness of any Person at any date will be the outstanding balance at such
date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date.
In
addition, "Indebtedness" of any Person shall include Indebtedness described in the preceding paragraph that would not appear as a liability on the balance sheet of such Person
if:
-
(1)
-
such
Indebtedness is the obligation of a partnership or joint venture that is not a Restricted Subsidiary (a "Joint Venture");
-
(2)
-
such
Person or a Restricted Subsidiary of such Person is a general partner of the Joint Venture (a "General Partner"); and
-
(3)
-
there
is recourse, by contract or operation of law, with respect to the payment of such Indebtedness to property or assets of such Person or a Restricted
Subsidiary of such Person; and then such Indebtedness shall be included in an amount not to exceed:
-
(a)
-
the
lesser of (i) the net assets of the General Partner and (ii) the amount of such obligations to the extent that there is recourse, by
contract or operation of law, to the property or assets of such Person or a Restricted Subsidiary of such Person; or
-
(b)
-
if
less than the amount determined pursuant to clause (a) immediately above, the actual amount of such Indebtedness that is recourse to such Person
or a Restricted Subsidiary of such Person, if the Indebtedness is evidenced by a writing and is for a determinable amount.
"Interest
Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary.
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"Investment"
means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of any direct or indirect advance, loan (other than
advances or extensions of credit to customers in the ordinary course of business) or other extensions of credit (including by way of Guarantee or similar arrangement, but excluding any debt or
extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided
that none of the following will be deemed to be an
Investment:
-
(1)
-
Hedging
Obligations entered into in the ordinary course of business and in compliance with the Indenture;
-
(2)
-
endorsements
of negotiable instruments and documents in the ordinary course of business; and
-
(3)
-
an
acquisition of assets, Capital Stock or other securities by the Company or a Subsidiary for consideration to the extent such consideration consists of
Capital Stock of the Company (other than Disqualified Stock).
For
purposes of "Certain CovenantsLimitation on Restricted Payments,"
-
(1)
-
"Investment"
will include the portion (proportionate to the Company's equity interest in a Restricted Subsidiary to be designated as an Unrestricted
Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary (as conclusively determined by
the Board of Directors of the Company in good faith);
provided
,
however
, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (a) the
Company's "Investment" in such Subsidiary at the time of such redesignation less (b) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets (as conclusively determined by the Board of Directors of the Company in good faith) of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted
Subsidiary; and
-
(2)
-
any
property transferred to or from an Unrestricted Subsidiary will be valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors of the Company.
"Investment
Grade Rating" means, with respect to the Company, a corporate family rating of the Company and its consolidated subsidiaries equal to or higher than Baa3 (or the equivalent)
by Moody's and BBB- (or the equivalent) by S&P.
"Issue
Date" means March 16, 2011, the date on which the Notes were originally issued.
"Lien"
means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature
thereof).
"Minority
Interest" means the percentage interest represented by any shares of any class of Capital Stock of a Restricted Subsidiary that are not owned by the Company or a Restricted
Subsidiary.
"Net
Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise and net proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other
consideration received in the
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form
of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other
non-cash form) therefrom, in each case net of:
-
(1)
-
all
legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses Incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP (after taking into account any available tax credits or deductions and any tax sharing agreements), as a
consequence of such Asset Disposition;
-
(2)
-
all
payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such
assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition;
-
(3)
-
all
distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition; and
-
(4)
-
the
deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition.
"Net
Cash Proceeds," with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually Incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale (after taking into account any available tax credit or deductions and any tax sharing arrangements).
"Net
Working Capital" means (a) all current assets of the Company and its Restricted Subsidiaries except current assets from commodity price risk management activities arising in
the ordinary course of the Oil and Gas Business, less (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities included in Indebtedness and any
current liabilities from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, in each case as set forth in the consolidated financial statements of
the Company prepared in accordance with GAAP.
"Non-Recourse
Debt" means Indebtedness of a Person:
-
(1)
-
as
to which neither the Company nor any Restricted Subsidiary (a) provides any Guarantee or credit support of any kind (including any undertaking,
guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise);
-
(2)
-
no
default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary)
would permit (upon written notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default under such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity; and
-
(3)
-
the
explicit terms of which provide there is no recourse against any of the assets of the Company or its Restricted Subsidiaries.
"Officer"
means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, any Vice President, the Treasurer or the
Secretary of the Company. Officer of any Subsidiary Guarantor has a correlative meaning.
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"Officers' Certificate" means a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company.
"Oil
and Gas Business" means (a) the business of acquiring, exploring, exploiting, developing, producing, operating and disposing of interests in oil, gas, liquid natural gas and
other hydrocarbon properties, (b) the business of gathering, marketing, treating, processing, storage, refining, selling and transporting of any production from such interests or properties and
products produced in association therewith or providing drilling, completion and related services and supplies and equipment, (c) any business or activity relating to, arising from, or
necessary, appropriate or incidental to the activities described in the foregoing clauses (a) and (b) of this definition.
"Opinion
of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee.
"Pari
Passu Indebtedness" means Indebtedness that ranks equally in right of payment to the Notes.
"Permitted
Acquisition Indebtedness" means Indebtedness (including Disqualified Stock) of the Company or any of the Restricted Subsidiaries to the extent such Indebtedness was
Indebtedness:
-
(1)
-
of
an acquired Person prior to the date on which such Person became a Restricted Subsidiary as a result of having been acquired and not incurred in
contemplation of such acquisition; or
-
(2)
-
of
a Person that was merged, consolidated or amalgamated with or into the Company or a Restricted Subsidiary that was not incurred in contemplation of such
merger, consolidation or amalgamation,
provided
that on the date such Person became a Restricted Subsidiary or the date such Person was merged, consolidated and amalgamated with or into the
Company or a Restricted Subsidiary, as applicable, after giving pro forma effect thereto,
-
(a)
-
the
Restricted Subsidiary or the Company, as applicable, would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated
Coverage Ratio test described under "Certain CovenantsLimitation on Indebtedness," or
-
(b)
-
the
Consolidated Coverage Ratio for the Company would be greater than the Consolidated Coverage Ratio for the Company immediately prior to such transaction.
"Permitted
Holders" means any of Clayton Williams, Jr., The Williams Children's Partnership, Ltd. and any Affiliate or Related Person thereof.
"Permitted
Business Investment" means any Investment made in the ordinary course of the Oil and Gas Business including investments or expenditures for actively exploiting, exploring for,
acquiring, developing, producing, operating, processing, gathering, refining, storing, marketing, selling or transporting oil, gas and other Hydrocarbons through agreements, transactions, interests or
arrangements which permit one to share risks or costs, comply with regulatory requirements regarding
local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties, including:
-
(1)
-
ownership
interests in oil and gas properties, liquid natural gas facilities, processing facilities, gathering systems, pipelines or ancillary real property
interests;
-
(2)
-
Investments
in the form of or pursuant to operating agreements, processing agreements, farm-in agreements, farm-out agreements,
development agreements, area of mutual interest agreements, unitization agreements, pooling agreements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements
(whether general or limited), subscription agreements, stock purchase agreements and other similar agreements (including for limited liability companies) with third parties; and
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-
(3)
-
direct
or indirect ownership interests in drilling rigs and related equipment, including, without limitation, transportation and completion equipment.
"Permitted
Investment" means an Investment by the Company or any Restricted Subsidiary in:
-
(1)
-
the
Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary;
provided
,
however
, that the
primary business of such Restricted Subsidiary is the Oil and Gas Business;
-
(2)
-
another
Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all
its assets to, the Company or a Restricted Subsidiary;
provided
,
however
, that such Person's primary
business is the Oil and Gas Business;
-
(3)
-
cash
and Cash Equivalents;
-
(4)
-
receivables
owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms;
provided
,
however
, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances;
-
(5)
-
payroll,
travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business;
-
(6)
-
loans
or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary;
provided
,
however
, that the Company 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 as if the Company had filed a
registration statement with the SEC;
-
(7)
-
Capital
Stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of a debtor;
-
(8)
-
Investments
made as a result of the receipt of non-cash consideration from an Asset Disposition that was made pursuant to and in compliance with
"Certain CovenantsLimitation on Sales of Assets and Subsidiary Stock;"
-
(9)
-
Investments
in existence on the Issue Date and any amendment, renewal or replacement thereof that does not exceed the amount of the original Investment;
-
(10)
-
Commodity
Agreements, Currency Agreements, Interest Rate Agreements and related Hedging Obligations, which transactions or obligations are Incurred in
compliance with "Certain CovenantsLimitation on Indebtedness;"
-
(11)
-
Guarantees
issued in accordance with "Certain CovenantsLimitation on Indebtedness;"
-
(12)
-
any
transaction referred to in clause (8) of the definition of "Asset Disposition;"
-
(13)
-
Permitted
Business Investments or Investments in Employee Partnerships;
-
(14)
-
Investments
held by any Person at the time such Person is acquired by or merges with or into the Company or any Restricted Subsidiary, provided that such
Investments were not entered into in anticipation of such acquisition or merger, and extensions or renewals or replacements thereof that do not increase the amount of such Investment; and
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-
(15)
-
Investments
by the Company or any of its Restricted Subsidiaries, together with all other Investments pursuant to this clause (15), in an aggregate
amount at the time of such Investment not to exceed the greater of (a) 2.5% of Adjusted Consolidated Net Tangible Assets and (b) $40.0 million, in each case outstanding at any one
time (with the fair market value of such Investment being measured at the time made and without giving effect to subsequent changes in value).
"Permitted
Liens" means, with respect to any Person:
-
(1)
-
Liens
securing Indebtedness and other obligations under any Credit Facility permitted to be Incurred under the Indenture;
-
(2)
-
pledges
or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the
payment of rent, in each case Incurred in the ordinary course of business;
-
(3)
-
Liens
imposed by law, including carriers', warehousemen's, mechanics' materialmen's and repairmen's Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof;
-
(4)
-
Liens
for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good
faith by appropriate proceedings;
provided
that appropriate reserves required pursuant to GAAP have been made in respect thereof;
-
(5)
-
Liens
in favor of issuers of surety or performance bonds or letters of credit or bankers' acceptances issued pursuant to the request of and for the account
of such Person in the ordinary course of its business;
provided
,
however
, that such letters of credit do
not constitute Indebtedness;
-
(6)
-
encumbrances,
ground leases, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone
lines and other similar purposes, or zoning, building codes or other restrictions (including, without limitation, minor defects or irregularities in title and similar encumbrances) as to the use of
real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of such Person;
-
(7)
-
Liens
securing Hedging Obligations;
-
(8)
-
leases,
licenses, subleases and sublicenses of assets (including, without limitation, real property and intellectual property rights) which do not
materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries;
-
(9)
-
judgment
Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been
duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired;
-
(10)
-
Liens
for the purpose of securing the payment of all or a part of the purchase price of, or Capitalized Lease Obligations, purchase money obligations or
other payments Incurred to
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finance
the acquisition, lease, improvement or construction of, assets or property acquired or constructed in the ordinary course of business;
provided
that:
-
(a)
-
the
aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under the Indenture and does not exceed the cost
of the assets or property so acquired or constructed; and
-
(b)
-
such
Liens are created within 180 days of construction or acquisition of such assets or property and do not encumber any other assets or property of
the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto;
-
(11)
-
Liens
arising solely by virtue of any statutory or common law provisions relating to banker's Liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a depositary institution;
provided
that:
-
(a)
-
such
deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set
forth by regulations promulgated by the Federal Reserve Board; and
-
(b)
-
such
deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution;
-
(12)
-
Liens
arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted
Subsidiaries in the ordinary course of business;
-
(13)
-
Liens
existing on the Issue Date;
-
(14)
-
Liens
on property or shares of stock of a Person at the time such Person becomes a Restricted Subsidiary;
provided
,
however
, that such Liens are not created,
Incurred or assumed in connection with, or in
contemplation of, such other Person becoming a Restricted Subsidiary;
provided further
,
however
, that
any such Lien may not extend to any other property owned by the Company or any Restricted Subsidiary;
-
(15)
-
Liens
on property at the time the Company or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation
with or into the Company or any Restricted Subsidiary;
provided
,
however
, that such Liens are not
created, Incurred or assumed in connection with, or in contemplation of, such acquisition;
provided
,
further
,
however
, that such Liens may not extend to any other property owned by the Company or any
Restricted Subsidiary;
-
(16)
-
Liens
securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Wholly-Owned Subsidiary;
-
(17)
-
Liens
securing the Notes, Subsidiary Guarantees and other obligations under the Indenture;
-
(18)
-
Liens
securing obligations under Refinancing Indebtedness Incurred to refinance, refund, replace, amend, extend or modify Indebtedness that was previously
so secured (other than Liens permitted pursuant to clause (1) above),
provided
that any such Lien is limited to all or part of the same property
or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure)
the Indebtedness being refinanced or is in respect of property that is the security for a Permitted Lien hereunder;
-
(19)
-
any
interest or title of a lessor under any Capitalized Lease Obligation or operating lease;
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-
(20)
-
Liens
in respect of Production Payments and Reserve Sales, which Liens shall be limited to the property that is the subject of such Production Payments and
Reserve Sales;
-
(21)
-
Liens
arising under farm-out agreements, farm-in agreements, division orders, contracts for the sale, purchase, exchange,
transportation, gathering or processing of Hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, operating agreements, production sales
contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or
geophysical permits or agreements, and other agreements which are customary in the Oil and Gas Business;
provided
,
however
, in all instances that such
Liens are limited to the assets that are the subject of the relevant agreement, program, order or contract;
-
(22)
-
Liens
on pipelines or pipeline facilities that arise by operation of law; and
-
(23)
-
Liens
securing obligations under Indebtedness (other than Subordinated Obligations and Guarantor Subordinated Obligations) in an aggregate principal amount
outstanding at any one time not to exceed $20.0 million.
"Person"
means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, government or any
agency or political subdivision hereof or any other entity.
"Preferred
Stock," as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends,
or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation.
"Production
Payments and Reserve Sales" means the grant or transfer by the Company or a Restricted Subsidiary to any Person of a royalty, overriding royalty, net profits interest,
production payment (whether volumetric or dollar denominated), partnership or other interest in oil and gas properties, reserves or the right to receive all or a portion of the production or the
proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such production or proceeds of production, subject to the obligation of
the grantor or transferor to operate and maintain, or cause the subject interests to be operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation
of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business, including any such grants or transfers pursuant to incentive compensation
programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists or other providers of technical services to the Company or a Restricted Subsidiary.
"Rating
Agencies" means Moody's and S&P or if Moody's or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or
agencies, as the case may be, selected by the Company which shall be substituted for Moody's or S&P or both, as the case may be.
"Refinancing
Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, exchange, renew, repay or extend (including pursuant to any defeasance or discharge
mechanism) (collectively, "refinance," "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the date of the Indenture or Incurred in compliance with the
Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and
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Indebtedness
of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness,
provided
,
however
, that:
-
(1)
-
(a)
if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the
Notes, the Refinancing Indebtedness has a Stated Maturity at least 91 days later than the Stated Maturity of the Notes;
-
(2)
-
the
Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced;
-
(3)
-
such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is
equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced (plus,
without duplication, any additional Indebtedness Incurred to pay interest or premiums required by the instruments governing such existing Indebtedness and fees and expenses Incurred in connection
therewith); and
-
(4)
-
if
the Indebtedness being refinanced is subordinated in right of payment to the Notes or a Subsidiary Guarantee, such Refinancing Indebtedness is
subordinated in right of payment to the Notes or the Subsidiary Guarantee on terms at least as favorable to the holders as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Registration
Rights Agreements" means those certain registration rights agreements dated as of March 16, 2011 and April 29, 2011 by and among the Company, the Subsidiary
Guarantors and the initial purchaser set forth therein and, with respect to any Additional Notes, one or more substantially similar registration rights agreements among the Company and the other
parties thereto, as such agreements may be amended from time to time.
"Related
Person" with respect to any Permitted Holder means:
-
(1)
-
any
controlling stockholder or a majority (or more) owned Subsidiary of such Permitted Holder or, in the case of an individual, any spouse, family member,
(including adopted children), heir or descendant of such Permitted Holder, any trust created for the benefit of such individual or such individual's estate, executor, administrator, committee or
beneficiaries; or
-
(2)
-
any
trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a majority (or more)
controlling interest of which consist of such Permitted Holder and/or such other Persons referred to in the immediately preceding clause (1).
"Restricted
Investment" means any Investment other than a Permitted Investment.
"Restricted
Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary.
"Sale/Leaseback
Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person
and the Company or a Restricted Subsidiary leases it from such Person.
"SEC"
means the United States Securities and Exchange Commission.
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"Senior Secured Credit Agreement" means the Second Amended and Restated Credit Agreement, dated November 29, 2010, among the Company, JPMorgan Chase Bank,
N.A., as Administrative Agent, and the lenders party thereto from time to time, as the same may be amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time
to time (including increasing the amount loaned thereunder;
provided
that such additional Indebtedness is Incurred in accordance with the covenant
described under "Limitation on Indebtedness").
"Significant
Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated
Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable,
including pursuant to any mandatory redemption provision, but shall not include any contingent obligations to repay, redeem or repurchase any such principal prior to the date originally scheduled for
the payment thereof.
"Subordinated
Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the
Notes pursuant to a written agreement.
"Subsidiary"
of any Person means (a) any corporation, association or other business entity (other than a partnership, joint venture, limited liability company or similar entity)
of which more than 50% of the total ordinary voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof (or persons performing similar functions) or (b) any partnership, joint venture, limited liability company or similar entity of which more than 50% of the capital accounts,
distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, is, in the case of clauses (a) and (b), at the time owned or controlled,
directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless otherwise specified
herein, each reference to a Subsidiary will refer to a Subsidiary of the Company.
"Subsidiary
Guarantee" means, individually, any Guarantee of payment of the Notes and exchange notes issued in a registered exchange offer pursuant to the Registration Rights Agreements
by a Subsidiary Guarantor pursuant to the terms of the Indenture and any supplemental indenture thereto, and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the form
prescribed by the Indenture.
"Subsidiary
Guarantor" means the Restricted Subsidiaries of the Company who are party to the Indenture on the Issue Date and any other Restricted Subsidiary of the Company that later
becomes a Subsidiary Guarantor in accordance with the Indenture.
"SWR
Partnerships" means the oil and gas limited partnerships of which Southwest Royalties, Inc. (a wholly-owned subsidiary of the Company) is general partner, as of the Issue
Date, and any successor to any such partnerships.
"Total
Assets" means, with respect to any Person, the total consolidated assets of such Person and its Restricted Subsidiaries, as shown on the most recent balance sheet of such Person.
"Unrestricted
Subsidiary" means:
-
(1)
-
any
Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Company in
the manner provided below; and
-
(2)
-
any
Subsidiary of an Unrestricted Subsidiary.
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The
Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if:
-
(1)
-
such
Subsidiary or any of its Subsidiaries does not own any Capital Stock or Indebtedness of or have any Investment in, or own or hold any Lien on any
property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary;
-
(2)
-
all
the Indebtedness of such Subsidiary and its Subsidiaries shall, at the date of designation, and will at all times thereafter, consist of
Non-Recourse Debt;
-
(3)
-
on
the date of such designation, such designation and the Investment of the Company in such Subsidiary complies with "Certain
CovenantsLimitation on Restricted Payments;"
-
(4)
-
such
Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially
all of the business of the Company and its Subsidiaries;
-
(5)
-
such
Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation:
-
(a)
-
to
subscribe for additional Capital Stock of such Person; or
-
(b)
-
to
maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and
-
(6)
-
on
the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company than those that might have been obtained from Persons who are not Affiliates of the
Company.
Any
such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving
effect to such designation and an Officers' Certificate certifying that such designation complies with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed
to be Incurred as of such date.
The
Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided
that immediately
after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could Incur at least $1.00 of
additional Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant on a pro forma basis taking into account such designation.
"U.S.
Government Obligations" means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged
or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed
as a full faith and credit obligation of the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary
receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or
interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depositary receipt;
provided
that (except
as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the
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U.S. Government
Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depositary receipt.
"Volumetric
Production Payments" means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection
therewith.
"Voting
Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors.
"Wholly-Owned
Subsidiary" means a Restricted Subsidiary, all of the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly-Owned
Subsidiary.
Book-Entry, Delivery and Form
The Notes will be represented by one or more notes in registered, global form without interest coupons (collectively, the "Global
Notes"). The Global Notes will be deposited with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant in DTC as described below.
Except
as set forth below, the Global Notes may be transferred, in whole but not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in
the Global Notes may not be exchanged for definitive new Notes in registered certificated form ("Certificated Notes") new Notes except in the limited circumstances described below. See
"Exchange of Global Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Notes.
Depositary Procedures
The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and
procedures are solely within the control of DTC's settlement system and are subject to changes by DTC. We take no responsibility for these operations and procedures and urge investors to contact DTC
or their participants directly to discuss these matters.
DTC
has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities
brokers and dealers (including the banks), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who
are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.
DTC
has also advised us that, pursuant to procedures established by it:
-
1.
-
upon
deposit of the Global Notes, DTC will credit the accounts of Participants designated by the initial purchaser with portions of the principal amount of
the Global Notes; and
-
2.
-
ownership
of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records
maintained by DTC (with
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Investors
in the Global Notes who are Participants in DTC's system may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold
their interests therein indirectly through organizations which are Participants in such system.
The
laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in
a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack
of a
Except as described below, owners of an interest in the Global Notes will not have Notes registered in their names, will not receive physical delivery of
certificated Notes and will not be considered the registered owners or "Holders" thereof under the Indenture for any purpose.
Payments
in respect of the principal of, and interest, premium, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the Persons in whose names the new Notes, including the Global Notes, are registered as
the owners of the new Notes for the purpose of receiving payments and for all other purposes. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for:
-
(1)
-
any
aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests
in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the
Global Notes; or
-
(2)
-
any
other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.
DTC
has advised us that its current practice, at the due date of any payment in respect of securities such as the new Notes, is to credit the accounts of the relevant Participants with
the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of new
Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the
Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants or Indirect Participants in identifying the beneficial owners of the new
Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers
between Participants will be effected in accordance with DTC's procedures, and will be settled in same-day funds.
DTC
has advised us that it will take any action permitted to be taken by a Holder of Notes only at the direction of one or more Participants to whose account DTC has credited the
interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given such direction. However,
if there is an Event
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of
Default under the Notes, DTC reserves the right to exchange the Global Notes for legended new Notes in registered certificated form, and to distribute such new Notes to its Participants.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for Certificated Notes, if:
-
(1)
-
DTC
(a) notifies us that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency
registered under the Exchange Act and in either event the Company fails to appoint a successor depositary within 90 days; or
-
(2)
-
there
has occurred and is continuing an Event of Default and DTC notifies the Trustee of its decision to exchange the Global Note for Certificated Notes.
Beneficial
interests in a Global Note also may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in the limited other
circumstances permitted by the Indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued
in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear a restrictive legend, unless that legend is not required by
applicable law.
Exchange of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the Trustee
a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such new Notes.
Same Day Settlement and Payment
The Company will make payments in respect of the new Notes represented by the Global Notes (including principal, interest and premium,
if any) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. The Company will make all payments of principal, interest and premium, if any, with respect
to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the Certificated Notes or, if no such account is specified, by mailing a check to each
such Holder's registered address. The new Notes represented by the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such new Notes will, therefore, be required by DTC to be settled in immediately available funds. The Company expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
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PLAN OF DISTRIBUTION
You may transfer new notes issued under the exchange offer in exchange for the old notes if:
-
-
you acquire the new notes in the ordinary course of your business;
-
-
you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the
Securities Act) of such new notes in violation of the provisions of the Securities Act; and
-
-
you are not our "affiliate" (within the meaning of Rule 405 under the Securities Act).
Each
broker-dealer that receives new notes for its own account pursuant to the exchange offer in exchange for old notes that were acquired by such broker-dealer as a result of
market-making or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or
other trading activities. We and the subsidiary guarantors have agreed that, starting on the expiration date of the exchange offer and ending on the close of business 180 days after the date of
such expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.
If
you wish to exchange new notes for your old notes in the exchange offer, you will be required to make representations to us as described in "Exchange OfferPurpose and
Effect of the Exchange Offer" and "Procedures for TenderingYour Representations to Us" in this prospectus and in the letter of transmittal. In addition, if you are a
broker-dealer who receives new notes for your own account in exchange for old notes that were acquired by you as a result of market-making activities or other trading activities, you will be required
to acknowledge that you will deliver a prospectus in connection with any resale by you of such new notes.
We
will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from
time to time on one or more transactions in any of the following ways:
-
-
in the over-the-counter market;
-
-
in negotiated transactions;
-
-
through the writing of options on the new notes or a combination of such methods of resale;
-
-
at market prices prevailing at the time of resale;
-
-
at prices related to such prevailing market prices; or
-
-
at negotiated prices.
Any
such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer
or the purchasers of any such new notes.
Any
broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer in exchange for old notes that were acquired by such broker-dealer as
a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act. The letter of transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We agreed to permit the use of this prospectus
for a period of up to 180 days after the completion of the exchange offer by such broker-dealers to satisfy this prospectus
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delivery
requirement. Furthermore, we agree to amend or supplement this prospectus during such period if so requested in order to expedite or facilitate the disposition of any new notes by
broker-dealers.
We
have agreed to pay all expenses incident to the exchange offer other than fees and expenses of counsel to the holders and brokerage commissions and transfer taxes, if any, and will
indemnify the holders of the old notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of material federal income tax considerations relevant to the exchange of old notes for new
notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which may be subject to change at any time by legislative, judicial or administrative action. These
changes may be applied retroactively in a manner that could adversely affect a holder of new notes. We cannot assure you that the Internal Revenue Service will not challenge one or more of the tax
considerations described in this discussion, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the U.S. federal income tax
consequences described herein. Some holders, including financial institutions, insurance companies, regulated investment companies, tax-exempt organizations, dealers in securities or
currencies, persons whose functional currency is not the U.S. dollar, or persons who hold the notes as part of a hedge, conversion transaction, straddle or other risk reduction transaction may be
subject to special rules not discussed below. We recommend that each holder consult his own tax advisor as to the holder's particular tax consequences of exchanging such holder's old notes for new
notes, including the applicability and effect of any foreign, state, local or other tax laws or estate or gift tax considerations.
We
believe that the exchange of old notes for new notes will not be an exchange or otherwise a taxable event to a holder for United States federal income tax purposes. Accordingly, a
holder will not recognize gain or loss upon receipt of a new note in exchange for an old note in the exchange, and the holder's tax basis and holding period in the new note will be the same as its tax
basis and holding period in the corresponding old note immediately before the exchange.
LEGAL MATTERS
The validity of the new notes offered in this exchange offer will be passed upon for us by Vinson & Elkins L.L.P.
EXPERTS
The consolidated financial statements of Clayton Williams Energy, Inc. as of December 31, 2010 and 2009, and for each of
the years in the three-year period ended December 31, 2010, and management's assessment of the effectiveness of internal control over financial reporting as of December 31,
2010 have been incorporated by reference herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein and upon the authority
of such firm as experts in accounting and auditing.
Certain
information included or incorporated by reference in this prospectus regarding estimated quantities of oil and natural gas reserves owned by us, the future net revenues from
those reserves and their present value is based on estimates of the reserves and present values prepared by or derived from reports of Williamson Petroleum Consultants, Inc., independent oil
and gas consultants, and Ryder Scott Company, L.P., independent engineering consultants, and has been included or
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incorporated
by reference in this prospectus in reliance on the authority of said firms as experts in giving such reports and regarding the matters contained in their reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements, and other information with the Securities and Exchange Commission. You
may read and copy any materials that we have filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements, and
other information regarding us. The SEC's website address is
www.sec.gov
. You may also inspect our SEC reports and other information at the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, or at our website at
http://www.claytonwilliams.com
. We do not intend for information
contained in our website to be part of this prospectus.
We
are incorporating by reference the information we file with the Securities and Exchange Commission, which means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is an important part of this prospectus, and
information that we file after the date of this prospectus with the Securities and Exchange Commission will automatically update and supersede this information.
We
incorporate by reference in this prospectus the documents listed below which we filed with the SEC and any future filings made with the SEC under Sections 13(a), 13(c), 14, or
15(d) of the Securities Exchange Act of 1934 (excluding any information furnished pursuant to Item 2.02 or Item 7.01 on any Current Report on Form 8-K) after the date
on which the registration statement that includes this prospectus was initially filed with the SEC and until the notes offering pursuant to this registration statement is
terminated:
-
-
Annual Report on Form 10-K for the fiscal year ended December 31, 2010;
-
-
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2011, and
June 30, 2011 and September 30, 2011; and
-
-
Current Reports on Form 8-K (excluding those filings made under Item 2.02 or Item 7.01)
dated January 13, 2011, March 2, 2011, March 11, 2011, March 21, 2011, April 26, 2011, May 4, 2011, June 3, 2011, June 28, 2011,
October 28, 2011, November 17, 2011 and December 13, 2011.
You
may request a copy of any of these filings (other than an exhibit to those filings unless we have specifically incorporated that exhibit by reference into the filing), at no cost, by
contacting us at the following address:
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LETTER OF TRANSMITTAL
TO TENDER
OLD 7.75% SENIOR NOTES DUE 2019
OF
CLAYTON WILLIAMS ENERGY, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS
DATED , 2011
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 2012 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE ISSUER.
|
The Exchange Agent for the Exchange Offer is:
WELLS FARGO BANK, NATIONAL ASSOCIATION
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By Registered or Certified Mail:
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By Overnight Delivery or Regular Mail:
|
Wells Fargo Bank, N.A.
|
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Wells Fargo Bank, N.A
|
MAC-N9303-121
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MAC-N9303-121
|
Corporate Trust Operations
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Corporate Trust Operations
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P.O. Box 1517
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Sixth Street & Marquette Avenue
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Minneapolis, MN 55480-1517
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Minneapolis, MN 55479
|
Attn: Reorg
|
|
Attn: Reorg
|
By Facsimile:
(612) 667-6282
Attn: Bondholder Communications
Confirm by Email:
bondholdercommunications@wellsfargo.com
Confirm by Telephone:
(800) 344-5128
Attn: Bondholder Communications
If
you wish to exchange old 7.75% Senior Notes due 2019 for an equal aggregate principal amount at maturity of new 7.75% Senior Notes due 2019 pursuant to the exchange offer, you must
validly tender (and not withdraw) old notes to the exchange agent prior to the expiration date.
The
undersigned hereby acknowledges receipt and review of the Prospectus, dated , 2011 (the "Prospectus"), of Clayton
Williams Energy, Inc. (the "Issuer"), and this
Letter of Transmittal (the "Letter of Transmittal"), which together describe the Issuer's offer (the "Exchange Offer") to exchange its 7.75% Senior Notes due 2019 (the "new notes") that have been
registered under the Securities Act, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 7.75% Senior Notes due 2019 (the "old notes"). Capitalized terms used
but not defined herein have the respective meaning given to them in the Prospectus.
The
Issuer reserves the right, at any time or from time to time, to extend the Exchange Offer at its discretion, in which event the term "Expiration Date" shall mean the latest date to
which the Exchange Offer is extended. The Issuer shall notify the Exchange Agent and each registered holder of the old notes of any extension by oral or written notice prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled Expiration Date.
This
Letter of Transmittal is to be used by holders of the old notes. Tender of old notes is to be made according to the Automated Tender Offer Program ("ATOP") of the Depository Trust
Company ("DTC") pursuant to the procedures set forth in the prospectus under the caption "Exchange OfferProcedures for Tendering." DTC participants that are accepting the Exchange Offer
must transmit their
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acceptance
to DTC, which will verify the acceptance and execute a book-entry delivery to the Exchange Agent's DTC account. DTC will then send a computer generated message known as an
"agent's message" to the exchange agent for its acceptance. For you to validly tender your old notes in the Exchange Offer the Exchange Agent must receive prior to the Expiration Date, an agent's
message under the ATOP procedures that confirms that:
-
-
DTC has received your instructions to tender your old notes; and
-
-
you agree to be bound by the terms of this Letter of Transmittal.
BY
USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER, YOU WILL BE BOUND BY ITS TERMS, AND YOU
WILL BE DEEMED TO HAVE MADE THE ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF YOU HAD SIGNED IT.
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PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies
and Gentlemen:
1. By
tendering old notes in the Exchange Offer, you acknowledge receipt of the Prospectus and this Letter of Transmittal.
2. By
tendering old notes in the Exchange Offer, you represent and warrant that you have full authority to tender the old notes described above and will, upon request,
execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the tender of old notes.
3. You
understand that the tender of the old notes pursuant to all of the procedures set forth in the Prospectus will constitute an agreement between the undersigned and the
Issuer as to the terms and conditions set forth in the Prospectus.
4. By
tendering old notes in the Exchange Offer, you acknowledge that the Exchange Offer is being made in reliance upon interpretations contained in no-action
letters issued to third parties by the staff of the Securities and Exchange Commission (the "SEC"), including Exxon Capital Holdings Corp., SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co., Inc., SEC No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (available
July 2, 1993), that the new notes issued in exchange for the old notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof without
compliance with the registration and prospectus delivery provisions of the Securities Act (other than a broker-dealer who purchased old notes exchanged for such new notes directly from the Issuer to
resell pursuant to Rule 144A or any other available exemption under the Securities Act, as amended (the "Securities Act") and any such holder that is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act), provided that such new notes are acquired in the ordinary course of such holders' business and such holders are not participating in, and have no
arrangement with any other person to participate in, the distribution of such new notes.
5. By
tendering old notes in the Exchange Offer, you hereby represent and warrant that:
(a) the
new notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the undersigned, whether or not you are the holder;
(b) you
have no arrangement or understanding with any person to participate in the distribution of old notes or new notes within the meaning of the Securities Act;
(c) you
are not an "affiliate," as such term is defined under Rule 405 promulgated under the Securities Act, of the Company; and
(d) if
you are a broker-dealer, that you will receive the new notes for your own account in exchange for old notes that were acquired as a result of market-making activities
or other trading activities and that you acknowledge that you will deliver a prospectus (or, to the extent permitted by law, make available a prospectus) in connection with any resale of such new
notes.
You
may, if you are unable to make all of the representations and warranties contained in Item 5 above and as otherwise permitted in the Registration Rights Agreements (as defined
below), elect to have your old notes registered in the shelf registration statement described in the Registration Rights Agreements, dated as of March 16, 2011 and April 29, 2011 (the
"Registration Rights Agreements"), by and among the Issuer, the Subsidiary Guarantors, and the Initial Purchasers (as defined therein). Such election may be made by notifying the Issuer in writing at
Clayton Williams Energy, Inc., Attention: Patti Hollums, Six Desta Drive, Suite 6500, Midland, Texas, 79705. By making such election, you agree, as a holder of old notes participating in
a shelf registration, to indemnify and hold harmless the Issuer, each of the directors of the Issuer, each of the officers of the Issuer who signs such shelf
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registration
statement, each person who controls the Issuer within the meaning of either the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and each other
holder of old notes, from and against any and all losses, claims, damages or liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any shelf
registration statement or prospectus, or in any supplement thereto or amendment thereof, or caused by the omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; but only with respect to information relating to the undersigned furnished in
writing by or on behalf of the undersigned expressly for use in a shelf registration statement, a prospectus or any amendments or supplements thereto. Any such indemnification shall be governed by the
terms and subject to the conditions set forth in the Registration Rights Agreements, including, without limitation, the provisions regarding notice, retention of counsel, contribution and payment of
expenses set forth therein. The above summary of the indemnification provision of the Registration Rights Agreements is not intended to be exhaustive and is qualified in its entirety by the
Registration Rights Agreements.
6. If
you are a broker-dealer that will receive new notes for your own account in exchange for old notes that were acquired as a result of market-making activities or other
trading activities, you acknowledge by tendering old notes in the Exchange Offer, that you will deliver a prospectus in connection with any resale of such new notes; however, by so acknowledging and
by delivering a prospectus, you will not be deemed to admit that you are an "underwriter" within the meaning of the Securities Act.
7. If
you are a broker-dealer and old notes held for your own account were not acquired as a result of market-making or other trading activities, such old notes cannot be
exchanged pursuant to the Exchange Offer.
8. Any
of your obligations hereunder shall be binding upon your successors, assigns, executors, administrators, trustees in bankruptcy and legal and personal
representatives.
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INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
-
1.
-
Book-Entry
Confirmations.
Any
confirmation of a book-entry transfer to the Exchange Agent's account at DTC of old notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as Agent's Message and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date.
-
2.
-
Partial
Tenders.
Tenders
of old notes will be accepted only in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. The entire principal amount of old notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise communicated to the Exchange Agent. If the entire principal amount of all old notes is not tendered, then old notes for the
principal amount of old notes not tendered and new notes issued in exchange for any old notes accepted will be delivered to the holder via the facilities of DTC promptly after the old notes are
accepted for exchange.
-
3.
-
Validity
of Tenders.
All
questions as to the validity, form, eligibility (including time of receipt), acceptance, and withdrawal of tendered old notes will be determined by the Issuer, in its sole
discretion, which determination will be final and binding. The Issuer reserves the absolute right to reject any or all tenders not in proper form or the acceptance for exchange of which may, in the
opinion of counsel for the Issuer, be unlawful. The Issuer also reserves the absolute right to waive any of the conditions of the Exchange Offer or any defect or irregularity in the tender of any old
notes. The Issuer's interpretation of the terms and conditions of the Exchange Offer (including the instructions on the Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of old notes must be cured within such time as the Issuers shall determine. Although the Issuer intends to notify holders of defects or
irregularities with respect to tenders of old notes, neither the Issuer, the Exchange Agent, nor any other person shall be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give such notification. Tenders of old notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any old
notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, promptly following the Expiration Date.
-
4.
-
Waiver
of Conditions.
The
Issuer reserves the absolute right to waive, in whole or part, up to the expiration of the Exchange Offer, any of the conditions to the Exchange Offer set forth in the Prospectus or
in this Letter of Transmittal.
-
5.
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No
Conditional Tender.
No
alternative, conditional, irregular or contingent tender of old notes will be accepted.
-
6.
-
Request
for Assistance or Additional Copies.
Requests
for assistance or for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the
cover page of this Letter of Transmittal. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer.
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7.
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Withdrawal.
Tenders
may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption "Exchange OfferWithdrawal of Tenders."
-
8.
-
No
Guarantee of Late Delivery.
There
is no procedure for guarantee of late delivery in the Exchange Offer.
IMPORTANT:
BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER, YOU WILL BE BOUND BY ITS
TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF YOU HAD SIGNED IT.
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Clayton Williams Energy, Inc.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subsection (a) of Section 145 of the Delaware General Corporation Law, or DGCL, empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful.
Subsection (b)
of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against
expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145
further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any such action, suit or
proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection therewith; that the indemnification provided for by Section 145 shall not be deemed exclusive of any other rights which
the indemnified party may be entitled; that indemnification provided by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such person's heirs, executors and administrators; and empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liabilities under Section 145.
Section 102(b)(7)
of the DGCL provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of the director:
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For any breach of the director's duty of loyalty to the corporation or its stockholders;
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For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
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Under Section 174 of the DGCL; or
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For any transaction from which the director derived an improper personal benefit.
In
accordance with Section 102(b)(7), Article VI of our Second Restated Certificate of Incorporation, as amended, provides that, in general, no director of the registrant
shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit.
In
addition, Article IX of our Second Restated Certificate of Incorporation, as amended, and Article VI of our Bylaws provide, in general, that we shall indemnify each of
our directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any third party proceeding if such
person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, our best interests and, with respect to any criminal third party proceeding, had no reasonable
cause to believe such conduct was unlawful.
Item 21. Exhibits and Financial Statement Schedules.
-
(a)
-
The
following documents are filed as exhibits to this Registration Statement, including those exhibits incorporated herein by reference to a prior filing of
the Company under the Securities Act or the Exchange Act as indicated in parentheses:
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Exhibit
Number
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Description
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4.1
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Second Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Form S-2 Registration Statement, Commission File No. 333-13441 (incorporated by reference to the filing
indicated).
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4.2
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Certificate of Amendment of Second Restated Certificate of Incorporation of Clayton Williams Energy, Inc., filed as Exhibit 3.1 to the Company's Form 10-Q for the period ended September 30, 2000
(incorporated by reference to the filing indicated).
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4.3
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Corporate Bylaws of Clayton Williams Energy, Inc., as amended, filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Commission on March 12, 2008 (incorporated by reference to
the filing indicated).
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4.4
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Stock Purchase Agreement dated May 19, 2004 by and among Clayton Williams Energy, Inc. and various institutional investors, filed as Exhibit 4 to the Company's Current Report on Form 8-K filed with the
Commission on June 2, 2004 (incorporated by reference to the filing indicated).
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4.5
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Indenture, dated March 16, 2011, by and among Clayton Williams Energy, Inc., the Guarantors named therein and Wells Fargo Bank, N.A., as trustee, filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K (File No. 1-10924) filed with the SEC on March 17, 2011 (incorporated by reference to the filing indicated).
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4.6
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Registration Rights Agreement dated as of March 16, 2011, by and among Clayton Williams Energy, Inc., the Guarantors named therein and the Initial Purchasers named therein, filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K filed with the SEC on March 17, 2011 (incorporated by reference to the filing indicated).
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Exhibit
Number
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Description
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4.7
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Registration Rights Agreement dated as of April 29, 2011, by and among Clayton Williams Energy, Inc., the Guarantors named therein and the Initial Purchasers named therein, filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K filed with the SEC on April 29, 2011 (incorporated by reference to the filing indicated).
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5.1
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*
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Opinion of Vinson & Elkins L.L.P.
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12.1
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*
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Computation of Ratio of Earnings to Fixed Charges.
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23.1
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*
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Consent of KPMG LLP
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23.2
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*
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Consent of Williamson Petroleum Consultants, Inc.
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23.3
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*
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Consent of Ryder Scott Company, L.P.
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23.4
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*
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Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
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24.1
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*
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Powers of Attorney (included in the signature pages hereof).
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25.1
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*
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Statement of Eligibility on Form T-1 of Wells Fargo Bank.
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(b)
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Financial
Data Schedule.
Schedules
are omitted because they either are not required or are not applicable or because equivalent information has been included in the financial statements, the notes thereto or
elsewhere herein.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrants, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of a registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, such
registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Each
registrant hereby undertakes:
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
-
(a)
-
to
include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
-
(b)
-
to
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
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That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if such registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
That,
for the purpose of determining liability of such registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, in a primary offering
of securities of such registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such
purchaser:
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(a)
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any
preliminary prospectus or prospectus of the undersigned registrants relating to the offering required to be filed pursuant to Rule 424;
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(b)
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any
free writing prospectus relating to the offering prepared by or on behalf of such registrant or used or referred to by the undersigned registrants;
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(c)
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the
portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrants or their
securities provided by or on behalf of such registrant; and
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(d)
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any
other communication that is an offer in the offering made by such registrant to the purchaser.
That,
for purposes of determining any liability under the Securities Act of 1933, each filing of a registrant annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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Table of Contents
To
deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and,
where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each
person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.
To
respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
To
supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Midland, State of Texas, on December 13, 2011.
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CLAYTON WILLIAMS ENERGY, INC.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President and Chief Financial Officer
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SOUTHWEST ROYALTIES, INC.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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WARRIOR GAS CO.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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CWEI ACQUISITIONS, INC.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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ROMERE PASS ACQUISITION L.L.C.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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CWEI ROMERE PASS ACQUISITION CORP.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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II-6
Table of Contents
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BLUE HEEL COMPANY
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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TEX-HAL PARTNERS, INC.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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DESTA DRILLING GP, LLC
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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DESTA DRILLING, L.P.
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By:
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Desta Drilling GP, LLC,
its general partner
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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WEST COAST ENERGY PROPERTIES GP, LLC
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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CLAJON INDUSTRIAL GAS, INC.
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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CLAYTON WILLIAMS PIPELINE CORPORATION
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By:
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/s/ MICHAEL L. POLLARD
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Name:
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Michael L. Pollard
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Title:
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Senior Vice President
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II-7
Table of Contents
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mel G. Riggs and Michael
L. Pollard, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments and registration statements filed
pursuant to Rule 462 or otherwise) and to file the same, with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated.
CLAYTON WILLIAMS ENERGY, INC.
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)
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December 13, 2011
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/s/ MEL G. RIGGS
Mel G. Riggs
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Executive Vice President, Chief Operating Officer and Director
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December 13, 2011
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Chief Financial Officer (Principal Financial Officer)
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December 13, 2011
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/s/ ROBERT L. THOMAS
Robert L. Thomas
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Vice PresidentAccounting and Principal Accounting Officer
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December 13, 2011
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/s/ ROBERT L. PARKER
Robert L. Parker
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Director
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December 13, 2011
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/s/ JORDAN R. SMITH
Jordan R. Smith
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Director
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December 13, 2011
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II-8
Table of Contents
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Signatures
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Title
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Date
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/s/ TED GRAY, JR.
Ted Gray, Jr.
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Director
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December 13, 2011
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/s/ DAVIS L. FORD, PH.D.
Davis L. Ford, Ph.D.
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Director
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December 13, 2011
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SOUTHWEST ROYALTIES, INC.
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board and Director
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December 13, 2011
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/s/ MEL G. RIGGS
Mel G. Riggs
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President and Director (Principal Executive Officer)
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December 13, 2011
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer)
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December 13, 2011
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/s/ TED GRAY, JR.
Ted Gray, Jr.
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Director
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December 13, 2011
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/s/ DAVIS L. FORD, PH.D.
Davis L. Ford, Ph.D.
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Director
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December 13, 2011
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WARRIOR GAS CO.
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board and Director
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December 13, 2011
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/s/ MEL G. RIGGS
Mel G. Riggs
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Executive Vice President and Director (Principal Executive Officer)
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December 13, 2011
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II-9
Table of Contents
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Signatures
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Title
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Date
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer)
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December 13, 2011
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CWEI ACQUISITIONS, INC.
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board and Director
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December 13, 2011
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/s/ MEL G. RIGGS
Mel G. Riggs
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Executive Vice President and Director (Principal Executive Officer)
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December 13, 2011
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer)
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December 13, 2011
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ROMERE PASS ACQUISITION L.L.C.
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board and Manager
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December 13, 2011
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/s/ MEL G. RIGGS
Mel G. Riggs
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President and Manager (Principal Executive Officer)
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December 13, 2011
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer)
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December 13, 2011
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CWEI ROMERE PASS ACQUISITION CORP.
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board and Director
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December 13, 2011
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II-10
Table of Contents
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Signatures
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Title
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Date
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/s/ MEL G. RIGGS
Mel G. Riggs
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President and Director (Principal Executive Officer)
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December 13, 2011
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer)
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December 13, 2011
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BLUE HEEL COMPANY
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board and Director
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December 13, 2011
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/s/ MEL G. RIGGS
Mel G. Riggs
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President and Director (Principal Executive Officer)
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December 13, 2011
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer)
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December 13, 2011
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TEX-HAL PARTNERS, INC.
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Signatures
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Title
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Date
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/s/ CLAYTON W. WILLIAMS, JR.
Clayton W. Williams, Jr.
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Chairman of the Board and Director
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December 13, 2011
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/s/ MEL G. RIGGS
Mel G. Riggs
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President and Director (Principal Executive Officer)
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December 13, 2011
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/s/ MICHAEL L. POLLARD
Michael L. Pollard
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Senior Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer)
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December 13, 2011
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II-11
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