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As filed with the Securities and Exchange Commission on November 5, 2019

No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

UNIT CORPORATION

 

 

 

Delaware   1381   73-1283193

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer
Identification No.)

SEE TABLE OF SUBSIDIARY GUARANTOR REGISTRANTS LISTED ON THE FOLLOWING PAGE

8200 South Unit Drive

Tulsa, Oklahoma 74132

(918) 493-7700

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

 

 

Mark E. Schell

Senior Vice President, General Counsel and Corporate Secretary

Andrew E. Harding

Associate General Counsel

8200 South Unit Drive

Tulsa, Oklahoma 74132

(918) 493-7700

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Gregory E. Ostling
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street

New York, New York 10019
(212) 403-1000

 

Thomas J. Hutchison

GableGotwals

100 West Fifth Street, Suite 1100

Tulsa, Oklahoma 74103

(918) 595-4800

 

John P. Berkery
Mayer Brown LLP
1221 Avenue of the Americas

New York, New York 10020-1001
(212) 506-2500

 

 

Approximate date of commencement of proposed sale of the securities to the public: The exchange will occur 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:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the “Securities Act”), please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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.  ☐

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):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

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 Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to Be Registered
  Amount
to Be
Registered
  Proposed
Maximum
Offering Price
per Security
  Proposed
Maximum
Aggregate
Offering Price
  Amount of
Registration Fee(1)

Second Lien Senior Secured Notes due             

  $650,000,000(2)   70%   $455,000,000   $59,059

Guarantees of Second Lien Senior Secured Notes due             

  —     —     —     (3) 

 

 

(1)

The registration fee has been calculated pursuant to Rule 457 under the Securities Act of 1933, as amended.

(2)

Represents the maximum principal amount at maturity of Second Lien Senior Secured Notes due              that may be issued pursuant to the exchange offer described in this Registration Statement.

(3)

Pursuant to Rule 457(n), no additional registration fee is payable with respect to 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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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TABLE OF SUBSIDIARY GUARANTOR REGISTRANTS

 

Exact Name of Additional Registrant as
Specified in its Charter(1)
   State or Other
Jurisdiction of
Incorporation or
Organization
  

Primary Standard

Industrial Classification
Code Number

   IRS Employer
Identification Number
Unit Drilling Company    Oklahoma    1381    73-1315145
Unit Petroleum Company    Oklahoma    1311    73-1205963
Unit Drilling USA Colombia, L.L.C.    Delaware    1381    45-1440882
Unit Drilling Colombia, L.L.C.    Delaware    1381    45-1441087
8200 Unit Drive, L.L.C.    Oklahoma    6512    81-1621376

 

(1)

The address for each additional registrant is c/o Unit Corporation, 8200 South Unit Drive, Tulsa, Oklahoma 74132, and the telephone number for each additional registrant is (918) 493-7700.


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The information in this prospectus is not complete and may be changed. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.

 

Subject to Completion, Dated November 5, 2019

Prospectus

 

 

LOGO

Unit Corporation

OFFER TO EXCHANGE AND CONSENT SOLICITATION

    % Second Lien Senior Secured Notes due         

for

Any and All 6.625% Senior Subordinated Notes due 2021

(CUSIP No. 909218 AB5—ISIN US909218AB56)

and

Solicitation of Consents to Amend the Related Indenture and Notes

 

 

In accordance with the terms and subject to the conditions set forth in this prospectus, as each may be amended from time to time, Unit Corporation, a Delaware corporation, is offering to exchange (collectively, the “Exchange Offer”) up to $                     of its     % Second Lien Senior Secured Notes due          (the “New Notes”) for any and all outstanding 6.625% Senior Subordinated Notes due 2021 (the “Old Notes”). The following table indicates the “exchange consideration” being offered to holders of the Old Notes in the Exchange Offer.

 

Title of Old Notes to Be Tendered

   Aggregate
Principal
Amount
Outstanding
     Early Exchange Consideration
per $1,000 Principal Amount of

Old Notes
If Tendered and Not Withdrawn
Before Early Tender Date(1)
   Late Exchange Consideration
per $1,000 Principal Amount of Old
Notes
If Tendered after the Early Tender
Date
and Not Withdrawn Before the
Expiration Date(1)

6.625% Senior Subordinated Notes due 2021

   $ 650,000,000      $         Principal Amount of New
Notes
   $         Principal Amount of New
Notes

 

(1)

Any accrued and unpaid interest to, but excluding, the Closing Date, on the Old Notes that are validly tendered and accepted for exchange will be paid in cash on the Closing Date.

 

THE EXCHANGE OFFER AND THE CONSENT SOLICITATION (AS DEFINED BELOW) WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON             , 2019, UNLESS EXTENDED OR EARLIER TERMINATED BY US (SUCH DATE AND TIME, AS THE SAME MAY BE EXTENDED, THE “EXPIRATION DATE”). TO BE ELIGIBLE TO RECEIVE THE EARLY EXCHANGE CONSIDERATION (AS DEFINED HEREIN), HOLDERS MUST TENDER THEIR OLD NOTES (AS DEFINED HEREIN) AT OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON             , 2019, UNLESS EXTENDED (SUCH TIME AND DATE WITH RESPECT TO THE EXCHANGE OFFER AND CONSENT SOLICITATION, AS IT MAY BE EXTENDED, THE “EARLY TENDER DATE”). TENDERS MAY BE WITHDRAWN AT ANY TIME BEFORE 11:59 P.M., NEW YORK CITY TIME, ON             , 2019 (SUCH DATE AND TIME, AS THE SAME MAY BE EXTENDED, THE “WITHDRAWAL DEADLINE”). CONSENTS MAY BE REVOKED AT ANY TIME BEFORE 5:00 P.M., NEW YORK CITY TIME, ON             , 2019 (SUCH DATE AND TIME, AS THE SAME MAY BE EXTENDED, THE “CONSENT REVOCATION DEADLINE”), BUT MAY NOT BE REVOKED AT ANY TIME THEREAFTER.


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Subject to the tender acceptance procedures and the conditions described herein: (a) for each $1,000 principal amount of Old Notes tendered at or before the Early Tender Date, accepted for exchange and not validly withdrawn, holders of Old Notes will receive the early exchange consideration of $         principal amount of New Notes (the “Early Exchange Consideration”); and (b) for each $1,000 principal amount of Old Notes tendered after the Early Tender Date and before the Expiration Date and accepted for exchange, holders of Old Notes will receive the late exchange consideration of $         principal amount of New Notes (the “Late Exchange Consideration”).

In addition to the Early Exchange Consideration or Late Exchange Consideration, as applicable, Holders whose Old Notes are accepted for exchange will receive a payment in cash of accrued and unpaid interest to, but excluding, the Closing Date on such Old Notes on the date on which the Exchange Offer is completed (the “Closing Date”).

As described more fully in this prospectus, the Exchange Offer is subject to significant conditions, which we may assert or waive, including either (i) the consummation of an amendment to the Unit Credit Agreement (as defined below) or (ii) a refinancing or replacement of the Unit Credit Agreement, as described under “Prospectus Summary—Recent Developments—Credit Agreement Amendment”, which condition will not be waived. See “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.”

The New Notes will bear interest at a rate of     % per annum. The New Notes will mature on the              anniversary of the original issue date. See “Description of New Notes.”

The New Notes and the Subsidiary Guarantees will be senior in right of payment to the Old Notes and the guarantees thereof which remain outstanding after giving effect to the Exchange Offer and any other current or future indebtedness that is subordinated by its terms in right of payment to the New Notes and the Subsidiary Guarantees. The New Notes and the Subsidiary Guarantees will be secured by second-priority liens on all of the assets of Unit and the Subsidiary Guarantors that secure the Unit Credit Agreement on a first-priority basis, subject to certain exceptions as described below. The New Notes Collateral securing the Unit Credit Agreement on a first-priority basis and the New Notes on a second-priority basis will consist of: (i) mortgage liens on no less than 80% of the discounted present value of the Company’s proved developed and producing oil and gas properties evaluated in the most recently delivered reserve report pursuant to the Unit Credit Agreement; and (ii) a pledge of Unit’s 50% equity interests in Superior Pipeline Company, L.L.C. (“Superior”), however, unlike the Unit Credit Agreement, the New Notes will be secured by Superior’s equity interests only to the extent it would not require Unit or any Subsidiary Guarantor to file with the Securities and Exchange Commission separate financial statements of, or any additional financial information with respect to, Superior pursuant to Rule 3-16 of Regulation S-X under the Securities Act of 1933. See “Description of New Notes—Security for the New Notes” and the definition of “Parity Lien Excluded Collateral.” The New Notes and the Subsidiary Guarantees will be equal in right of payment with indebtedness under the Unit Credit Agreement with respect to any assets of Unit and the Subsidiary Guarantors that do not constitute collateral for the Unit Credit Agreement.

The New Notes will be guaranteed, jointly and severally, by each subsidiary of Unit that is a guarantor under the Existing Indenture (including each subsidiary that is an obligor under the Unit Credit Agreement on the Closing Date (each, a “Subsidiary Guarantor”), and in addition, after the Closing Date, by any subsidiary required to guarantee the New Notes (as described in “Description of New Notes)” in each case, until any such subsidiary guarantee is released in accordance with the terms of the indenture governing the New Notes (the “New Indenture”). See “Description of New Notes—Subsidiary Guarantees”.

Concurrently with this Exchange Offer, we are also soliciting consents (the “Consent Solicitation”) from holders of the Old Notes, upon the terms and conditions set forth in this prospectus, to make certain amendments to that certain Indenture, dated as of May 18, 2011, between us and Wilmington Trust, National Association (as successor to Wilmington Trust FSB), as Trustee (the “Base Indenture”), as supplemented by the First Supplemental Indenture, dated as of May 18, 2011, between us, the subsidiary guarantors party thereto, and the Trustee (the “First Supplemental Indenture”), and as further supplemented by the Second Supplemental Indenture, dated as of


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January 7, 2013, between us, the subsidiary guarantors party thereto, and the Trustee (the “Second Supplemental Indenture”, and together with the Base Indenture and the First Supplemental Indenture, the “Existing Indenture”), governing the Old Notes to eliminate substantially all of the restrictive covenants, modify or eliminate certain other provisions of the Existing Indenture and waive any existing defaults and events of default under the Existing Indenture (collectively, the “Proposed Amendments”). No payment will be made for a holder’s consent to the Proposed Amendments. We also refer to the Exchange Offer and the Consent Solicitation collectively in this prospectus as the “Exchange Offer”. See “Proposed Amendments to Existing Indenture and Old Notes.”

If the Requisite Consents (as defined herein) are received and the Proposed Amendments become operative, the Existing Indenture will be significantly less restrictive and afford reduced protection to holders of the Old Notes compared to the Existing Indenture that currently governs the Old Notes.

You may not consent to the Proposed Amendments without tendering your Old Notes and you may not tender your Old Notes for exchange without consenting to the Proposed Amendments. By tendering your Old Notes for exchange, you will be deemed to have validly delivered your consent to the Proposed Amendments. You may revoke your consent to the Proposed Amendments at any time before the Consent Revocation Deadline by withdrawing the Old Notes you have tendered but you will not be able to revoke your consent after the Consent Revocation Deadline. A valid withdrawal of tendered Old Notes prior to the Consent Revocation Deadline will be deemed to be a concurrent revocation of the related consent, and a revocation of a consent to the Proposed Amendments prior to the Consent Revocation Deadline will be deemed to be a concurrent withdrawal of the related tendered Old Notes. However, a valid withdrawal of Old Notes after the Consent Revocation Deadline will not be deemed a revocation of the related consents and your consents will continue to be deemed delivered.

As all Old Notes are held in book-entry form at The Depository Trust Company (“DTC”) no letter of transmittal will be used in connection with the Exchange Offer. The valid electronic transmission of acceptance through DTC’s Automated Tender Offer Program (“ATOP”) will constitute delivery of the Old Notes in connection with the Exchange Offer. There are no guaranteed delivery procedures for the Exchange Offer.

If the Exchange Offer is consummated, Unit has agreed to pay a fee (the “Soliciting Broker Fee”) equal to $2.50 for each $1,000 principal amount of Old Notes that are validly tendered and accepted for exchange pursuant to the Exchange Offer to soliciting retail brokers that are appropriately designated by their clients to receive this fee; provided that such fee will only be paid with respect to the first $200,000 aggregate principal amount of Old Notes exchanged by an individual beneficial holder. See “General Terms of the Exchange Offer and Consent Solicitation—Soliciting Broker Fees.”

The consummation of the Exchange Offer is subject to, and conditional on, the satisfaction or waiver, where permitted, of the conditions discussed under “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.” The Exchange Offer is not conditioned on the completion of the Consent Solicitation or on any minimum amount of Old Notes being tendered. We may, at our option and sole discretion, waive any such conditions, except (i) the condition that the registration statement of which this prospectus forms a part has been declared effective by the SEC and (ii) the condition of either (a) the consummation of an amendment to the Unit Credit Agreement or (b) a refinancing or replacement of the Unit Credit Agreement, as described under “Prospectus Summary—Recent Developments—Credit Agreement Amendment”. All conditions to the Exchange Offer must be satisfied or, where permitted, waived, at or by the Expiration Date. The Exchange Offer is not subject to any minimum amount of Old Notes being tendered for exchange or the receipt of the Requisite Consents.

There is no market for the New Notes, and we do not intend to list the New Notes on the New York Stock Exchange or any national or regional securities exchange.

You should carefully consider the risks set forth under “Risk Factors” beginning on page 16 of this prospectus before you decide whether to participate in the Exchange Offer.


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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES BEING OFFERED IN EXCHANGE FOR OUR OLD NOTES OR THIS TRANSACTION, PASSED UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Dealer Manager

 

 

BofA Securities

The date of this prospectus is                , 2019.


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     iv  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     vi  

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

     vi  

IMPORTANT INFORMATION

     vii  

IMPORTANT DATES

     viii  

QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER

     ix  

PROSPECTUS SUMMARY

     1  

SUMMARY OF THE NEW NOTES

     10  

RISK FACTORS

     16  

USE OF PROCEEDS

     37  

CAPITALIZATION

     38  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     39  

DESCRIPTION OF OTHER INDEBTEDNESS

     43  

GENERAL TERMS OF THE EXCHANGE OFFER AND CONSENT SOLICITATION

     47  

DESCRIPTION OF NEW NOTES

     56  

PROPOSED AMENDMENTS TO EXISTING INDENTURE AND OLD NOTES

     129  

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

     132  

NOTICE TO CANADIAN INVESTORS

     141  

LEGAL MATTERS

     144  

EXPERTS

     144  

 

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Except as otherwise indicated or as the context otherwise requires, all references to “us”, “our”, “we”, the “Company”, “Unit” or “Unit Corporation” means Unit Corporation and its consolidated subsidiaries.

NONE OF THE COMPANY, ITS SUBSIDIARIES, THE COMPANY’S BOARD OF DIRECTORS, THE TRUSTEE NOR THE INFORMATION AND EXCHANGE AGENT HAS MADE ANY RECOMMENDATION AS TO WHETHER OR NOT HOLDERS SHOULD TENDER THEIR OLD NOTES FOR EXCHANGE PURSUANT TO THE EXCHANGE OFFER. YOU MUST MAKE YOUR OWN DECISION WHETHER TO EXCHANGE ANY OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND, IF YOU WISH TO EXCHANGE OLD NOTES, THE PRINCIPAL AMOUNT OF OLD NOTES TO TENDER.

This prospectus does not constitute an offer to participate in the Exchange Offer to any person in any jurisdiction where it is unlawful to make such an offer or solicitations. The Exchange Offer is being made on the basis of this prospectus and is subject to the terms described herein and those that may be set forth in any amendment or supplement thereto or incorporated by reference herein. Any decision to participate in the Exchange Offer should be based on the information contained in this prospectus or any amendment or supplement thereto or specifically incorporated by reference herein. In making an investment decision or decisions, prospective investors must rely on their own examination of us and the terms of the Exchange Offer and the securities being offered and the terms of the amendments being sought, including the merits and risks involved. Prospective investors should not construe anything in this prospectus as legal, business or tax advice. Each prospective investor should consult its advisors as needed to make its investment decision and to determine whether it is legally permitted to participate in the Exchange Offer under applicable legal investment or similar laws or regulations.

Each prospective investor must comply with all applicable laws and regulations in force in any jurisdiction in which it participates in the Exchange Offer or possesses or distributes this prospectus and must obtain any consent, approval or permission required by it for participation in the Exchange Offer under the laws and regulations in force in any jurisdiction to which it is subject, and neither we nor any of our respective representatives shall have any responsibility therefor.

No action with respect to the offer of exchange consideration has been or will be taken in any jurisdiction (except the United States) that would permit a public offering of the offered securities, or the possession, circulation or distribution of this prospectus or any material relating to the Company or the offered securities where action for that purpose is required. Accordingly, the offered securities may not be offered, sold or exchanged, directly or indirectly, and neither this prospectus nor any other offering material or advertisement in connection with the Exchange Offer may be distributed or published, in or from any such jurisdiction, except in compliance with any applicable rules or regulations of any such jurisdiction.

This prospectus, which forms part of the registration statement, does not contain all of the information included in the registration statement, including its exhibits and schedules. For further information about Unit, the Exchange Offer and the Consent Solicitation described in this prospectus, you should refer to the registration statement and its exhibits and schedules. This prospectus contains summaries believed to be accurate with respect to certain documents. When we make such statements, we refer you to the copies of such documents that are filed as exhibits to the registration statement, because those statements are qualified in all respects by reference to those exhibits. Copies of documents referred to herein will be made available to prospective investors upon request to us at the address and telephone number set forth in “Incorporation of Certain Information by Reference.”

This prospectus, including the documents incorporated by reference herein, contains important information that should be read before any decision is made with respect to participating in the Exchange Offer.

 

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The delivery of this prospectus shall not under any circumstances create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that there has been no change in the information set forth herein or in any attachments hereto or in the affairs of the Company or affiliates since the date hereof.

We are responsible only for the information contained in or incorporated by reference into this prospectus. No one has been authorized to give any information or to make any representations with respect to the matters described in this prospectus, other than those contained in this prospectus. If given or made, such information or representation may not be relied upon as having been authorized by us.

This prospectus incorporates important business and financial information about the Company that is not included in or delivered with this document. This information is available without charge to security holders upon written or oral request to the Company, which may be made in writing or by telephone to the following address or telephone number: 8200 South Unit Drive, Tulsa, Oklahoma 74132; telephone number (918) 493-7700. Attention: Corporate Secretary. To obtain timely delivery of that information, security holders must request that information no later than             , 2019.

In making a decision in connection with the Exchange Offer, you must rely on your own examination of our business and the terms of the Exchange Offer, including the merits and risks involved. You should not construe the contents of this prospectus as providing any legal, business, financial or tax advice. You should consult with your own legal, business, financial and tax advisors with respect to any such matters concerning this prospectus and the Exchange Offer contemplated hereby.

No letter of transmittal will be used in connection with the Exchange Offer. The valid electronic transmission of acceptance through DTC’s ATOP shall constitute delivery of the Old Notes in connection with the Exchange Offer. You are advised to check with any bank, securities broker, or other intermediary through which you hold Old Notes as to when such intermediary would need to receive instructions from a beneficial owner in order for that beneficial owner to be able to participate in, or withdraw their instruction to participate in, the Exchange Offer.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical facts, included or incorporated by reference in this prospectus that addresses activities, events or developments we expect or anticipate will or may occur, are forward-looking statements. The words “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” “predicts,” and similar expressions are used to identify forward-looking statements. These forward-looking statements include, among others, things such as:

 

   

the amount and nature of our future capital expenditures and how we expect to fund our capital expenditures;

 

   

prices for oil, natural gas liquids (“NGLs”), and natural gas;

 

   

demand for oil, NGLs, and natural gas;

 

   

our exploration and drilling prospects;

 

   

the estimates of our proved oil, NGLs, and natural gas reserves;

 

   

oil, NGLs, and natural gas reserve potential;

 

   

development and infill drilling potential;

 

   

expansion and other development trends of the oil and natural gas industry;

 

   

our business strategy;

 

   

our plans to maintain or increase production of oil, NGLs, and natural gas;

 

   

the number of gathering systems and processing plants we plan to construct or acquire;

 

   

volumes and prices for natural gas gathered and processed;

 

   

expansion and growth of our business and operations;

 

   

demand for our drilling rigs and drilling rig rates;

 

   

our belief that the final outcome of legal proceedings involving us will not materially affect our financial results;

 

   

our ability to timely secure third-party services used in completing our wells;

 

   

our ability to transport or convey our oil or natural gas production to established pipeline systems;

 

   

impact of federal and state legislative and regulatory actions affecting our costs and increasing operating restrictions or delays and other adverse impacts on our business;

 

   

the possibility of security threats, including terrorist attacks and cybersecurity breaches, against, or otherwise impacting our facilities and systems;

 

   

our projected production guidelines for the year;

 

   

our anticipated capital budgets;

 

   

our financial condition and liquidity (including our ability to refinance our Old Notes);

 

   

the amount of debt may limit our ability to obtain financing for acquisitions, make us more vulnerable to adverse economic conditions, and make it more difficult for us to make payments on our debt;

 

   

the possibility that covenants in the Unit Credit Agreement or the indentures governing the Old Notes may limit our discretion in the operation of our business, prohibit us from engaging in beneficial transactions, or lead to the accelerated payment of our debt;

 

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the number of wells our oil and natural gas segment plans to drill or rework during the year; and

 

   

our estimates of the amounts of any ceiling test write-downs or other potential asset impairments we may have to record in future periods.

These statements are based on certain assumptions and analyses made by us based on our experience and our perception of historical trends, current conditions, and expected future developments, as well as other factors we believe are appropriate in the circumstances. Whether actual results and developments will conform to our expectations and predictions is subject to risks and uncertainties, any one or a combination of which could cause our actual results to differ materially from our expectations and predictions, including:

 

   

the risk factors discussed in this document and in the documents we incorporate by reference;

 

   

general economic, market, or business conditions;

 

   

the availability of and nature of (or lack of) business opportunities that we pursue;

 

   

demand for our land drilling services;

 

   

changes in laws or regulations;

 

   

changes in the current geopolitical situation;

 

   

risks relating to financing, including restrictions in our debt agreements and availability and cost of credit;

 

   

risks associated with future weather conditions;

 

   

decreases or increases in commodity prices;

 

   

putative class action lawsuits that may result in substantial expenditures and divert management’s attention; and

 

   

other factors, most of which are beyond our control.

You should not place undue reliance on these forward-looking statements. Except as required by law, we disclaim any intention to update forward-looking information and to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date of this document to reflect unanticipated events.

 

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

We are required to file annual, quarterly and current reports, proxy statements and other information and documents with the U.S. Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov. We also make available on our website at http://www.unitcorp.com all of the documents that we file with the SEC, free of charge, as soon as reasonably practicable after we electronically file such material with the SEC. Information contained on our website is not incorporated by reference into this prospectus.

Copies of the materials referred to in the preceding paragraph, and any current amendment or supplement to this prospectus, may also be obtained from the Information and Exchange Agent at the address set forth on the back cover of this prospectus.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

We “incorporate by reference” the information we file with the SEC, which means that we disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC and incorporate herein will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this registration statement and until we complete the exchange offers and consent solicitations (other than, in each case, documents or information deemed to have been furnished and not filed in accordance with the SEC rules):

 

  1.

Annual Report on Form 10-K for the fiscal year ended December 31, 2018;

 

  2.

The portions of our Proxy Statement on Schedule 14A for our 2019 annual meeting of stockholders filed with the SEC on March 26, 2019, that are incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2018;

 

  3.

Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019; and

 

  4.

Current Reports on Form 8-K filed with the SEC on May 2, 2019.

Documents incorporated by reference are available from the SEC as described above or from us without charge or from the Information and Exchange Agent, excluding exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this document. The Information and Exchange Agent may be contacted at the address set forth on the back cover of this prospectus. You may request a copy of this prospectus and any of the documents incorporated by reference into this prospectus or other information concerning us, without charge, by written or telephonic request directed to us, Attention: Corporate Secretary, 8200 South Unit Drive, Tulsa, Oklahoma 74132; telephone number (918) 493-7700, or from the SEC through the SEC website provided above.

 

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IMPORTANT INFORMATION

Old Notes tendered and not validly withdrawn before the Withdrawal Deadline may not be withdrawn at any time after the Withdrawal Deadline, which is 11:59 p.m., New York City time, on             , 2019. Consents may not be revoked at any time after the Consent Revocation Deadline, which is 5:00 p.m., New York City time, on             , 2019.

In order to tender Old Notes in the Exchange Offer, an acceptance must be electronically transmitted through ATOP. Any requests for assistance in connection with the Exchange Offer or for additional copies of this prospectus or related materials should be directed to the Information and Exchange Agent. Contact information for the Information and Exchange Agent is set forth on the back cover of this prospectus. None of the Company, its subsidiaries, their respective boards of directors or the Information and Exchange Agent has made any recommendation as to whether or not holders should tender their Old Notes for exchange pursuant to the Exchange Offer.

BofA Securities, Inc. is acting as Dealer Manager for the Exchange Offer. Global Bondholder Services Corporation is acting as the Information and Exchange Agent for the Exchange Offer.

Subject to the terms and conditions set forth in the Exchange Offer, the exchange consideration to which an exchanging holder is entitled pursuant to the Exchange Offer will be paid on the Closing Date, which will occur promptly following the Expiration Date, subject to satisfaction or waiver (to the extent permitted) of all conditions precedent to the Exchange Offer. Under no circumstances will any interest be payable because of any delay in the transmission of the exchange consideration to holders by the Information and Exchange Agent.

Notwithstanding any other provision of the Exchange Offer, our obligation to pay the exchange consideration for Old Notes validly tendered for exchange and not validly withdrawn pursuant to the Exchange Offer is subject to, and conditioned upon, the satisfaction or waiver (to the extent permitted) of the conditions described under “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.”

Subject to applicable securities laws and the terms of the Exchange Offer, we reserve the right:

 

   

to waive any and all conditions to the Exchange Offer that may be waived by us;

 

   

to extend the Exchange Offer;

 

   

to terminate the Exchange Offer; or

 

   

otherwise to amend the Exchange Offer in any respect in compliance with applicable securities laws.

If the Exchange Offer is withdrawn or otherwise not completed, the exchange consideration will not be paid or become payable to holders of the Old Notes who have validly tendered their Old Notes for exchange in connection with the Exchange Offer, and the Old Notes tendered for exchange pursuant to the Exchange Offer will be promptly returned to the tendering holders.

Only registered holders of Old Notes are entitled to tender Old Notes for exchange and give consents. Beneficial owners of Old Notes that are held of record by a broker, bank or other nominee or custodian must instruct such nominee or custodian to tender the Old Notes for exchange on the beneficial owner’s behalf. See “General Terms of the Exchange Offer and Consent Solicitation—Procedures for Tendering Old Notes—General.”

Exchanging holders will not be obligated to pay brokerage fees or commissions to the Information and Exchange Agent or to us. If a broker, bank or other nominee or custodian tenders Old Notes on behalf of a tendering holder, such broker, bank or other nominee or custodian may charge a fee for doing so. Exchanging holders who own Old Notes through a broker, bank or other nominee or custodian should consult their broker, bank or other nominee or custodian to determine whether any charges will apply.

 

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IMPORTANT DATES

Holders of Old Notes should note the following dates and times relating to the Exchange Offer, unless extended:

 

Event

  

Date and Time

  

Event Description

Launch Date                , 2019    Commencement of the Exchange Offer.
Early Tender Date    5:00 p.m., New York City time, on             , 2019    The last time for you to validly tender Old Notes to qualify for payment of the Early Exchange Consideration.
Consent Revocation Deadline    5:00 p.m., New York City time, on             , 2019    The last time for you to validly revoke consents to the Proposed Amendments.
Expiration Date    11:59 p.m., New York City time, on             , 2019    The last time for you to validly tender Old Notes to qualify for the payment of the Late Exchange Consideration payable in respect of Old Notes tendered after the Early Tender Date.
Withdrawal Deadline    11:59 p.m., New York City time, on             , 2019    The last time for you to validly withdraw tenders of Old Notes. If your tenders are validly withdrawn, you will no longer receive the applicable consideration on the Closing Date (unless you validly retender such Old Notes at or before the Expiration Date).
Closing Date   

Promptly after the Expiration Date

Expected to be on or about             , 2019

   Subject to the tender acceptance procedures described herein, payment of the Early Exchange Consideration and the Late Exchange Consideration, as applicable, plus the payment in cash of accrued and unpaid interest on Old Notes accepted for exchange from the last interest payment date to, but not including, the Closing Date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date).

 

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QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER

The following are some questions and answers regarding the Exchange Offer, including the Consent Solicitation. It does not contain all of the information that may be important to you. You should carefully read this prospectus to fully understand the terms of the Exchange Offer, as well as the other considerations that are important to you in making your investment decision. You should pay special attention to the information provided under the captions entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

Who is making the Exchange Offer?

Unit Corporation, a Delaware corporation and the issuer of the Old Notes, is making the Exchange Offer. The mailing address of our principal executive offices is 8200 South Unit Drive, Tulsa, Oklahoma 74132. Our telephone number is (918) 493-7700. Our common stock is currently listed on the New York Stock Exchange under the symbol “UNT.” See “General Terms of the Exchange Offer and Consent Solicitation.”

Why are we making the Exchange Offer?

The purpose of the Exchange Offer is to extend the maturity profile of our outstanding indebtedness and eliminate short to medium-term refinancing and related risks associated with our capital structure. The October 18, 2023 scheduled maturity date of the loans under the Unit Credit Agreement will accelerate to November 16, 2020 if, on or before that date, all of the Old Notes are not repurchased, redeemed, or refinanced with indebtedness having a maturity date at least six months following October 18, 2023. The Exchange Offer, if consummated, will serve this purpose by exchanging the Old Notes that are validly tendered and accepted with New Notes with a maturity date that will be the              anniversary of the original issue date.

What will happen to the Company if the Exchange Offer is not completed?

If we are unable to complete the Exchange Offer, we will consider other restructuring alternatives available to us at that time to address the maturities of the Old Notes and the loans under Unit Credit Agreement. Those alternatives may include asset dispositions, joint ventures, or alternative refinancing transactions, all of which involve uncertainties, potential delays and other risks. For a more complete description of the risks relating to our failure to complete the Exchange Offer, see “Risk Factors—Risks Relating to the Exchange Offer and Consent Solicitation.”

When does the Exchange Offer expire?

The Exchange Offer will expire at 11:59 p.m., New York City time, on                     , 2019, unless extended as described in this prospectus. See “General Terms of the Exchange Offer and Consent Solicitation—Early Tender Date, Expiration Date, Extensions, Amendments or Termination.”

Can the Exchange Offer be extended?

Yes, we can extend the Exchange Offer. See “General Terms of the Exchange Offer and Consent Solicitation—Early Tender Date, Expiration Date, Extensions, Amendments or Termination.”

What securities are being sought in the Exchange Offer?

We are offering to exchange, for New Notes, upon the terms and subject to the conditions described in this prospectus, any and all of the $650 million in aggregate principal amount of outstanding Old Notes that are

 

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validly tendered and not validly withdrawn, as permitted under the terms of the Exchange Offer, on or before the Expiration Date. Our acceptance of validly tendered Old Notes and the closing of the Exchange Offer are subject to the conditions described under “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.”

The Old Notes were issued pursuant to the Existing Indenture and mature on May 15, 2021. Interest on the Old Notes is payable semi-annually (in arrears) on each May 15 and November 15.

The Old Notes are guaranteed by certain of our subsidiaries. For a description of the terms governing the Old Notes, see “Description of Other Indebtedness.”

What will I receive in the Exchange Offer?

For each $1,000 in principal amount of Old Notes tendered for exchange by the Early Tender Date, holders of the Old Notes will, subject to the terms and conditions of the Exchange Offer, receive $         principal amount of the New Notes. If the tender is made after the Early Tender Date and before the Expiration Date, holders of the Old Notes will receive $         principal amount of the New Notes for each $1,000 in principal amount of Old Notes exchanged. No additional payments will be made in connection with the Consent Solicitation.

In addition, holders whose Old Notes are validly tendered and accepted for exchange will receive payment in cash of accrued and unpaid interest to, but excluding, the Closing Date on such Old Notes. The Exchange Offer and Consent Solicitation are each subject to the conditions described under “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.”

Who may participate in the Exchange Offer?

All holders of the Old Notes may participate in the Exchange Offer.

Is there a minimum tender condition to the Exchange Offer?

No, the Exchange Offer is not conditioned on any minimum aggregate principal amount of Old Notes being tendered for exchange or the receipt of the Requisite Consents in the Consent Solicitation.

Are there any other conditions to the Exchange Offer?

Yes. The Exchange Offer is conditioned on the closing conditions described under “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.” In particular, the Exchange Offer is conditioned on either (i) the consummation of an amendment to the Unit Credit Agreement or (ii) a refinancing or replacement of the Unit Credit Agreement, as described under “Prospectus Summary—Recent Developments—Credit Agreement Amendment”, which condition will not be waived. We will not be required, but we reserve the right, to the extent legally permitted, to accept for exchange any Old Notes tendered (or, alternatively, we may terminate the Exchange Offer) if any of the other conditions of the Exchange Offer as described under “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation” remain unsatisfied.

What rights will I lose if I exchange my Old Notes in the Exchange Offer?

If you validly tender your Old Notes and we accept them for exchange, you will have rights as a holder of New Notes and will lose the rights of a holder of Old Notes.

How can I determine the market value of the Old Notes?

The Old Notes are not listed on any securities exchange. To the extent that Old Notes have traded, prices of the Old Notes have fluctuated depending, among other things, on trading volume, the balance between buy and sell orders, prevailing interest rates, our operating results and financial condition, our business prospects, and the market for similar securities.

 

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Will the New Notes be freely tradable?

The New Notes will be freely tradable in the United States, unless you are an affiliate of the Company, as that term is defined in the Securities Act. We do not intend to list the New Notes on the New York Stock Exchange or any national or regional securities exchange, and therefore an active trading market for the New Notes may not exist upon consummation of the Exchange Offer or develop following consummation of the Exchange Offer, and even if one does exist, there is no assurance that it will continue.

What risks should I consider in deciding whether or not to exchange the Old Notes?

In deciding whether to participate in the Exchange Offer, you should carefully consider the discussion of the risks and uncertainties relating to the Exchange Offer, our Company, and our industry described in the section entitled “Risk Factors,” beginning on page 16 of this prospectus.

How do I participate in the Exchange Offer?

A holder who is a DTC participant should tender its Old Notes electronically through ATOP, subject to the terms and procedures of that system, on or before the Expiration Date, which is 11:59 p.m., New York City time, on                 , 2019, unless extended as described in this prospectus. See “General Terms of the Exchange Offer and Consent Solicitation—Procedures for Tendering Old Notes—Original Notes Held with DTC by a DTC Participant.”

What happens if I do not participate in the Exchange Offer?

If you currently hold Old Notes and do not tender them, then, following completion of the Exchange Offer, your Old Notes will continue to be outstanding according to their terms (as amended by the Proposed Amendments, if adopted and effected). The Old Notes will be expressly subordinated in right of payment to the New Notes. In addition, the Proposed Amendments, if they become operative, will also eliminate substantially all of the restrictive covenants from the Existing Indenture and modify or eliminate certain other provisions of the Existing Indenture. Moreover, if we complete the Exchange Offer, the liquidity and value of, and any trading market for, any Old Notes that remain outstanding after completion of the Exchange Offer may be adversely affected.

May I withdraw my tender of Old Notes?

Yes. You can withdraw Old Notes previously tendered for exchange at any time before the Withdrawal Deadline. The Withdrawal Deadline is 11:59 p.m., New York City time, on             , 2019, unless extended as described in this prospectus. Consents to the Proposed Amendments may be revoked at any time prior to the Consent Revocation Deadline, but may not be revoked at any time thereafter. Consents may be revoked only by validly withdrawing the associated tendered Old Notes. A valid withdrawal of tendered Old Notes prior to the Consent Revocation Deadline will be deemed to be a concurrent revocation of the related consent to the Proposed Amendments, and a revocation of a consent to the Proposed Amendments prior to the Consent Revocation Deadline will be deemed to be a concurrent withdrawal of the related tendered Old Notes. However, a valid withdrawal of Old Notes after the Consent Revocation Deadline will not be deemed a revocation of the related consents and your consents will continue to be deemed delivered. No additional payment will be made for a holder’s consent to the Proposed Amendments. See “General Terms of the Exchange Offer and Consent Solicitation—Early Tender Date, Expiration Date, Extensions, Amendments or Termination.”

What happens if my Old Notes are not accepted in the Exchange Offer?

If we decide for any reason not to accept your Old Notes for exchange, the Old Notes will be returned to you promptly after the expiration or termination of the Exchange Offer. In the case of Old Notes tendered by book-entry transfer into the Information and Exchange Agent’s account at DTC, any unaccepted Old Notes will be credited to your account at DTC. See “General Terms of the Exchange Offer and Consent Solicitation.”

 

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Do I need to do anything if I do not wish to tender my Old Notes?

No. If you do not tender your Old Notes electronically through DTC’s ATOP before the Expiration Date, your Old Notes will remain outstanding subject to their terms (as amended pursuant to the Proposed Amendments, if adopted and effected, resulting from the Consent Solicitation).

If I choose to tender my Old Notes for exchange, do I have to tender all of my Old Notes?

No. You may tender a portion of your Old Notes, all of your Old Notes or none of your Old Notes for exchange. See “General Terms of the Exchange Offer and Consent Solicitation.”

How will I be taxed under U.S. federal income tax laws on the exchange of the Old Notes for New Notes pursuant to the Exchange Offer if I am a United States holder of Old Notes?

Although it is not free from doubt, we intend to take the position that the exchange of Old Notes for New Notes pursuant to the Exchange Offer is a recapitalization for U.S. federal income tax purposes. In such case, you generally would not recognize any income, gain or loss with respect to the exchange. You should consult with your own tax advisor regarding the tax consequences to you of exchanging your Old Notes for New Notes pursuant to the Exchange Offer in light of your particular circumstances. See “Certain United States Federal Income Tax Consequences.”

Has the Board of Directors adopted a position on the Exchange Offer?

Our board of directors, which we refer to in this prospectus as the “Board of Directors” or the “Board,” has approved the making of the Exchange Offer. However, our directors do not make any recommendation as to whether you should tender your Old Notes pursuant to the Exchange Offer. You should consult your own financial, tax, legal, and other advisors and make your own decision whether to tender your Old Notes.

Who will pay the fees and expenses associated with the Exchange Offer?

We will bear all of our fees and expenses incurred in connection with consummating the Exchange Offer. No brokerage commissions are payable by the holders to the Information and Exchange Agent or to us. If your Old Notes are held through a broker or other nominee who tenders Old Notes on your behalf, your broker or other nominee may charge you a commission or fee for doing so. You should consult with your broker or other nominee to determine whether any charges will apply. See “General Terms of the Exchange Offer and Consent Solicitation.”

If the Exchange Offer is consummated, Unit has agreed to pay the Soliciting Broker Fee equal to $2.50 for each $1,000 principal amount of Old Notes that are validly tendered and accepted for exchange pursuant to the Exchange Offer to soliciting retail brokers that are appropriately designated by their clients to receive this fee; provided that such fee will only be paid with respect to the first $200,000 aggregate principal amount of Old Notes exchanged by an individual beneficial holder. See “General Terms of the Exchange Offer and Consent Solicitation—Soliciting Broker Fees.”

How do I vote for the Proposed Amendments?

If you validly tender Old Notes before 11:59 p.m., New York City time, on the Expiration Date, that tender will be deemed to constitute the delivery of consent to the Proposed Amendments as a holder of Old Notes with respect to the tendered Old Notes. See “Proposed Amendments to Existing Indenture and Old Notes.”

May I deliver a consent in the Consent Solicitation without tendering my Old Notes in the Exchange Offer?

No. You may not consent to the Proposed Amendments to the Existing Indenture without tendering your Old Notes in the Exchange Offer.

 

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Can I revoke my consent to the Proposed Amendments without withdrawing my Old Notes?

No. You may revoke your consent to the Proposed Amendments only by withdrawing the Old Notes you tendered. If the valid withdrawal of your tendered Old Notes occurs before the Consent Revocation Deadline, your consent to the Proposed Amendments will also be revoked. If the valid withdrawal of your tendered Old Notes occurs after the Consent Revocation Deadline, then, as described in this prospectus, you will not be able to revoke the related consent to the Proposed Amendments.

When will the Proposed Amendments become operative?

Assuming the Requisite Consents are received, it is expected that the supplemental indenture for the Proposed Amendments will be duly executed and delivered by us and Wilmington Trust, National Association, upon or promptly following the later of the Consent Revocation Deadline and the receipt and acceptance of the Required Consents and the Proposed Amendments contained therein will become operative on the Closing Date, upon consummation of the Exchange Offer.

Who can answer questions concerning the Exchange Offer?

Requests for assistance in connection with the tender of your Old Notes pursuant to the Exchange Offer may be directed to the Information and Exchange Agent, Global Bondholder Services Corporation, 65 Broadway, Suite 404, New York, New York 10006, Attention: Corporate Actions; phone: (866) 470-4200, or to the Dealer Manager, BofA Securities, Inc., Attention: Debt Advisory; Toll-Free: (888) 292-0070 or Collect: (980) 388-4813.

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this prospectus or incorporated by reference herein and is entirely qualified by the more detailed information appearing elsewhere, or incorporated by reference, in this prospectus. It may not contain all the information that is important to you. We urge you to read carefully this entire prospectus and the other documents to which it refers to fully understand the terms of the Exchange Offer and the New Notes. You should consider, among other things, the matters set forth in “Risk Factors” beginning on page 16 of this prospectus, “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which is incorporated by reference in this prospectus, the risks described in the other documents incorporated by reference in this prospectus, and the other information included in this prospectus.

The Company

Unit Corporation is an integrated energy company with operations predominantly focused on the Mid-Continent region of the United States. While founded in 1963 as a domestic land contract drilling company, today we also engage in the domestic exploration, development and production of crude oil and natural gas, and mid-stream services businesses. We conduct our operations through our three principal business segments: Unit Petroleum Company (our oil and natural gas segment, wholly owned), Unit Drilling Company (our contract drilling segment, wholly owned), and Superior Pipeline Company, L.L.C. (“Superior”) (our mid-stream segment, 50% owned). This integrated approach is distinctive for a company our size and provides us with operational flexibility, a useful cost structure, and an understanding of industry dynamics and trends.

Unit Petroleum Company maintains a strong position with nearly 159,681 million barrels of oil equivalent of proved reserves across 689,521 gross acres (468,315 net acres, approximately 81% of the gross acres were developed) as of December 31, 2018. Unit Drilling Company, through its fleet of 57 drilling rigs as of June 30, 2019, drills onshore oil and natural gas wells for Unit Petroleum Company and a wide range of other independent exploration and production companies. Superior provides gathering, processing and transmission services with approximately 1,500 miles of pipeline to move our gas and that of independent third parties.

Natural gas equivalents and crude oil equivalents are determined using the ratio of six thousand cubic feet of natural gas (“Mcf”) to one barrel. “Proved reserves” are those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and government regulations—before the time when the contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. For additional information, see the SEC’s definition in Rule 4-10(a)(2)(i) through (iii) of Regulation S-X. “Reasonable certainty” regarding reserves (1) if deterministic methods are used, means high confidence that the quantities will be recovered, and (2) if probabilistic methods are used, means there should be at least a 90% probability that the quantities recovered will equal or exceed the estimate

Unit Petroleum Company (Oil and Natural Gas)

We started our oil and natural gas operations in 1979 to diversify our contract drilling operations. As of December 31, 2018, we had an interest in 6,308 gross producing (or capable of producing) wells (approximately 2,333.46 net wells) and had accumulated approximately 689,521 gross acres (468,315 net acres, approximately 81% of the gross acres were developed). “Gross acres” means the total acres in which a working interest is owned.



 

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The following table summarizes our net leasehold acreage, the percentage of undeveloped net acreage, our estimated proved reserves, the percentage of the proved reserves developed, and our 2018 average net daily production. Our proved reserves are estimates as of December 31, 2018, and 68% of our total net proved reserves on an MBoe (as defined herein) basis were audited by Ryder Scott Company, L.P. (“Ryder Scott”), our independent reserve engineers, under the rules of the SEC regarding oil and natural gas reserve reporting currently in effect. The total net proved reserves audited by Ryder Scott, as informed by us, included approximately 82% of the discounted future net income at 10 percent of the total proved reserves.

 

     Net
Acreage
     % Undev.
Net
Acreage
    Proved
Reserves
(MBoe)(1)
     % Proved
Reserves
Dev.
    2018 Average
Net Daily Production
 
  Gas
(Mcf)
     Oil
(Bbls)(2)
     NGLs(3)
(Bbls)
 

Total (or average)

     468,315        17     159,681        70     152,398        7,874        13,494  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(1)

“MBoe” means thousand barrels of oil equivalents.

(2)

“Bbl” means barrel, or 42 U.S. gallons liquid volume.

(3)

“NGL” means natural gas liquids.

Unit Drilling Company (Contract Drilling)

Unit Drilling Company conducts our contract drilling business. Through this company, we drill onshore oil and natural gas wells for our account and for other oil and natural gas companies. Our drilling operations are in Oklahoma, Texas, Louisiana, Kansas, Colorado, Wyoming, and North Dakota. The maximum depth capacities of our various drilling rigs range from 9,500 to 40,000 feet, allowing us to cover a wide range of our customers’ drilling requirements. During 2018, 38 of our drilling rigs were used in drilling services. In December 2018, we removed from service 41 drilling rigs, some older top drives, and certain drill pipe that was reclassified to “Assets held for sale”. Our drilling rig fleet now totals 57 drilling rigs. During 2018, utilization increased to a high of 36 drilling rigs working at one time but with a decline in commodity prices during the fourth quarter, declined to 32 drilling rigs as of December 31, 2018, and continued to decline to 24 drilling rigs as of June 30, 2019. Besides our drilling rigs, we provide the drilling crews and most of the ancillary equipment needed to operate our drilling rigs, including top drives, skidding systems, large air compressors, trucks and other support equipment.

We continue to enhance and refurbish our drilling rig fleet to better meet the needs of our customers. In 2014, Unit Drilling Company entered the AC high technology, super-spec drilling rig market with its proprietary design BOSS rig. During the first quarter of 2019, we completed construction and placed into service our 12th and 13th BOSS drilling rigs. One was delivered to an existing third-party operator in Wyoming. Two additional BOSS drilling rigs under contract with the same customer were also extended. The other BOSS drilling rig was delivered to a new customer in the Permian Basin. This was following an early termination by the original third-party operator before the drilling rig’s completion.

During the second quarter of 2019, we were awarded a term contract to build our 14th BOSS drilling rig. Construction has started, and the drilling rig is expected to be placed into service with a third-party operator in the fourth quarter. Two existing BOSS drilling rig contracts working for the same operator were also extended at the time of the new BOSS drilling rig award.

We drill wells for many large independent oil and gas companies using both short and long-term contracts. Most of our contracts are on a well-to-well basis, with the rest being term contracts. Term contracts range from six months to three years, and the rates can either be fixed throughout the term or allow for periodic adjustments. When possible, we seek long-term commitments for our drilling rigs.



 

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The type of contract used determines our compensation. Contracts are generally one of three types: daywork, footage, or turnkey. All our work during the last three years was under daywork contracts. Under a daywork contract, we provide the drilling rig with the required personnel and the operator supervises the drilling of the well. Our compensation is based on a negotiated rate to be paid for each day the drilling rig is used.

Superior Pipeline Company (Mid-Stream)

Superior and its subsidiaries conduct our mid-stream operations. Through these companies, we engage in the buying, selling, gathering, processing and treating of natural gas and producing, transporting, and selling NGLs and condensate.

We conduct our operations in Oklahoma, Texas, Kansas, Pennsylvania, and West Virginia. As of June 30, 2019, Superior owned and operated three natural gas treatment plants, 12 processing plants, and 21 gathering systems with approximately 1,500 miles of pipeline. We continue to look for opportunities to expand Superior’s operations into high growth natural gas regions within the United States. The following table presents certain information regarding Superior for the periods indicated.

 

     Six Months Ended
June 30,
     Year Ended December 31,  
     2019      2018      2018      2017      2016  

Gas gathered—Mcf/day

     457,859        382,005        393,613        385,209        419,217  

Gas processed—Mcf/day

     163,725        155,799        158,189        137,625        155,461  

NGLs sold—gallons/day

     681,070        627,305        663,367        534,140        536,494  

Superior’s services are usually provided to each customer under long-term contracts lasting more than one year. These customer agreements include these types of contracts: fee-based and commodity-based contracts. Fee-based contracts provide for a set fee for gathering and transporting raw natural gas. Commodity-based contracts consist of several contract structure types. Under these contract structures, Superior purchases the raw wellhead natural gas and settles with the producer at a stipulated price while retaining all sales proceeds from third parties or retains a negotiated percentage of the sales proceeds from the residue natural gas and NGLs it gathers and processes, with the remainder being paid to the producer.

Presented below are the percentage of our total volume and operating margin in our mid-stream segment generated by the different types of contract agreement during the years 2018, 2017 and 2016.

 

     Total Volumes     Operating Margins  
     2018     2017     2016     2018     2017     2016  

Fee-Based Contracts

     67     71     76     61     62     71

Commodity-Based Contracts

     33     29     24     39     38     29

On April 3, 2018, we completed the sale of 50% of the ownership interests in Superior to SP Investor Holdings, LLC, a holding company jointly owned by OPTrust and funds managed and/or advised by Partners Group, a global private markets investment manager, for $300.0 million.

Recent Developments

Credit Agreement Amendment

We have engaged in discussions with the lenders under the Unit Credit Agreement to enter into an amendment to the Unit Credit Agreement to, among other things, permit the issuance of the New Notes, the



 

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incurrence of guarantees of the New Notes and the grant of liens securing the New Notes, each of which are currently not permitted under the Unit Credit Agreement. As discussed under the heading “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation,” our obligation to accept Old Notes in the Exchange Offer is subject to, and conditioned upon, either (i) the consummation of such amendment to the Unit Credit Agreement or (ii) a refinancing or replacement of the Unit Credit Agreement with a credit facility that, among other things, permits the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes, which condition will not be waived. We will continue to pursue such amendment, but we cannot provide assurance that we will obtain such amendment on the terms described in this prospectus or at all.

As of September 26, 2019, the borrowing base under the Unit Credit Agreement was reduced to $275 million.



 

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Summary of the Terms of the Exchange Offer

We refer to the notes to be registered under the registration statement of which this prospectus forms a part as New Notes. You may exchange your Old Notes for New Notes, as further described in this prospectus, in this Exchange Offer. You should read the discussion under the headings “General Terms of the Exchange Offer and Consent Solicitation” and “Description of New Notes” for further information regarding the New Notes.

 

Securities Subject to the Exchange Offer

Any and all of $650.0 million aggregate principal amount of 6.625% Senior Subordinated Notes due 2021.

 

The Exchange Offer

We are offering to exchange any and all of our outstanding Old Notes validly tendered before the Expiration Date for New Notes upon the terms and subject to the conditions set forth in this prospectus (as it may be amended or supplemented from time to time).

 

The Consent Solicitation

We are soliciting consents to the Proposed Amendments to the Existing Indenture from the holders of the Old Notes upon the terms and conditions set forth in this prospectus. Holders that validly tender Old Notes pursuant to the Exchange Offer before the Expiration Date will be deemed to have delivered a consent to the Proposed Amendments with respect to all such Old Notes. The Proposed Amendments will eliminate substantially all the restrictive covenants contained in the Existing Indenture, modify or eliminate certain other provisions of the Existing Indenture, and waive any existing defaults or events of default (including any default or event of default alleged in connection with the Exchange Offer or Consent Solicitation) under the Existing Indenture. See “Proposed Amendments to Existing Indenture and Old Notes.”

 

Early Tender Date

To be eligible to receive the Early Exchange Consideration, holders must tender their Old Notes at or before 5:00 p.m., New York City time, on             , 2019, unless extended by us.

 

Withdrawal Deadline; Consent Revocation Deadline; Expiration Date and Time

A holder’s right to withdraw any Old Notes tendered will expire at 11:59 p.m., New York City time on             , 2019, unless extended by us. See “General Terms of the Exchange Offer and Consent Solicitation—Withdrawal of Tenders; Revocation of Consents.”

 

 

A holder’s right to revoke any consents given on the Proposed Amendments will expire at 5:00 p.m., New York City time on             , 2019, unless extended by us. Consents may be revoked only by validly withdrawing the associated tendered Old Notes. A valid withdrawal of tendered Old Notes prior to the Consent Revocation Deadline will be deemed to be a concurrent revocation of the related consent to the Proposed Amendments, and a revocation of a consent to the Proposed Amendments prior to the Consent Revocation Deadline will be deemed to be a concurrent withdrawal of the related tendered Old Notes. However, a valid withdrawal of Old Notes after



 

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the Consent Revocation Deadline will not be deemed a revocation of the related consents and your consents will continue to be deemed delivered. See “General Terms of the Exchange Offer and Consent Solicitation—Withdrawal of Tenders; Revocation of Consents.”

 

  The Exchange Offer and the Consent Solicitation will expire at 11:59 p.m., New York City time, on             , 2019, unless extended by us. See “General Terms of the Exchange Offer and Consent Solicitation—Early Tender Date, Expiration Date, Extensions, Amendments or Termination.”

 

Exchange Consideration

Holders whose Old Notes are tendered before the Early Tender Date, not validly withdrawn, and accepted for exchange will receive for each $1,000 principal amount of Old Notes so tendered, $         principal amount of New Notes.

 

  Holders whose Old Notes are tendered after the Early Tender Date and before the Expiration Date, not validly withdrawn, and accepted for exchange will receive for each $1,000 principal amount of Old Notes so tendered, $         principal amount of New Notes.

 

  For additional information regarding the terms of the New Notes, see “Description of New Notes.”

 

Accrued Interest

Payment in cash of accrued and unpaid interest to, but excluding, the Closing Date on the Old Notes validly tendered and accepted in the Exchange Offer will be made on the Closing Date.

 

Conditions to the Exchange Offer

The Exchange Offer is not conditioned on any minimum aggregate principal amount of Old Notes being tendered for exchange or the receipt of the Requisite Consents.

 

  The Exchange Offer is conditioned upon either (i) the consummation of the amendment to the Unit Credit Agreement or (ii) a refinancing or replacement of the Unit Credit Agreement as described under “—Recent Developments—Credit Agreement Amendment,” which condition will not be waived.

 

  For other conditions of the Exchange Offer, see “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.”

 

Conditions of the Consent Solicitation

The Consent Solicitation is conditioned on tenders of at least a majority of the principal amount of Old Notes outstanding (the “Requisite Consents”).

 

Closing Date

The Closing Date will be promptly after the Expiration Date and is expected to be on or before the third business day after the Expiration Date. Assuming the Exchange Offer is not extended, we expect the Closing Date will be             , 2019.


 

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Procedure for Tenders

If you wish to participate in the Exchange Offer, you must request your DTC participant to, on your behalf, electronically submit an acceptance through ATOP. If your Old Notes are held by a custodial entity like a bank, broker, dealer, trust company, or other nominee, you must instruct that custodial entity to tender your Old Notes and deliver your consent on your behalf pursuant to the procedures of the custodial entity. See “General Terms of the Exchange Offer and Consent Solicitation—Procedures for Tendering Old Notes.”

 

Denominations

Tenders of Old Notes pursuant to the Exchange Offer will be accepted only in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof. No alternative, conditional or contingent tenders will be accepted. Holders who tender less than all of their Notes must continue to hold Notes in at least the Minimum Authorized Denomination of $2,000 principal amount. If under the terms of the Exchange Offer a tendering holder is eligible to receive New Notes in a principal amount that is not an integral multiple of $1,000, we will round downward such principal amount of New Notes to the nearest integral multiple of $1,000. This rounded amount will be the principal amount of New Notes such tendering holder will receive and no additional cash will be paid in lieu of any principal amount of New Notes not received as a result of rounding down.

 

No Guaranteed Delivery Procedures

No guaranteed delivery procedures are available in connection with the Exchange Offer and Consent Solicitation. You must tender your Old Notes and deliver your consents by the Expiration Date in order to participate in the Exchange Offer and Consent Solicitation.

 

Withdrawal of Tenders

You may withdraw the tender of your Old Notes at any time before 11:59 p.m., New York time, on             , 2019, unless extended by us, by submitting a notice of withdrawal to the Information and Exchange Agent using the procedures described in “General Terms of the Exchange Offer and Consent Solicitation—Withdrawal of Tenders; Revocation of Consents.” Any Old Note withdrawn pursuant to the terms of the Exchange Offer shall not thereafter be considered tendered for any purpose unless and until such old note is again tendered pursuant to the Exchange Offer. Any Old Notes tendered prior to the Withdrawal Deadline that are not validly withdrawn prior to such Withdrawal Deadline may not be withdrawn thereafter, except as otherwise provided by law.

 

Fees and Expenses

We will bear all of our fees and expenses incurred in connection with consummating the Exchange Offer. No brokerage commissions are payable by the holders to the Information and Exchange Agent or to us. If your Old Notes are held through a broker or other nominee who tenders Old Notes on your behalf, your broker or other nominee may charge you a commission or fee for doing so. You should consult with your broker or other nominee to determine whether any charges will apply. See “General Terms of the Exchange Offer and Consent Solicitation.”


 

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Soliciting Broker Fee

If the Exchange Offer is consummated, Unit has agreed to pay a Soliciting Broker Fee equal to $2.50 for each $1,000 principal amount of Old Notes that are validly tendered and accepted for exchange pursuant to the Exchange Offer to soliciting retail brokers that are appropriately designated by their clients to receive this fee; provided that such fee will only be paid with respect to the first $200,000 aggregate principal amount of Old Notes exchanged by an individual beneficial holder. See “General Terms of the Exchange Offer and Consent Solicitation—Soliciting Broker Fees.”

 

Extensions, Amendments or Termination

We may extend, in our sole discretion, the Early Tender Date, the Withdrawal Deadline, or the Expiration Date. We may terminate the Exchange Offer if the conditions to the Exchange Offer are not met on or before the Expiration Date. We reserve the right, subject to applicable law, to (i) waive (to the extent permitted) any and all of the conditions of the Exchange Offer before the Expiration Date, (ii) extend the Early Tender Date without extending the Withdrawal Deadline and vice versa, or (iii) amend the terms of the Exchange Offer. In the event that the Exchange Offer is terminated, withdrawn, or otherwise not consummated before the Expiration Date, no New Notes will be issued or become payable to holders who have tendered their Old Notes. In any such event, the Old Notes previously tendered pursuant to the Exchange Offer will be promptly returned to the tendering holders and the Proposed Amendments will not become effective.

 

Use of Proceeds

We will not receive any cash proceeds in the Exchange Offer.

 

Certain United States Federal Income Tax Consequences

For a discussion of the United States federal income tax consequences of the Exchange Offer, see “Certain United States Federal Income Tax Consequences.”

 

Consequences of Failure to Exchange

Old Notes not exchanged will continue to be outstanding according to their terms (as amended by the Proposed Amendments). The Old Notes will be expressly subordinated in right of payment to the New Notes. In addition, the Proposed Amendments, if adopted and effected, will also eliminate substantially all of the restrictive covenants from the Existing Indenture and modify or eliminate certain other provisions of the Existing Indenture. See “Summary of the New Notes—Consequences of Not Exchanging Old Notes.”

 

Additional Information

Questions or requests for assistance in tendering Old Notes and requests for additional copies of this prospectus or other related documents should be directed to the Information and Exchange Agent, at the address and telephone numbers set forth on the back cover of this prospectus.

 

Information and Exchange Agent

Global Bondholder Services Corporation


 

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Dealer Manager

BofA Securities, Inc.

 

Further Information

Requests for additional copies of this prospectus and questions about the terms of the Exchange Offer and Consent Solicitation should be directed to the Information and Exchange Agent at the address and telephone numbers set forth on the back cover of this prospectus.


 

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SUMMARY OF THE NEW NOTES

The summary below describes the principal terms of the New Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The “Description of New Notes” section of this prospectus contains more detailed descriptions of the terms and conditions of the New Notes. As used in this “Summary of the New Notes” section, “Unit,” “we,” “us,” and “our” mean Unit Corporation and not any of its subsidiaries.

 

Issuer

Unit Corporation

 

Notes Offered

Up to $             million aggregate principal amount of Second Lien Senior Secured Notes due         .

 

Maturity

The New Notes will mature on the          anniversary of the original issue date.

 

Interest Rate

The New Notes will bear interest at a rate of     % per annum.

 

Interest Payment Dates

Interest on the New Notes will be payable on May 15 and November 15 of each year, commencing May 15, 2020.

 

Use of Proceeds

We will not receive any proceeds in connection with the Exchange Offer.

 

New Notes Collateral

The New Notes and the Subsidiary Guarantees will be secured by second-priority liens on all of the assets of Unit and the Subsidiary Guarantors that secure the Unit Credit Agreement on a first-priority basis, subject to certain exceptions as described below. The New Notes Collateral securing the Unit Credit Agreement on a first-priority basis and the New Notes on a second-priority basis will consist of: (i) mortgage liens on no less than 80% of the discounted present value of the Company’s proved developed and producing oil and gas properties evaluated in the most recently delivered reserve report pursuant to the Unit Credit Agreement; and (ii) a pledge of Unit’s 50% equity interests in Superior, however, unlike the Unit Credit Agreement, the New Notes will be secured by Superior’s equity interests only to the extent it would not require Unit or any Subsidiary Guarantor to file with the Securities and Exchange Commission separate financial statements of, or any additional financial information with respect to, Superior pursuant to Rule 3-16 of Regulation S-X under the Securities Act of 1933. See “Description of New Notes—Security for the New Notes” and the definition of “Parity Lien Excluded Collateral.”


 

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Intercreditor Agreement

On the Closing Date, the Collateral Trustee (as defined below) for the New Notes will enter into an intercreditor agreement (the “Intercreditor Agreement”) with the administrative agent under the Unit Credit Agreement. Pursuant to the Intercreditor Agreement, the liens on the New Notes Collateral that will secure the New Notes will be contractually subordinated to the liens that secure the obligations of Unit and the Subsidiary Guarantors under the Unit Credit Agreement and any other first-priority lien obligations. Although the holders of the New Notes will not be parties to the Intercreditor Agreement, by their acceptance of the New Notes they will agree to be bound thereby and will be deemed to have consented to its terms and authorized and directed the Collateral Trustee to execute, deliver and perform its obligations thereunder. See “Description of New Notes—Intercreditor Agreement.”

 

Collateral Trust Agreement

On the Closing Date, the Collateral Trustee for the New Notes will enter into a collateral trust agreement (the “Collateral Trust Agreement”) with Unit and the Subsidiary Guarantors. The Collateral Trust Agreement sets forth the terms on which the Collateral Trustee will receive, hold, administer, maintain, enforce and distribute the proceeds of all its liens upon the New Notes Collateral for the benefit of the holders of the New Notes.

 

Subsidiary Guarantees

The New Notes will be guaranteed, jointly and severally, by each subsidiary of Unit that is a guarantor under the Existing Indenture (including each subsidiary that is an obligor under the Unit Credit Agreement) on the Closing Date, and, in addition, after the Closing Date, by any subsidiary required to guarantee the New Notes as described in “Description of New Notes,” in each case, until any such guarantee is released in accordance with the terms of the indenture governing the New Notes (the “New Indenture”). See “Description of New Notes—Subsidiary Guarantees”.

 

  Not all of our subsidiaries will guarantee the New Notes. As of, and for the six months ended, June 30, 2019, our non-guarantor subsidiaries (including Superior and its subsidiaries) generated 27% of our consolidated revenues and 4% of our consolidated operating income and accounted for 17% of our consolidated assets. None of the non-guarantor subsidiaries are guarantors to the Unit Credit Agreement.

 

Ranking

The New Notes will:

 

   

be unsubordinated secured obligations of the Company;

 

   

be secured on a second-priority basis by the New Notes Collateral;

 

   

be effectively senior to all unsubordinated unsecured Indebtedness of the Company to the extent of the value of the New Notes Collateral (after giving effect to any senior or prior Liens on the New Notes Collateral);



 

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without giving effect to security interests, rank equally in right of payment with all existing and future unsubordinated Indebtedness of the Company;

 

   

be senior in right of payment to all existing and future indebtedness of the Company that is subordinated by its terms in right of payment to the New Notes, including any Old Notes that remain outstanding after the Closing Date;

 

   

be effectively subordinated to all existing and future indebtedness of the Company that is either (i) secured by a lien on the New Notes Collateral that is senior or prior to the second-priority liens securing the New Notes, including first-priority liens securing the Unit Credit Agreement and any other first-priority permitted liens or (ii) secured by assets that are not part of the New Notes Collateral securing the New Notes, in each case, to the extent of the value of the assets securing such indebtedness; and

 

   

be structurally subordinated to all existing and future indebtedness and other obligations, including trade payables, of our subsidiaries that are not Subsidiary Guarantors.

 

  Each Subsidiary Guarantee will:

 

   

be a unsubordinated secured obligation of the applicable Subsidiary Guarantor;

 

   

be secured on a second-priority basis by the New Notes Collateral;

 

   

be effectively senior to all unsubordinated unsecured Indebtedness of the applicable Subsidiary Guarantor to the extent of the value of the New Notes Collateral (after giving effect to any senior or prior Liens on the New Notes Collateral);

 

   

without giving effect to security interests, rank equally in right of payment with all existing and future unsubordinated indebtedness of the applicable Subsidiary Guarantor;

 

   

be senior in right of payment to all existing and future indebtedness of the applicable Subsidiary Guarantor that is subordinated by its terms in right of payment to the New Notes, including the applicable Subsidiary Guarantor’s guarantee of any Old Notes that remain outstanding after the Closing Date;

 

   

be effectively subordinated to all existing and future indebtedness of the applicable Subsidiary Guarantor that is either (i) secured by a lien on the New Notes Collateral that is senior or prior to the second-priority liens securing the New Notes, including first-priority liens securing the Unit Credit Agreement and any other first-priority permitted liens or (ii) secured by assets that are not part of the New Notes Collateral securing the New Notes, in each case, to the extent of the value of the assets securing such indebtedness; and



 

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be structurally subordinated to all existing and future indebtedness and other obligations, including trade payables, of the existing and future subsidiaries of the applicable Subsidiary Guarantor that are not Subsidiary Guarantors.

 

Optional Redemption

We may redeem all or, from time to time, a part of the New Notes at a redemption price equal to         % of the principal amount of the New Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

 

Change of Control Offer

If a Change of Control occurs, subject to certain conditions, we will be required to offer to repurchase from each holder all or any portion of such holder’s New Notes at a purchase price in cash equal to 101% of the principal amount of the New Notes plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. See “Description of New Notes—Change of Control.”

 

Certain Covenants

We will issue the New Notes under an indenture with the Trustee. The indenture will, among other things, limit our ability and the ability of our restricted subsidiaries to, under certain circumstances:

 

   

incur additional debt;

 

   

pay dividends or make distributions on our capital stock or repurchase, redeem or retire our capital stock or subordinated debt;

 

   

make investments;

 

   

create liens on our and our restricted subsidiaries’ property or assets;

 

   

create restrictions on the ability of our restricted subsidiaries to pay dividends or make any loans or other payments to us;

 

   

engage in transactions with our affiliates;

 

   

transfer or sell assets and subsidiary stock;

 

   

consolidate, merge or transfer all or substantially all our assets and the assets of our subsidiaries; and

 

   

engage in any business other than the oil and gas business and any related business.

 

  These covenants are subject to important exceptions and qualifications, which are described under the caption “Description of New Notes—Certain Covenants.”

 

Form and Denomination

New Notes will be issued in minimum denominations of $2,000 principal amount and integral multiples of $1,000 principal amount in excess thereof. The New Notes will be issued in book-entry form only and will be in the form of one or more global certificates, which will be deposited with, or on behalf of DTC and registered in its nominee name Cede & Co.


 

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Trustee

The trustee under the New Indenture will be Wilmington Trust, National Association.

 

Collateral Trustee

The Collateral Trustee under the New Indenture will be Wilmington Trust, National Association (the “Collateral Trustee”).

 

Governing Law

The New Notes and the New Indenture will be governed by the law of the State of New York.

 

Risk Factors

You should consider carefully all of the information set forth or incorporated by reference in this prospectus and, in particular, the information under the heading “Risk Factors” beginning on page 16 of this prospectus.


 

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Consequences of Not Exchanging Old Notes

If you currently hold Old Notes and do not tender them on the terms described herein, then, following completion of the Exchange Offer, your Old Notes will continue to be outstanding according to their terms, as amended by the Proposed Amendments if adopted and effected. The Old Notes will be expressly subordinated in right of payment to the New Notes. In addition, the Proposed Amendments, if adopted and effected, will also eliminate substantially all of the restrictive covenants from the Existing Indenture, modify or eliminate certain other provisions of the Existing Indenture and waive any existing defaults and events of default (including any default or event of default alleged in connection with the Exchange Offer or the Consent Solicitation) under the Existing Indenture to the extent the required consents with respect to waiver of any such default are received. Moreover, if we complete the Exchange Offer, the liquidity and value of, and any trading market for, any Old Notes that remain outstanding after completion of the Exchange Offer may be adversely affected.

Corporate Information

Our executive offices are located at 8200 South Unit Drive, Tulsa, Oklahoma 74132; our telephone number is (918) 493-7700. In addition to our executive offices, we have offices or yards in Chickasha, Red Oak, Woodward, and Oklahoma City, Oklahoma; Borger, Canadian, Odessa, Pampa, and Houston, Texas; Englewood, Colorado; Casper, Wyoming; and Canonsburg, Pennsylvania.

Our principal website address is http://www.unitcorp.com. This website address is provided as an inactive textual reference only. The information provided on or accessible through our Internet website is not part of this prospectus and, therefore, is not incorporated herein by reference.



 

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RISK FACTORS

You should carefully consider the risk factors below as well as the other information contained in this prospectus before investing in the New Notes. In addition, you should carefully consider, among other things, the matters discussed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as well as the other information incorporated by reference in this prospectus. The risks described below and in our Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, or results of operations. Any of the following risks could materially and adversely affect our business, financial condition, or results of operations. In such a case, you may lose all or part of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

Risks Relating to the Exchange Offer and Consent Solicitation

We may not complete the Exchange Offer and Consent Solicitation at all, or may complete the Exchange Offer with respect to less than all of the Old Notes.

The completion of the Exchange Offer and Consent Solicitation is subject to the satisfaction, or in certain cases, waiver of specified conditions. See “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation.” In particular, our obligations to accept Old Notes are subject to, and conditioned upon, either (i) the consummation of the amendment to the Unit Credit Agreement or (ii) a refinancing or replacement of the Unit Credit Agreement as described under “Prospectus Summary—Recent Developments—Credit Agreement Amendment”, which condition will not be waived. There are no assurances that we will complete the amendment to the Unit Credit Agreement on substantially the terms described in this prospectus or at all, or that we will be able to refinance or replace the Unit Credit Agreement with a credit facility that, among other things, permits the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes. If the conditions to the completion of the Exchange Offer and Consent Solicitation are not satisfied or, if permitted, waived, the Exchange Offer may not be completed.

Our ability to make required payments under our indebtedness would be adversely affected if we were to be unable to complete the Exchange Offer and Consent Solicitation. The purpose of the Exchange Offer is to extend the maturity profile of our outstanding indebtedness and eliminate short to medium-term refinancing and related risks associated with our capital structure. The October 18, 2023 scheduled maturity date of the loans under the Unit Credit Agreement will accelerate to November 16, 2020 to the extent that, on or before that date, all the Old Notes are not repurchased, redeemed, or refinanced with indebtedness having a maturity date at least six months following October 18, 2023 (the “Credit Agreement Extension Condition”). If we complete the Exchange Offer with respect to less than all of the Old Notes, then the Credit Agreement Extension Condition will not be immediately satisfied and we may not be able to satisfy it thereafter. If we are not able to complete the Exchange Offer and Consent Solicitation, doubt may arise about the Company’s ability to timely repay the Old Notes.

If we are unable to consummate the Exchange Offer and Consent Solicitation, we will consider other restructuring alternatives available to us at that time. Any alternative restructuring could be on terms less favorable to the holders of Old Notes than the terms of the Exchange Offer and Consent Solicitation.

If we are unable to consummate the Exchange Offer and Consent Solicitation, or less than all of the Old Notes are tendered in the Exchange, we will consider other restructuring alternatives available to us at that time. Those alternatives may include refinancing the Unit Credit Agreement, asset dispositions, joint ventures, or alternative refinancing transactions or the commencement of a Chapter 11 proceeding with or without a pre-arranged plan of reorganization. There can be no assurance that any alternative restructuring arrangement or plan will be pursued or accomplished. Any alternative restructuring could be on terms less favorable to the

 

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holders of Old Notes than the terms of the Exchange Offer and Consent Solicitation. If we are unable to satisfy the Credit Agreement Extension Condition, there can be no assurance that we will be able to repay or refinance the Unit Credit Agreement on its accelerated maturity date or the Old Notes on their existing maturity date. Accordingly, there is a risk that the ability of the holders of Old Notes to recover their investments would be substantially delayed and/or impaired if the proposed Exchange Offer is not consummated. If the Exchange Offer is not completed or is delayed, the market prices of the Old Notes may decline to the extent that the current market prices reflect an assumption that the Exchange Offer (or a similar transaction) will be completed and/or the Credit Agreement Extension Condition will be satisfied.

A long and protracted restructuring could cause us to lose key management employees and otherwise adversely affect our business.

If we fail to consummate the Exchange Offer, any alternative we pursue, whether in or out of court, may take substantially longer to consummate than the Exchange Offer. A protracted financial restructuring could disrupt our business and would divert the attention of our management from the operation of our business and implementation of our business plan. It is possible that such a prolonged financial restructuring or bankruptcy proceeding would cause us to lose many of our key management employees. Such losses of key management employees would likely make it difficult for us to complete a financial restructuring and may make it less likely that we will be able to continue as a viable business.

The uncertainty surrounding a prolonged financial restructuring could also have other adverse effects on us. For example, it could also adversely affect:

 

   

our ability to raise additional capital;

 

   

our ability to capitalize on business opportunities and react to competitive pressures;

 

   

our ability to retain and attract employees;

 

   

our liquidity;

 

   

how our business is viewed by investors, lenders, strategic partners, or customers; and

 

   

our enterprise value.

We will incur significant costs in conducting the Exchange Offer and Consent Solicitation.

The Exchange Offer and Consent Solicitation have resulted, and will continue to result, in significant costs to us, including advisory and professional fees paid in connection with evaluating our alternatives under the Old Notes and pursuing the Exchange Offer and Consent Solicitation.

We have not obtained a third–party determination that the Exchange Offer is fair to holders of the Old Notes.

We are not making a recommendation as to whether holders of the Old Notes should exchange their Old Notes or consent to the Proposed Amendments. We have not retained and do not intend to retain any unaffiliated representative to act solely on behalf of the holders of the Old Notes for purposes of negotiating the Exchange Offer or preparing a report concerning the fairness of the Exchange Offer. We cannot assure holders of the Old Notes that the value of the exchange consideration received in the Exchange Offer will in the future equal or exceed the value of the Old Notes tendered, and we do not take a position as to whether you ought to participate in the Exchange Offer and Consent Solicitation.

You may not receive New Notes in the Exchange Offer and Consent Solicitation if the applicable procedures for the Exchange Offer and Consent Solicitation are not followed.

We will issue the New Notes in exchange for your Old Notes only if you tender your Old Notes and deliver properly completed documentation for the Exchange Offer. For the Exchange Offer, you must deliver the

 

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electronic transmittal through DTC’s ATOP before expiration of the Exchange Offer and Consent Solicitation. See “General Terms of the Exchange Offer and Consent Solicitation—Procedures for Tendering Old Notes” for a description of the procedures to be followed to tender your Old Notes.

If the Exchange Offer is consummated, holders of Old Notes that do not exchange their Old Notes in the Exchange Offer will be subject to certain additional risks.

If the Exchange Offer is consummated, holders that do not validly tender their Old Notes in the Exchange Offer will not be entitled to receive exchange consideration. The New Notes and the related guarantees will be unsubordinated second lien obligations and will rank senior in right of payment to the Old Notes. In the event of a bankruptcy or other insolvency proceeding, our obligations under the Unit Credit Agreement, the New Notes and any other indebtedness to which the Old Notes are subordinated as to security and in right of payment will be paid in priority to the Old Notes and there can be no assurance that the value of our assets will be adequate to provide for repayment of the Old Notes in full, or at all.

In addition, consummation of the Exchange Offer and Consent Solicitation would substantially reduce the aggregate principal amount of Old Notes outstanding, which could adversely affect the trading market, if any, for the untendered Old Notes. This could adversely affect the liquidity, market price, and price volatility of any untendered Old Notes. If a market for untendered Old Notes exists, those Old Notes may trade at a discount to the price at which the Old Notes would trade if the amount outstanding had not been reduced, depending on prevailing interest rates, the market for similar securities, and other factors.

Also, we may from time to time purchase any Old Notes that remain outstanding after consummation of the Exchange Offer through open market or privately negotiated transactions, one or more tenders or exchange offers or otherwise, on terms that may be less advantageous to holders than the terms of the Exchange Offer.

If the Proposed Amendments become operative, holders of Old Notes will no longer benefit from certain of the protections currently provided by the Existing Indenture.

The Proposed Amendments, if adopted and effected, would result in the elimination of substantially all restrictive covenants and certain events of default in the Existing Indenture, including, among other things, covenants that limit Unit’s and its subsidiaries’ ability to incur indebtedness, make restricted payments, create or incur liens and engage in mergers or consolidations or transfer all or substantially all of their property and assets. The elimination of these protections could permit Unit and its subsidiaries, subject to restrictions in our other debt instruments, to take certain actions previously prohibited that could materially increase Unit’s credit risk or could otherwise be materially adverse to holders, and could adversely affect the market prices and credit ratings of the non-tendered Old Notes. The Proposed Amendments, if adopted and effected, would also waive any existing defaults and events of default (including any default or event of default alleged in connection with the Exchange Offer or the Consent Solicitation) under the Existing Indenture, other than any default or event of default that cannot be waived without the consent of 100% of the holders under the Existing Indenture. See “Proposed Amendments to Existing Indenture and Old Notes.”

If the Proposed Amendments become operative, Unit’s future subsidiaries will not be required to guarantee the Old Notes and may incur significant indebtedness, and Unit and the existing subsidiary guarantors of the Old Notes may make investments in or transfer assets to such subsidiaries, which may be required to guarantee the New Notes and other indebtedness of Unit but not the Old Notes.

The Proposed Amendments would eliminate the requirement that Unit’s future restricted subsidiaries become guarantors of the Old Notes. As a result, the Old Notes may also be structurally subordinated to the indebtedness of any of Unit’s future restricted subsidiaries, including guarantees of the New Notes. If the Proposed Amendments become operative, the Existing Indenture will not limit the transfer of assets to, or investments in, subsidiaries that do not guarantee the Old Notes. There can be no assurance that Unit and the

 

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subsidiary guarantors of the Old Notes will not transfer significant amounts of assets to, or make significant investments in, such non-guarantor subsidiaries, or any other persons.

Existing rating agency ratings for the Old Notes may not be maintained.

It is possible that, as a result of the Exchange Offer and the issuance of the New Notes, one or more rating agencies, including Moody’s Investors Service, Inc. (“Moody’s”), Fitch Ratings, Inc. (“Fitch”) and S&P Global Ratings (“S&P”), would take action to downgrade or negatively comment on their respective ratings on the Old Notes. Any downgrade or negative comment would likely adversely affect the market price of the Old Notes. In addition, if any of our other outstanding debt that is rated is downgraded, raising capital will become more difficult for us, borrowing costs in respect of any indebtedness incurred to refinance the Old Notes, the Unit Credit Agreement, the Superior Credit Agreement and other future borrowings may increase and the market price of the Old Notes may decrease.

Certain consideration paid to holders in the Exchange Offer could be subject to avoidance as a preferential transfer.

If we were to become a debtor in a case under the U.S. Bankruptcy Code within 90 days after the consummation of the Exchange Offer (or, with respect to any insiders, as defined in the U.S. Bankruptcy Code, within one year after consummation of the Exchange Offer) and certain other conditions were met, it is possible that the consideration paid to holders of Old Notes in the Exchange Offer (including the security for the New Notes), absent any of the U.S. Bankruptcy Code’s defenses to avoidance, could be subject to avoidance, in whole or in part, as a preferential transfer and, to the extent avoided, the value of such consideration could be recovered from such holders and possibly from subsequent transferees.

Tenders of Old Notes before the Withdrawal Deadline are irrevocable after the Withdrawal Deadline.

Any Old Notes validly tendered before the Withdrawal Deadline that are not validly withdrawn before the Withdrawal Deadline may not be withdrawn on or after the Withdrawal Deadline, and Old Notes validly tendered on or after the Withdrawal Deadline may not be withdrawn, subject to limited circumstances described in “Withdrawal of Tenders; Revocation of Consents”. Any holder who validly withdraws previously tendered Old Notes and does not re-tender those Old Notes at or before the Early Tender Date will not receive the Early Exchange Consideration for those Old Notes and any such holder that does not re-tender the previously tendered Old Notes at or before the Expiration Date will not receive the Late Exchange Consideration for such Old Notes.

Consents to the Proposed Amendments may not be revoked after the Consent Revocation Deadline.

Consents to the Proposed Amendments may be revoked at any time prior to the Consent Revocation Deadline, but may not be revoked at any time thereafter. Consents may be revoked only by validly withdrawing the associated tendered Old Notes. A valid withdrawal of tendered Old Notes prior to the Consent Revocation Deadline will be deemed to be a concurrent revocation of the related consent to the Proposed Amendments, and a revocation of a consent to the Proposed Amendments prior to the Consent Revocation Deadline will be deemed to be a concurrent withdrawal of the related tendered Old Notes. However, a valid withdrawal of Old Notes after the Consent Revocation Deadline will not be deemed a revocation of the related consents and your consents will continue to be deemed delivered. No additional payment will be made for a holder’s consent to the Proposed Amendments.

The U.S. federal income tax consequences of the adoption of the Proposed Amendments are uncertain.

The U.S. federal income tax consequences to a U.S. Holder (as defined below under “Certain United States Federal Income Tax Consequences”) that does not tender its Old Notes in the Exchange Offer is uncertain and could be adverse. In particular, if the adoption of the Proposed Amendments constitutes a “significant

 

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modification” of the Existing Notes for U.S. federal income tax purposes, such adoption would constitute a deemed exchange of the Old Notes by a non-tendering U.S. Holder and could result in gain recognition and otherwise affect the timing, character and amount of income recognized by such U.S. Holder with respect to the Old Notes. Holders should read the discussion below under “Certain United States Federal Income Tax Consequences” and are urged to consult their own tax advisors as to the U.S. federal income tax consequences of the adoption of the Proposed Amendments.

Risks Relating to Holding the New Notes

Our substantial level of indebtedness could materially adversely affect our ability to generate enough cash to fulfill our obligations under the New Notes, our ability to react to changes in our business, and our ability to incur additional indebtedness to fund future needs.

After giving effect to the Exchange Offer and the borrowing base reduction under the Unit Credit Agreement to $275 million effective on September 26, 2019, we would have $770.8 million of total indebtedness outstanding as of June 30, 2019, and the ability to borrow up to an additional $160.2 million under the Unit Credit Agreement and up to $188.65 million under the Superior Credit Agreement.

Our substantial level of indebtedness will increase the possibility that we may be unable to generate enough cash to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences for our noteholders. For example, it could:

 

   

make it more difficult for us to satisfy our debt service and other obligations, including obligations with respect to the New Notes;

 

   

require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, including variable rate debt that exposes us to interest rate risk, thereby reducing funds available for working capital, capital expenditures, acquisitions, research and development (“R&D”), and other purposes;

 

   

restrict us from making strategic acquisitions or taking advantage of favorable business opportunities;

 

   

increase our vulnerability to adverse economic, credit and industry conditions, including recessions;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

   

limit our noteholders’ rights to receive payments under the New Notes if first-priority secured creditors have not been paid;

 

   

place us at a competitive disadvantage compared to our competitors that have relatively less debt;

 

   

limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, R&D, and other purposes; and

 

   

prevent us from raising the funds necessary to repurchase all New Notes tendered to us upon the occurrence of a Change of Control (as defined below in “Description of New Notes”), as described in this prospectus, which would constitute a default under the New Indenture.

Despite our substantial level of indebtedness, we may still incur significantly more debt, which could exacerbate any or all of the risks described above.

We may be able to incur other substantial indebtedness in the future. Although the Unit Credit Agreement and the Superior Credit Agreement limit, and the New Indenture will limit, our ability and the ability of our subsidiaries to incur additional indebtedness, these restrictions are subject to a number of qualifications and

 

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exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. In addition, the New Indenture may not prevent us from incurring obligations that do not constitute indebtedness. See “Description of New Notes.” To the extent that we incur additional indebtedness or other obligations, the risks associated with our substantial leverage described above, including our possible inability to service our debt, would increase.

We may not generate enough cash to service all our indebtedness, including the New Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not succeed.

Our ability to make scheduled payments on or to refinance our debt obligations, including the Unit Credit Agreement, the Old Notes that remain outstanding following the Exchange Offer and the New Notes, depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory, and other factors beyond our control. We may not maintain enough cash flows from operating activities to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness, including the New Notes.

If our cash flows and capital resources are not enough to fund our debt service obligations and other cash requirements, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness, including the Unit Credit Agreement, the Old Notes that remain outstanding following the Exchange Offer and the New Notes. In particular, if we consummate the Exchange Offer but fewer than all of the Old Notes are tendered and accepted in the exchange, then the Credit Agreement Extension Condition will not be satisfied and there can be no assurances that we will have the wherewithal or flexibility under our existing indebtedness to satisfy it thereafter. We may not be able to effect any alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Unit Credit Agreement and the Superior Credit Agreement restrict, and the New Indenture will restrict, our ability and the ability of certain of our subsidiaries to (a) dispose of assets and use the proceeds from any such dispositions and (b) raise debt capital to be used to repay indebtedness when it becomes due. We may not be able to consummate dispositions or to obtain proceeds in an amount enough to meet any debt service obligations then due. See “Description of Other Indebtedness” and “Description of New Notes.”

In addition, we conduct our operations through our subsidiaries, some of which are not guarantors of the New Notes or our other indebtedness. Repayment of our indebtedness, including the New Notes, depends on the generation of cash flow by our subsidiaries and those subsidiaries’ ability to provide cash to us, by dividend, debt repayment, or otherwise. Unless they are guarantors of the New Notes, our subsidiaries have no obligation to pay amounts due on the New Notes or to provide funds for that purpose. Our subsidiaries may not, or may not be permitted to, make distributions to enable us to make payments on our indebtedness, including the New Notes. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. If we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the New Notes.

Our inability to generate enough cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations under the New Notes. If we cannot make scheduled payments on our debt, we will be in default, and as a result, holders of the New Notes (and lenders and holders under any of our existing and future indebtedness) could declare all outstanding principal and interest to be due and payable, the lenders under the Unit Credit Agreement and the Superior Credit Agreement could terminate their commitments to loan money, our secured lenders, including the administrative agent under the Unit Credit Agreement, on behalf of the lenders thereunder, and the Collateral Trustee under the New Indenture, on behalf of the holders of the New Notes, could foreclose against the assets securing such indebtedness and we could be forced into bankruptcy or liquidation, in each case, which would have a material adverse effect on the market

 

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price of the New Notes and could materially impair the likelihood of holders receiving repayment of their New Notes in full or at all, thereby resulting in your losing your investment in the New Notes.

We may redeem the New Notes at par at any time.

We may redeem all or, from time to time, a portion of the New Notes at a redemption price equal to         % of the principal amount of the New Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If we redeem all or a portion of the New Notes, holders of such New Notes may not obtain their expected return on those New Notes and may not be able to reinvest the proceeds from the redemption in an investment that results in a comparable return. Holders of the New Notes will have no right to opt out of the redemption provisions of the New Notes.

The assets of our subsidiaries that do not guarantee the New Notes will be subject to the prior claims of the creditors of those non-guarantor subsidiaries.

Not all of our subsidiaries will guarantee the New Notes. As of, and for the six months ended, June 30, 2019, our non-guarantor subsidiaries (including Superior and its subsidiaries) generated 27% of our consolidated revenues and 4% of our consolidated operating income and accounted for 17% of our consolidated assets. Our subsidiaries are separate and distinct legal entities and, if any subsidiary is not a Subsidiary Guarantor, that subsidiary will have no obligation whatsoever to make any payment of principal or interest on the New Notes. In the event of any non-guarantor subsidiary’s bankruptcy, insolvency, liquidation, dissolution, reorganization, or similar proceeding, the creditors of that subsidiary, including trade creditors, would be entitled to be paid in full before any assets of that subsidiary or the proceeds from any sale thereof would be available to us as the equity owner of that subsidiary, and in turn to the holders of the New Notes. As a result, the New Notes and the guarantees will be structurally subordinated to all indebtedness and other obligations, including trade payables, of our subsidiaries that do not guarantee the New Notes.

As of June 30, 2019, after giving effect to this offering and the use of proceeds therefrom, our non-guarantor subsidiaries would have had total liabilities (excluding intercompany liabilities) of approximately $51 million. In addition, as of that date, Superior and its subsidiaries had approximately $7.5 million of indebtedness outstanding under the Superior Credit Agreement with the ability to borrow up to $200 million thereunder. The New Indenture will, subject to some limitations, permit our non-guarantor subsidiaries to incur additional indebtedness and will not contain any limitation on the amount of other liabilities, like trade payables, that may be incurred by these subsidiaries. Furthermore, Superior and its subsidiaries will be designated as unrestricted subsidiaries under the New Indenture and, as a result, Superior and its subsidiaries will not be subject to any of the restrictive covenants of the New Indenture. Therefore, the New Indenture will not restricted in any manner Superior and its subsidiaries from incurring additional indebtedness and other obligations.

In addition, the New Indenture will provide that a Subsidiary Guarantor will be automatically released from its guarantee of the New Notes upon the occurrence of certain events, including, but not limited to (i) such Subsidiary Guarantor being designated as an unrestricted subsidiary under the New Indenture and (ii) if that Subsidiary Guarantor is released from all of its obligations under the Unit Credit Agreement and that Subsidiary Guarantor does not guarantee any other indebtedness of us or any other Subsidiary Guarantor. See “Description of New Notes—Subsidiary Guarantees.”

 

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Restrictions imposed by the New Indenture and the agreements governing our other outstanding indebtedness, including the Unit Credit Agreement and the Superior Credit Agreement, may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities. If we violate certain restrictions under the Unit Credit Agreement, the Superior Credit Agreement or the New Indenture, our debt could be accelerated, and we may not have enough cash to pay our accelerated debt.

The New Indenture, and the agreements governing our other outstanding indebtedness, including the Unit Credit Agreement and the Superior Credit Agreement, contain or will contain various covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to:

 

   

incur additional indebtedness, guarantee obligations or issue preferred stock;

 

   

pay dividends or distributions on our capital stock or redeem, repurchase or retire our capital stock;

 

   

make investments or other restricted payments;

 

   

grant liens on assets;

 

   

enter into transactions with affiliates;

 

   

engage in sale/leaseback transactions;

 

   

sell assets;

 

   

issue or sell capital stock of certain subsidiaries; and

 

   

merge or consolidate.

In particular, the Unit Credit Agreement does not permit the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes. All of these restrictions are subject to several important qualifications and exceptions. In addition, the Unit Credit Agreement also requires us to maintain a minimum current assets to current liabilities ratio and a maximum funded debt to EBITDA ratio. The Superior Credit Agreement also requires us to maintain a minimum interest coverage ratio and maximum funded debt to EBITDA ratio. See “Description of Other Indebtedness”. We cannot assure you that our future operating results will enable us to comply with these financial maintenance covenants.

As a result of these covenants, we will be limited in how we can conduct our business and may be unable to engage in favorable business activities or finance future operations or capital needs. Accordingly, these restrictions may limit our flexibility to operate our business. A failure to comply with the restrictions in the New Indenture, the Unit Credit Agreement, the Superior Credit Agreement, or to maintain the financial ratios required by the Unit Credit Agreement and the Superior Credit Agreement could lead to an event of default, which could cause an acceleration of the defaulted indebtedness and any other indebtedness to which a cross-acceleration or cross default provision applies. If acceleration occurs, we may not have or be able to obtain enough funds to make any accelerated payments, including those under the New Notes, or to borrow enough funds to refinance such debt. Even if new financing were available it may not be on terms acceptable to us. In addition, lenders may be able to terminate any commitments they had made to make available further funds.

You may find it difficult to sell your New Notes.

The New Notes are a new issue of securities and, although the New Notes will be registered under the Securities Act, the New Notes will not be listed on any securities exchange. Because there is no public market for the New Notes, you may not be able to resell them.

We cannot assure you that an active market will develop for the New Notes or that any trading market that does develop will be liquid. If an active market does not develop or is not maintained, the market price and liquidity of the New Notes may be adversely affected. If a market for the New Notes develops, they may trade at

 

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a discount from their historic trading prices. Any trading market for and the price of the New Notes may be adversely affected by:

 

   

changes in the overall market for non-investment grade securities;

 

   

our credit ratings with major credit rating agencies;

 

   

changes in our financial performance or prospects;

 

   

the financial performance or prospects for companies in our industry generally;

 

   

the number of holders of the New Notes;

 

   

the prevailing interest rates being paid by, or the market price for similar notes issued by, other companies like us;

 

   

the interest of securities dealers in making a market for the New Notes; and

 

   

the overall condition of the financial markets.

In addition, the market for non-investment grade indebtedness has been historically subject to disruptions that have caused substantial volatility in the prices of securities similar to the New Notes. In addition, the market for the New Notes, if any, may be subject to similar disruptions. Any such disruption could adversely affect the value of the New Notes.

Credit rating agencies continually review their ratings for the companies they follow, including us. The credit rating agencies also evaluate our industry as a whole and may change their credit rating for us based on their overall view of our industry. Rating organizations may lower their respective ratings of the New Notes or decide not to continue to rate the New Notes in their sole discretion. The reduction, suspension, or withdrawal of the ratings of the New Notes will not constitute an event of default under the New Indenture. However, any reduction, suspension, or withdrawal of these ratings may adversely affect the market price or liquidity of the New Notes.

We may be unable to purchase your New Notes upon a change of control.

If a Change of Control (as defined in “Description of New Notes”) occurs, unless we have exercised our right to redeem the New Notes, we will have to make an offer to repurchase the New Notes from the holders at a price in cash described in this prospectus, see “Description of New Notes—Change of Control”. However, we may not be able to repurchase the New Notes when a Change of Control occurs because we may not have enough funds to do so. We may also be required to offer to repurchase certain of our or our subsidiaries’ other debt upon a change of control, and that event may also give rise to an event of default under the Unit Credit Agreement. In addition, agreements governing indebtedness incurred in the future may restrict us from repurchasing the New Notes if a Change of Control occurs. Any failure to repurchase properly tendered New Notes would constitute an event of default under the New Indenture, which could cause an acceleration of our and our subsidiaries’ other indebtedness. In addition, certain mergers or consolidations will not constitute a change of control and will not require us to make an offer to repurchase the New Notes.

A ratings agency downgrade could lead to increased borrowing costs and credit stress.

If one or more rating agencies that rate the New Notes either assigns the New Notes a rating lower than the rating expected by investors, or later reduces its rating, the market price of the New Notes, if any, would be adversely affected. In addition, if any of our other outstanding debt that is rated is downgraded, raising capital will become more difficult for us, borrowing costs in respect of any indebtedness incurred to refinance any outstanding Old Notes, the Unit Credit Agreement, the Superior Credit Agreement and other future borrowings may increase and the market price of the New Notes, if any, may decrease.

 

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If the New Notes receive an investment grade rating, many covenants in the New Indenture will be suspended, thereby reducing some of your protections in the New Indenture.

If at any time the New Notes receive investment grade ratings from both S&P and Moody’s, subject to certain conditions, many covenants in the New Indenture, applicable to us and our restricted subsidiaries, including the limitations on indebtedness and restricted payments, will be suspended. See “Description of New Notes—Certain Covenants—Effectiveness of Covenants.” While these covenants will be reinstated if we fail to maintain investment grade ratings on the New Notes, during the suspension period noteholders will not have the protection of these covenants, and we will have greater flexibility to, among other things, incur indebtedness and make restricted payments.

The New Notes will mature after a substantial portion of our other indebtedness.

A large portion of our existing indebtedness (including under the Unit Credit Agreement) will mature before the maturity of the New Notes, including any Old Notes not tendered and accepted in the Exchange Offer. Therefore, we will be required to repay other creditors before we repay the principal of the New Notes. As a result, we may not have enough cash to repay all amounts owing on the New Notes at maturity. There can be no assurance that we will have the ability to borrow or otherwise raise the amounts necessary to repay or refinance such amounts.

Holders of the Old Notes are being offered New Notes with a later maturity than the Old Notes. Holders who tender the Old Notes and whose tender is accepted will be exposed to the risk of nonpayment on the securities they hold for a longer period of time than non-tendering holders. For instance, following the maturity date of the Old Notes, but before the maturity date of the New Notes issued in exchange for the Old Notes, Unit may become subject to a bankruptcy or similar proceeding. If so, holders of the Old Notes who opted not to participate in the Exchange Offer may have been paid in full, and there is a risk that the holders of Old Notes who opted to participate in the Exchange Offer and who received the New Notes would not be paid in full.

Federal and state fraudulent transfer laws may permit a court to void the New Notes, the guarantees, and the liens securing the New Notes, to subordinate claims in respect of the New Notes, the guarantees and the liens securing the New Notes and to require noteholders to return payments received and, if that occurs, you may not receive any payments on the New Notes.

Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the New Notes, the incurrence of any guarantees of the New Notes, including the guarantee the Subsidiary Guarantors entered into upon issuance of the New Notes, and the grant of liens securing the New Notes by Unit and the Subsidiary Guarantors (including any future guarantees, and future liens). Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the issuance of the New Notes, the incurrence of the guarantees or the grant of liens securing the New Notes could be voided as a fraudulent transfer or conveyance if (1) Unit or any of the Subsidiary Guarantors, as applicable, issued the New Notes, incurred the guarantees or granted the liens with the intent of hindering, delaying, or defrauding creditors or (2) Unit or any of the Subsidiary Guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for issuing the New Notes, incurring the guarantees, or granting the liens and, in the case of (2) only, one of the following was also true at the time thereof:

 

   

Unit or any of the Subsidiary Guarantors, as applicable, was insolvent on the date of the issuance of the New Notes, the incurrence of the guarantees, or the grant of liens securing the New Notes or was rendered insolvent by reason of the issuance of the New Notes, the incurrence of the guarantees, or the grant of liens;

 

   

the issuance of the New Notes, the incurrence of the guarantees, or the grant of liens left Unit or any of the Subsidiary Guarantors, as applicable, with an unreasonably small amount of capital to carry on the business; or

 

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Unit or any of the Subsidiary Guarantors intended to, or believed that Unit or such Subsidiary Guarantor would, incur debts beyond Unit’s or that Subsidiary Guarantor’s ability to pay those debts as they mature.

Enforcement of any of the guarantees against any Subsidiary Guarantor will be subject to certain defenses available to such guarantor in the relevant jurisdiction. These laws and defenses generally include those that relate to corporate purpose or benefit, fraudulent conveyance or transfer, voidable preference, insolvency or bankruptcy challenges, financial assistance, preservation of share capital, thin capitalization, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally. If one or more of these laws and defenses are applicable, a Subsidiary Guarantor may have no liability or decreased liability under its guarantee depending on the amounts of its other obligations and applicable law. Limitations on the enforceability of judgments obtained in New York courts in such jurisdictions could also limit the enforceability of any guarantee against any Subsidiary Guarantor.

As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is secured or satisfied. A court could find that by virtue of the fact that the New Notes were issued by Unit for its direct benefit, and only indirectly for any Subsidiary Guarantor’s benefit, that a Subsidiary Guarantor did not receive reasonably equivalent benefit directly or indirectly from the issuance of the New Notes or the applicable guarantee and/or lien.

Unit cannot be certain as to the standards a court would use to determine whether or not Unit or the Subsidiary Guarantors were solvent at the relevant time or, regardless of the standard that a court uses, that the incurrence of the guarantees would not be subordinated to Unit’s or any of the Subsidiary Guarantors’ other debt. Generally, however, 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 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, including contingent liabilities, as they become absolute and mature; or

 

   

it could not pay its debts as they become due.

If a court were to find that the issuance of the New Notes, the incurrence of a guarantee or the grant of liens was a fraudulent transfer or conveyance, the court could void the payment obligations under the New Notes or such guarantee or subordinate the New Notes or such guarantee to presently existing and future indebtedness of the Company or of the applicable Subsidiary Guarantor, or require the holders of the New Notes to repay any amounts received with respect to such guarantee or void the granting of liens to secure the New Notes or the related guarantees. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the New Notes (or the guarantees).

Although each guarantee will contain a provision intended to limit that Subsidiary Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer, this provision may not be effective to protect those guarantees from being voided under fraudulent transfer law, or may reduce that Subsidiary Guarantor’s obligation to an amount that effectively makes its guarantee worthless. For example, in a Florida bankruptcy court decision, which was subsequently reinstated by the United States Court of Appeals for the 11th Circuit on other grounds, this kind of provision was found to be ineffective to protect the guarantees.

Furthermore, in the event that a bankruptcy case were to be commenced under the bankruptcy code, the Company could be subject to claims, with respect to any payments made within 90 days before the commencement of such a case, that it or any of the Subsidiary Guarantors were insolvent at the time any such payments were made and that all or a portion of such payments, which could include payments of amounts due

 

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under the New Notes or the guarantees might be deemed to constitute a preference, under the Bankruptcy Code, and that such payments should be voided by the bankruptcy court and recovered from the recipients for the benefit of the entire bankruptcy estate.

Receipt of payment on the New Notes, and the enforcement of remedies under the subsidiary guarantees, may be limited in bankruptcy or in equity.

An investment in the New Notes, as in any security, involves insolvency and bankruptcy considerations that investors should carefully consider. If we or any of our Subsidiary Guarantors become a debtor subject to insolvency proceedings under the U.S. Bankruptcy Code, it is likely to result in delays in the payment of the New Notes and in exercising enforcement remedies under the New Notes or the guarantees. Provisions under the U.S. Bankruptcy Code or general principles of equity that could cause the impairment of your rights include the automatic stay, avoidance of preferential transfers by a trustee or a debtor-in-possession, substantive consolidation, limitations of collectability of unmatured interest or attorneys’ fees and forced restructuring of the New Notes.

If a bankruptcy court substantively consolidated us and our subsidiaries, the assets of each entity would be subject to the claims of creditors of all entities. This would expose you not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Forced restructuring of the New Notes could occur through the “cramdown” provision of the U.S. Bankruptcy Code. Under this provision, the New Notes could be restructured over your objections as to their general terms, primarily interest rate and maturity.

Because each Subsidiary Guarantor’s liability under its guarantees may be reduced to zero, voided or released under certain circumstances, the holders of the New Notes may not receive any payments from some or all of the Subsidiary Guarantors.

Holders of the New Notes have the benefit of the guarantees of the Subsidiary Guarantors. However, as described above, those guarantees are limited to the maximum amount the Subsidiary Guarantors are permitted to guarantee under applicable law. As a result, a Subsidiary Guarantor’s liability under its guarantee could be reduced to zero, depending on (among other things) the amount of other obligations of that Subsidiary Guarantor. Further, under the circumstances discussed more fully above, a court under federal or state fraudulent conveyance and fraudulent transfer statutes could void the obligations under a guarantee (and any related security interest) or further subordinate it to all other obligations of the Subsidiary Guarantor. See “—Federal and state fraudulent transfer laws may permit a court to void the New Notes, the guarantees, and the liens securing the New Notes, to subordinate claims in respect of the New Notes, the guarantees and the liens securing the New Notes and to require noteholders to return payments received and, if that occurs, you may not receive any payments on the New Notes.” In addition, you will lose the benefit of a particular guarantee if it is released under certain circumstances described under “Description of New Notes—Subsidiary Guarantees.

The value of the New Notes Collateral securing the New Notes and the related guarantees may not be sufficient to satisfy Unit’s and the Subsidiary Guarantors’ obligations under the New Notes.

Obligations under the New Notes will be secured by second-priority liens on the New Notes Collateral. No appraisal of the value of the New Notes Collateral has been made in connection with this Exchange Offer, and the fair market value of the New Notes Collateral will be subject to fluctuations based on factors that include, among others, changing economic conditions, competition, the demand, supply and market price for oil and gas and other future trends. By its nature, some or all of the New Notes Collateral may be illiquid and may have no readily ascertainable market value. If there is a foreclosure, liquidation, bankruptcy or similar proceeding, the holders of the New Notes will be entitled to be repaid in full from the proceeds of the New Notes Collateral after any payment is made in respect of any indebtedness with a senior or prior security interest against such New Notes Collateral (including our obligations under the Unit Credit Agreement) and before any payment is made in

 

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respect of any other indebtedness that is secured by a junior lien on that New Notes Collateral or that is unsecured. Moreover, the holders of any other additional indebtedness, if any, secured by a second-priority lien on the New Notes Collateral will share proceeds of that New Notes Collateral ratably with the holders of the New Notes, thereby diluting the New Notes Collateral coverage available to holders of the New Notes. In particular, the fair market value of the New Notes Collateral may not be sufficient to repay the holders of the New Notes upon any foreclosure, liquidation, bankruptcy or similar proceeding and after the repayment of indebtedness with senior or prior security interests in the New Notes Collateral (including in respect of the Unit Credit Agreement).

There also can be no assurance that the New Notes Collateral will be saleable, and even if saleable, the timing of its liquidation would be uncertain. Accordingly, there may not be sufficient New Notes Collateral to pay all or any of the amounts due on the New Notes. Any claim for the difference between the amount, if any, realized by holders of the New Notes from the sale of the New Notes Collateral securing the New Notes and the obligations due under the New Notes will rank equally in right of payment with all of Unit’s unsecured unsubordinated indebtedness and other obligations, including trade payables. In addition, as discussed further below, the holders of the New Notes would not be entitled to receive post-petition interest or applicable fees, costs, expenses, or charges to the extent the amount of the obligations due under the New Notes exceeded the value of the New Notes Collateral (after taking into account all other debt that was also secured by the New Notes Collateral on a pari passu basis or senior basis (including with respect to the Unit Credit Agreement), or any “adequate protection” on account of any undersecured portion of the New Notes). See “—In the event of a bankruptcy of us or any of the Subsidiary Guarantors, holders of the New Notes may be deemed to have an unsecured claim to the extent that our obligations in respect of the New Notes exceed the fair market value of the New Notes Collateral securing the New Notes and the related guarantees.”

With respect to some of the New Notes Collateral, the security interest of the Collateral Trustee and its ability to foreclose (subject to the terms of the Intercreditor Agreement) will also be limited by the need to meet certain requirements, like obtaining third-party consents and making additional filings. If Unit is unable to obtain these consents or make these filings, the security interests may be invalid and the holders will not be entitled to the New Notes Collateral or any recovery with respect thereto. We cannot assure you that any required consents will be obtained on a timely basis or at all. These requirements may limit the number of potential bidders for certain New Notes Collateral in any foreclosure or other auction and may delay any sale, either of which events may have an adverse effect on the sale price of the New Notes Collateral. Therefore, the practical value of realizing on the New Notes Collateral may, without the appropriate consents and filings, be limited.

To the extent that preexisting liens, liens permitted under the New Indenture and other rights, including higher-priority liens, encumber any of the New Notes Collateral securing the New Notes and the guarantees, those parties have or may exercise rights and remedies with respect to the New Notes Collateral that could adversely affect the value of the New Notes Collateral and the ability of the Collateral Trustee, the Trustee or the holders of the New Notes to realize or foreclose on the New Notes Collateral.

All commitments under the Unit Credit Agreement are secured by the New Notes Collateral on a first lien basis and will be entitled to payment out of the proceeds of any sale of the New Notes Collateral on a senior basis to the holders of the New Notes. The New Indenture will also permit Unit and the Subsidiary Guarantors to create additional liens on the New Notes Collateral under specified circumstances, some of which liens may be pari passu with or senior to the liens securing the New Notes. Any obligations secured by such liens may further dilute the collateral coverage and limit the recovery from the realization of the collateral available to satisfy holders of the New Notes. See “Description of New Notes—Certain Covenants—Liens”.

The Unit Credit Agreement does not currently permit the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes.

The Unit Credit Agreement does not permit the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes. As described under “Prospectus Summary—Recent

 

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Developments—Credit Agreement Amendment”, Unit is pursuing an amendment to the Unit Credit Agreement to permit such things. If such amendment is not consummated, or if we cannot refinance or replace the Unit Credit Agreement with a credit facility that permits the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes, we cannot fulfill our obligation to accept Old Notes in the Exchange Offer.

Your right to receive payments on the New Notes is effectively subordinated to the right of lenders under the Unit Credit Agreement with respect to the New Notes Collateral to the extent of the value of the New Notes Collateral.

The New Notes and the related guarantees will be secured on a second lien basis by the New Notes Collateral. The lenders under the Unit Credit Agreement and the lenders under any other permitted debt secured on a first-priority basis by the New Notes Collateral will have claims that are before the claims of holders of the New Notes with respect to the New Notes Collateral to the extent of the value of the New Notes Collateral securing that other indebtedness on a first-priority basis. In the event of any distribution or payment of those assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, the lenders under the Unit Credit Agreement and lenders under any other permitted debt secured on a first-priority basis by the New Notes Collateral will have a prior claim to the New Notes Collateral. After claims of the lenders under the Unit Credit Agreement and lenders under any other permitted debt secured on a first-priority basis by the New Notes Collateral have been satisfied in full, there may be no assets constituting New Notes Collateral remaining to be applied to satisfy the claims of holders of the New Notes. As a result, with respect to the New Notes Collateral granted by Unit and the Subsidiary Guarantors, holders of the New Notes may receive less, ratably, than the lenders under the Unit Credit Agreement and lenders under any other permitted debt secured on a first-priority basis by the New Notes Collateral.

As of June 30, 2019, on a pro forma basis after giving effect to Exchange Offer and the new borrowing base under the Unit Credit Agreement effective as of September 26, 2019, approximately $113.25 million of borrowings would have been outstanding under the Unit Credit Agreement and approximately $160.2 million of borrowings would have been available and undrawn under the Unit Credit Agreement (after giving effect to $1.550 million of letters of credit), the availability of which is subject to certain conditions including its borrowing base availability, all of which would be secured, if borrowed, and would be effectively senior to the New Notes with respect to the New Notes Collateral to the extent of the value thereof.

The security interests in the New Notes Collateral will be granted to the Collateral Trustee rather than directly to the holders of the New Notes.

The ability of the Collateral Trustee to enforce certain of the New Notes Collateral may be restricted by local law. The security interests in the New Notes Collateral that will secure the New Notes and the related guarantees will not be granted directly to the holders of the New Notes but will be granted only for the benefit of the Collateral Trustee. The New Indenture and related documents will provide that only the Collateral Trustee has the right to enforce upon the New Notes Collateral (subject to the terms of the Intercreditor Agreement) in accordance with the terms of the security documents relating to the New Notes. Consequently, holders of the New Notes will not have direct security interests and will not be entitled to take enforcement actions in respect of the New Notes Collateral, except through the Collateral Trustee.

The Intercreditor Agreement will limit the ability of the holders of the New Notes to exercise rights and remedies with respect to the New Notes Collateral.

The rights of the holders of the New Notes with respect to the New Notes Collateral will be substantially limited by the terms of the lien ranking provisions in the Intercreditor Agreement. Under the terms of the Intercreditor Agreement, at any time that any Priority Lien Obligations (as defined below) are outstanding, almost any action that may be taken in respect of the New Notes Collateral will be at the direction of the

 

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administrative agent or the collateral agent under the Priority Lien Documents (as defined below), and the holders of the New Notes will not have the ability to control or direct such actions, including the right to exercise remedies with respect to, challenge the liens on, or object to actions taken by the Priority Lien Collateral Agent (as defined below) even if the rights of holders of the New Notes are adversely affected, except after the expiration of a 180-day standstill period triggered by a notice of acceleration of the Second Lien Obligations (as defined below), so long as the Priority Lien Collateral Agent (or any other holder of priority lien claims) is not then exercising certain rights or remedies with respect to the New Notes Collateral.

We cannot provide any assurance that the Intercreditor Agreement will be entered into on substantially the same terms described in this prospectus.

Sales of assets by Unit and the Subsidiary Guarantors could reduce the New Notes Collateral and the related guarantees.

The security documents that will relate to the New Notes will allow Unit and the Subsidiary Guarantors to remain in possession of, retain exclusive control over, freely operate and collect, invest and dispose of any income from, the New Notes Collateral, subject to the terms of the Intercreditor Agreement. To the extent Unit or a Subsidiary Guarantor sells any assets that constitute New Notes Collateral, the proceeds from such sale will be subject to the liens securing the New Notes and the related guarantees only to the extent such proceeds would otherwise constitute New Notes Collateral securing the New Notes and the related guarantees under the security documents. Such proceeds will also be subject to the security interests of certain creditors other than the holders of the New Notes, some of which may be senior or before the liens held by the holders of the New Notes (including under the Unit Credit Agreement) or may have a lien in those assets that is pari passu with the lien of the holders of the New Notes. To the extent the proceeds from any sale of New Notes Collateral do not constitute New Notes Collateral under the security documents, the pool of assets securing the New Notes and the related guarantees will be reduced, and the New Notes and the related guarantees will not be secured by such proceeds.

Not all of our properties and assets have been pledged to secure the Unit Credit Agreement on a first-priority basis and the New Notes on a second-priority basis. Furthermore, the New Notes are not secured by all of the Collateral securing the Unit Credit Agreement.

Not all of our properties and assets will be pledged to secure the New Notes. The New Notes Collateral securing the Unit Credit Agreement on a first-priority basis and the New Notes on a second-priority basis will consist of:

 

   

mortgage liens on no less than 80% of the discounted present value of the Company’s proved developed and producing oil and gas properties evaluated in the most recently delivered reserve report pursuant to the Unit Credit Agreement; and

 

   

a pledge of Unit’s 50% equity interests in Superior; provided, however, that while the full amount of Unit’s 50% equity interest in Superior has been pledged to secure the Unit Credit Agreement, the New Notes will only be secured to the extent that the pledge of such equity interests would not require filing with the SEC separate financial statements of, or additional financial information with respect to, Superior, pursuant to Rule 3-16 of Regulation S-X under the Securities Act of 1933. See the definition of “Parity Lien Excluded Collateral” in the “Description of New Notes.”

All of the rest of our properties and assets that do not fall within the above categories have not been pledged to secure the Unit Credit Agreement or the New Notes. Furthermore, the New Notes will not be secured by any collateral that may be pledged to certain issuers of letters of credit under the Unit Credit Agreement that are not pledged generally to all of the lenders under Unit Credit Agreement or to the administrative agent thereunder for the benefit of the lenders as a whole.

 

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If an event of default occurs and the maturity of the New Notes is accelerated, the New Notes and the related guarantees will rank pari passu with the holders of other unsecured indebtedness (and other secured indebtedness not secured by such excluded assets) of the relevant obligor with respect to any assets that do not constitute New Notes Collateral. As a result, if any non-New Notes Collateral assets are pledged as security for any other indebtedness, then the New Notes will be effectively subordinated to such other indebtedness to the extent of the value of such non-New Notes Collateral assets.

Certain laws and regulations may impose restrictions or limitations on foreclosure.

Unit’s obligations under the New Notes and the Subsidiary Guarantors’ obligations under the guarantees are secured only by the New Notes Collateral described in this prospectus. The Collateral Trustee’s ability to foreclose on the New Notes Collateral on behalf of the holders of the New Notes may be subject to perfection, priority issues, state law requirements, applicable bankruptcy law, and practical problems associated with the realization of the Collateral Trustee’s security interest in or lien on the New Notes Collateral, including cure rights, foreclosing on the New Notes Collateral within the time periods permitted by third parties or prescribed by laws, obtaining third-party consents, making additional filings, statutory rights of redemption, and the effect of the order of foreclosure. We cannot assure you that the consents of any third parties and approvals by governmental entities or courts of competent jurisdiction will be given when required to facilitate a foreclosure on such assets. Therefore, we cannot assure you that foreclosure on the New Notes Collateral will be sufficient to make all payments on the New Notes.

Rights of holders of the New Notes in the New Notes Collateral may be adversely affected by the failure to create or perfect the security interests in the New Notes Collateral.

The Unit Credit Agreement is secured on a first lien basis by the New Notes Collateral. Applicable law requires that a security interest in certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party. The liens on the New Notes Collateral securing the New Notes may not be perfected if we are not able to take the actions necessary to perfect any of these liens on or before the date of the issuance of the New Notes or thereafter. We will have limited obligations to perfect the security interest of the holders of the New Notes in specified collateral other than the filing of financing statements and any mortgages. To the extent a security interest in certain New Notes Collateral is not properly perfected on the date of the issuance of the New Notes, that security interest might be avoidable in bankruptcy, which could impact the value of the New Notes Collateral. See “—Any future pledge of New Notes Collateral or guarantee may be avoidable in bankruptcy.”

If after the date the Notes are issued additional assets are pledged to secure the Unit Credit Agreement, the Indenture will require that such assets are also pledged to secure the New Notes on a second-priority basis, unless such assets constitute “second priority excluded collateral.” In such instances, additional financing statements or mortgages, as the case may be, would be required to be filed to perfect the security interest in such assets. Depending on the type of the assets constituting after-acquired collateral, additional action may be required to perfect the security interest in such assets. Applicable law requires that certain property and rights acquired after the grant of a general security interest can be perfected only at the time that property and rights are acquired and identified. Neither the Trustee or the Collateral Trustee will be responsible to monitor, and there can be no assurance that Unit will inform the Trustee or Collateral Trustee of, the future acquisition of property and rights that constitute New Notes Collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired collateral. The Collateral Trustee will have no obligation to monitor the acquisition of additional property or rights that constitute New Notes Collateral or the perfection of any security interests therein. That inaction may result in the loss of the security interest in that New Notes Collateral or the priority of the security interest in favor of the New Notes and the guarantees against third parties. Even if the necessary action is taken to properly perfect liens on New Notes Collateral acquired or arising in the future, those liens may potentially be avoidable as a preference in any bankruptcy proceeding under certain circumstances. See “—Any future pledge of New Notes Collateral or guarantee may be avoidable in bankruptcy.”

 

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Security over certain collateral, including all mortgages on oil and gas properties, on which a lien in favor of the Collateral Trustee is required, may not be perfected on the Closing Date.

Security interests over certain collateral, including all mortgages on oil and gas properties, which will be required under the New Indenture, will not be perfected on the Closing Date. To the extent such security interests are not perfected on such date, we will be required to have such security interests thereafter perfected promptly, but in no event submitted for recording with the applicable governmental authorities later than the date that is 90 days after the Closing Date, but there can be no assurance that such security interest will be perfected on a timely basis. In the event that more than a reasonable time passes between the issuance of the New Notes and the perfection of the security interests on the oil and gas properties, such security interests may be set aside or avoided as a preferential transfer if the collateral grantor becomes a debtor that is the subject of a voluntary or involuntary bankruptcy case under the U.S. Bankruptcy Code (or under certain similar state law insolvency proceedings) on or before 90 days from the perfection of the security interests. In the event of such a determination in such bankruptcy case or insolvency proceeding, the Collateral Trustee will not have a security interest in that collateral.

Your security interest in certain items of present and future collateral may not be perfected. Even if your security interests in certain items of collateral are perfected, it may not be practicable for you to enforce or economically benefit from your rights with respect to such security interests.

The security interests are not perfected with respect to certain items of collateral that cannot be perfected by the filing of financing statements in each debtor’s jurisdiction of organization, the filing of mortgages, the delivery of possession of certificated securities, the filing of a notice of security interest with the U.S. Patent and Trademark Office or the U.S. Copyright Office or certain other conventional methods to perfect security interests in the United States. Security interests in collateral such as deposit accounts and securities accounts, which require or benefit from additional special filings or other actions or the obtaining of additional consents, may not be perfected or may not have priority with respect to the security interests of other creditors. We and the Subsidiary Guarantors will have limited obligations to perfect the security interest of the holders of the New Notes in specified collateral. To the extent that your security interests in any items of collateral are unperfected, your rights with respect to such collateral are equal to the rights of our general unsecured creditors in the event of any bankruptcy filed by or against us under applicable U.S. federal bankruptcy laws.

Moreover, the Collateral Trustee may need to obtain the consent of a governmental agency to obtain or enforce a security interest in certain of the collateral or to otherwise operate our business. We cannot assure you that the Collateral Trustee will be able to obtain any such consent or that any consent will not be delayed, the event of which may adversely affect your rights as holders. Moreover, the Collateral Trustee in exercising its rights to foreclose on certain assets may need to commence governmental proceedings in order to obtain any necessary governmental approvals. As a result, there may be prolonged delays in receiving such approval, or such approval may not be granted to the Collateral Trustee, the result of which may adversely affect your rights as holders.

Lien searches may not reveal all liens on the New Notes Collateral.

We cannot guarantee that the lien searches on the New Notes Collateral that will secure the New Notes and the related guarantees will reveal any or all existing liens on the New Notes Collateral. Any existing lien, including undiscovered liens, could be significant, could be prior in ranking to the liens securing the New Notes and guarantees thereof and could have an adverse effect on the ability of the Collateral Trustee to realize or foreclose upon the New Notes Collateral securing the New Notes and guarantees thereof.

The New Notes Collateral is subject to casualty risks.

We intend to maintain insurance or otherwise insure against hazards in a manner consistent with our past practice. There are, however, certain losses that may be either uninsurable or not economically insurable, in

 

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whole or in part. Insurance proceeds may not compensate us fully for our losses. If there is a complete or partial loss or impairment in value of any of the New Notes Collateral, the insurance proceeds may not be sufficient to satisfy all of the secured obligations, including the New Notes and the related guarantees.

The imposition of certain permitted liens will, under certain circumstances, permit the liens on the related assets securing the New Notes and the related guarantees to be subordinated to such permitted liens.

The New Indenture will permit liens in favor of third parties to secure additional debt, including purchase money indebtedness and capital lease obligations, and, in the case of certain of those liens, the liens on the related assets securing the New Notes and the related guarantees may, under certain circumstances, be subordinated to such permitted liens. Unit’s and its restricted subsidiaries’ ability to incur additional debt and liens on such additional debt in favor of third parties is subject to limitations as described herein under the heading “Description of New Notes.”

Any future pledge of New Notes Collateral or guarantee may be avoidable in bankruptcy.

If after the date the Notes are issued additional assets are pledged to secure the Unit Credit Agreement, the Indenture will require that such assets are also pledged to secure the New Notes on a second-priority basis, unless such assets constitute “second-priority excluded collateral.” In addition, if any subsidiary becomes a guarantor under the Unit Credit Agreement or guarantees any other Indebtedness of Unit or any subsidiary guarantor, then the Indenture will require such subsidiary to guarantee the New Notes. New Notes Collateral pledged, or guarantees issued, after the Closing Date may be treated under bankruptcy law as if they were pledged to secure, or delivered to guarantee, as applicable, previously existing indebtedness.

Any future pledge of New Notes Collateral or issuance of a guarantee in favor of the holders of the New Notes may be avoidable by the pledgor (as a debtor in possession), guarantor (as a debtor in possession), by its trustee in bankruptcy, or potentially by other creditors if certain events or circumstances exist or occur, including, among others, if (1) the pledgor or guarantor is insolvent at the time of the pledge and/or issuance of the guarantee, (2) the pledge and/or issuance of the guarantee permits the holders of the New Notes to receive a greater recovery in a hypothetical Chapter 7 case than if such pledge and/or guarantee had not been given and (3) a bankruptcy proceeding in respect of the pledgor or guarantor is commenced within 90 days following the pledge or the perfection thereof and/or the issuance of the guarantee, or, in certain circumstances, a longer period. Accordingly, if Unit or any Subsidiary Guarantor were to file for bankruptcy protection after the Closing Date and any pledge of New Notes Collateral not pledged, or any guarantees not issued, on the Closing Date had been pledged or perfected or issued less than 90 days before commencement of such bankruptcy proceeding, such pledges or guarantees are materially more likely to be avoided as a preference by the bankruptcy court than if delivered on the Closing Date (even if the other guarantees or liens issued on the Closing Date would no longer be subject to such risk). To the extent that the grant of any such security interest and/or guarantee is avoided as a preference or otherwise, you would lose the benefit of such security interest and/or guarantee.

Rights of holders of the New Notes in the New Notes Collateral may be adversely affected by bankruptcy proceedings.

The right of the Collateral Trustee to foreclose upon, repossess and dispose of the New Notes Collateral securing the New Notes and the related guarantees is likely to be significantly impaired (or at a minimum delayed) by federal bankruptcy law if bankruptcy proceedings are commenced by or against Unit or the Subsidiary Guarantors before, or possibly even after, the Collateral Trustee has repossessed and disposed of the New Notes Collateral. Under the U.S. Bankruptcy Code, a secured creditor, like the Collateral Trustee, is prohibited from foreclosing upon or repossessing its security from a debtor in a bankruptcy case, or from disposing of security previously repossessed from a debtor, without prior bankruptcy court approval (which may not be given under the circumstances). Moreover, bankruptcy law permits the debtor to continue to retain and use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under

 

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the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to the circumstances, but it is intended in general to protect the value of the secured creditor’s interest in its collateral and may include cash payments or the granting of additional or replacement security, if and when the court in its discretion determines, for any diminution in the value of the collateral as a result of the automatic stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. A bankruptcy court may determine that a secured creditor may not require compensation for a diminution in the value of its collateral if the value of the collateral exceeds the debt it secures. In view of both the lack of a precise definition of the term “adequate protection” under the U.S. Bankruptcy Code and the broad discretionary powers of a bankruptcy court, it is impossible to predict how, whether or when payments under the New Notes could be made following the commencement of a bankruptcy case, the length of the delay in making any such payments or whether any such payment will be made at all or in what form, whether or when the Collateral Trustee could or would repossess or dispose of the New Notes Collateral, the value of the New Notes Collateral as of the commencement date of any bankruptcy proceedings, or whether or to what extent or in what form holders of the New Notes would be compensated for any delay in payment or loss of the value of the New Notes Collateral through the requirements of “adequate protection.”

Furthermore, any disposition of the New Notes Collateral during a bankruptcy case outside of the ordinary course of business would also require approval from the bankruptcy court (which may not be given under the circumstances).

Moreover, the Trustee and Collateral Trustee under the New Indenture may need to evaluate the impact of the potential liabilities before determining to foreclose on collateral consisting of real property, if any, because secured creditors that hold a security interest in real property may be held liable under environmental laws for the costs of remediating or preventing the release or threatened releases of hazardous substances at such real property. Consequently, the Collateral Trustee may decline to foreclose on such collateral or exercise remedies available in respect thereof if it does not receive indemnification to its satisfaction from the holders of the New Notes.

In addition, the Intercreditor Agreement will contain certain provisions benefiting holders of Priority Lien Obligations that prevent the holders of the New Notes from objecting to a number of important matters regarding the New Notes Collateral or otherwise limit their rights as secured creditors following a filing for bankruptcy, including the right to object to any debtor-in-possession financing proposed or consented to by the holders of Priority Lien Obligations (including any such additional financing that is secured by prior liens on the New Notes Collateral) or to seek “adequate protection” under U.S. bankruptcy laws in certain circumstances for protection of its secured position. As a result, after a bankruptcy filing, the value of the New Notes Collateral could materially deteriorate and holders of the New Notes would be unable to raise a variety of objections. The holders of the New Notes may also be required to turn over to the holders of Priority Lien Obligations certain funds they may receive in connection with a bankruptcy case. These waivers and limitations could significantly limit rights that would otherwise be available to holders of the New Notes as secured creditors in a bankruptcy proceeding, and could adversely affect their ability to recover amounts owed on the New Notes.

In the event of a bankruptcy of us or any of the Subsidiary Guarantors, holders of the New Notes may be deemed to have an unsecured claim to the extent that our obligations in respect of the New Notes exceed the fair market value of the New Notes Collateral securing the New Notes and the related guarantees.

In any bankruptcy proceeding with respect to us or any of the Subsidiary Guarantors, it is possible that the bankruptcy trustee, the debtor-in-possession or competing creditors will assert that the fair market value of the New Notes Collateral (taking into account the relative priority of the liens securing the New Notes) available to satisfy the New Notes on the date of the bankruptcy filing was less than the then-current principal amount of the New Notes. Upon a finding by the bankruptcy court that any of the New Notes are undercollateralized, the claims in the bankruptcy proceeding with respect to the New Notes would be bifurcated between a secured claim in an

 

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amount equal to the value of the New Notes Collateral and an unsecured claim with respect to the remainder of its claim that would not be entitled to the benefits of security in the New Notes Collateral. In such event, the secured claims of the holders of the New Notes would be limited to the value of the New Notes Collateral (subject to the terms of the Intercreditor Agreement).

Other consequences of a finding of undercollateralization would be, among other things, a lack of entitlement on the part of the New Notes that are undercollateralized to receive post-petition interest and a lack of entitlement on the part of the unsecured portion of such New Notes to receive “adequate protection” under federal bankruptcy laws. In addition, if any payments of post-petition interest had been made at any time before such a finding of undercollateralization, those payments would be recharacterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to the New Notes that are undercollateralized.

If a bankruptcy petition were filed by or against Unit or any of the Subsidiary Guarantors in the United States, the allowed claim for the New Notes may be less than the principal amount of the New Notes stated in the New Indenture.

If a bankruptcy petition were filed by or against Unit or any of the Subsidiary Guarantors under the U.S. Bankruptcy Code after the issuance of the New Notes, the claim by any holder of the New Notes for the principal amount thereof may be limited to the amount of the fair market value of the Old Notes tendered in exchange for the new Notes. Any such discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest, which is not allowable as part of a bankruptcy claim under the U.S. Bankruptcy Code. Accordingly, holders of the New Notes under these circumstances may receive an amount that is less than the principal amount thereof stated in the New Indenture.

There are circumstances other than repayment or discharge of the New Notes under which the New Notes Collateral and the guarantees would be released automatically, without your consent or the consent of the Trustee and the Collateral Trustee, and you may not realize any payment upon the release of such New Notes Collateral.

Pursuant to the New Indenture, under various circumstances all or a portion of the New Notes Collateral securing the New Notes and guarantees would be released automatically without your consent or the consent of the Trustee or the Collateral Trustee, including:

 

   

upon the sale, transfer or other disposition of such New Notes Collateral in a transaction not prohibited under the New Indenture or the Security Documents;

 

   

with respect to New Notes Collateral held by a guarantor, upon the release of such guarantor from its guarantee in accordance with the New Indenture;

 

   

pursuant to the terms of the Intercreditor Agreement, upon any release in connection with a foreclosure or exercise of remedies with respect to such New Notes Collateral by the first-priority collateral agent in accordance with the terms of the Intercreditor Agreement;

 

   

with the consent of the holders of the requisite percentage of New Notes in accordance with the provisions described under “Description of New Notes—Amendments and Waivers”; and

 

   

in other circumstances specified in the Intercreditor Agreement or the Collateral Trust Agreement, including in connection with the exercise of remedies by the Collateral Trustee.

The New Indenture will also permit us to designate one or more of our restricted subsidiaries as unrestricted subsidiaries, subject to certain conditions. If we designate a subsidiary as an unrestricted subsidiary, all the liens on any collateral owned by such unrestricted subsidiary or any of its subsidiaries and any guarantees of the New Notes by such unrestricted subsidiary or any of its subsidiaries will be automatically released under the New Indenture. Designation of one or more of our subsidiaries as an unrestricted subsidiary will therefore reduce the

 

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aggregate value of the New Notes Collateral to the extent that liens on the assets of the unrestricted subsidiary and its subsidiaries are released. In addition, the creditors of any such unrestricted subsidiary and its subsidiaries will have a claim on the assets of the unrestricted subsidiary and its subsidiaries senior to the claim of the holders of the New Notes.

 

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USE OF PROCEEDS

We will not receive any cash proceeds from the Exchange Offer. However, we will receive the Old Notes that are exchanges under the Exchange Offer. Old Notes we acquire under the Exchange Offer will be canceled upon our receipt.

 

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CAPITALIZATION

This table sets forth our consolidated capitalization as of June 30, 2019, on a historical basis and on a pro forma basis to give effect to the Exchange Offer, assuming that all the Old Notes are validly tendered before the Early Tender Date and not validly withdrawn, and are exchanged for the New Notes. This information should be read in conjunction with the section “Selected Historical Consolidated Financial Data” elsewhere in this prospectus and our historical consolidated financial statements and related notes thereto incorporated by reference in this prospectus.

 

     June 30, 2019  
     Historical      As Adjusted  
     (In thousands)  

Long-Term Debt:

     

Unit Credit Agreement with an average interest rate of 4.2% at June 30, 2019

   $ 103,500      $ 113,250  

Superior Credit Agreement with an average interest rate of 6.5% at June 30, 2019

     7,500        7,500  

6.625% senior subordinated notes due 2021

     650,000        —    

        % second lien senior secured notes due          offered hereby

     —                        
  

 

 

    

 

 

 

Total principal amount

     761,000        770,750  

Less: unamortized discount(2)

     (1,303      (1,303

Less: debt issuance costs, net

     (3,107                    
  

 

 

    

 

 

 

Total long-term debt

   $ 756,590      $                
  

 

 

    

 

 

 

Shareholders’ equity

     

Preferred stock, $1.00 par value, 5,000,000 shares authorized, none issued

     —          —    

Common stock, $.20 par value, 175,000,000 shares authorized, 55,536,916 shares issued as of June 30, 2019

     10,590        10,590  

Capital in excess of par value

     638,769        638,769  

Accumulated other comprehensive loss

     (487      (487

Retained earnings

     741,001        741,001  
  

 

 

    

 

 

 

Total shareholders’ equity attributable to Unit Corporation

     1,389,873        1,389,873  

Non-controlling interests in consolidated subsidiaries

     203,359        203,359  
  

 

 

    

 

 

 

Total shareholders’ equity

     1,593,232        1,593,232  
  

 

 

    

 

 

 

Total liabilities(1) and shareholders’ equity

   $ 2,793,529      $                
  

 

 

    

 

 

 

 

(1)

Unit Corporation’s consolidated total liabilities as of June 30, 2019 include total current and long-term liabilities of its variable interest entity (“VIE”) (Superior Pipeline Company, L.L.C.) of $29.6 million and $21.4 million, respectively, for which the creditors of the VIE have no recourse to Unit Corporation.

(2)

The accounting treatment of the New Notes has not yet been determined.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

These tables present selected historical financial data as of and for the periods indicated. The financial results are not necessarily indicative of our future operations or future financial results. In the opinion of management, this information contains all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of these results. Presented below is our selected historical consolidated statement of operations data and statement of cash flow data for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, and our balance sheet data as of December 31, 2018, 2017, 2016, 2015 and 2014, which are derived from our audited consolidated financial statements. Also presented below is our selected historical condensed consolidated statement of operations data for the six months ended June 30, 2019 and 2018, and our condensed balance sheet data as of June 30, 2019 and 2018, which are derived from our unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarters ended June 30, 2019 and 2018, respectively.

 

    Six Months Ended
June 30,
    Year Ended December 31,  
    2019     2018     2018     2017     2016     2015     2014  
(In thousands)   (unaudited)                                

Statement of operations data:

             

Revenues:

             

Oil and natural gas

  $ 163,910     $ 205,417     $ 423,059     $ 357,744     $ 294,221     $ 385,774     $ 740,079  

Contract drilling

    94,192       92,915       196,492       174,720       122,086       265,668       476,517  

Gas gathering and processing

    96,735       110,103       223,730       207,176       185,870       202,789       356,348  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    354,837       408,435       843,281       739,640       602,177       854,231       1,572,944  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

             

Operating costs:

             

Oil and natural gas

    68,956       68,380       131,675       130,789       120,184       166,046       187,916  

Contract drilling

    60,709       63,561       131,385       122,600       88,154       156,408       274,933  

Gas gathering and processing

    71,846       81,307       167,936       155,483       137,609       161,556       306,831  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs

    201,511       213,248       430,896       408,872       345,947       484,010       769,680  

Depreciation, depletion, and amortization

    128,418       115,439       243,605       209,257       208,353       352,742       402,888  

Impairments(1)

    —         —         147,884       —         161,563       1,634,628       158,069  

General and administrative

    19,805       19,474       38,707       38,087       33,337       34,358       41,027  

(Gain) loss on disposition of assets

    1,193       (322     (704     (327     (2,540     7,229       (8,953
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    350,927       347,839       860,388       655,889       746,660       2,512,967       1,362,711  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    3,910       60,596       (17,107     83,751       (144,483     (1,658,736     210,233  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

             

Interest, net

    (17,533     (17,733     (33,494     (38,334     (39,829     (31,963     (17,371

Gain (loss) on derivatives

    995       (21,223     (3,184     14,732       (22,813     26,345       30,147  

Other

    11       11       22       21       307       45       (70
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    (16,527     (38,945     (36,656     (23,581     (62,335     (5,573     12,706  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (12,617     21,651       (53,763     60,170       (206,818     (1,664,309     222,939  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense (benefit):

             

Current

    —         —         (3,131     5       15       (20,616     9,378  

Deferred

    (2,318     5,636       (10,865     (57,683     (71,209     (606,332     77,285  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total income taxes

    (2,318     5,636       (13,996     (57,678     (71,194     (626,948     86,663  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (10,299   $ 16,015     $ (39,767   $ 117,848     $ (135,624   $ (1,037,361   $ 136,276  

Net income attributable to non-controlling interest

    1,714       2,362       5,521       —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Unit Corporation

  $ (12,013   $ 13,653     $ (45,288   $ 117,848     $ (135,624   $ (1,037,361   $ 136,276  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)

In December 2014, we incurred a non-cash ceiling test write-down of our oil and natural gas properties of $76.7 million pretax ($47.7 million, net of tax), a non-cash write-down associated with the removal of 31 drilling rigs from our fleet along with certain other equipment and drill pipe of $74.3 million pretax ($46.3 million, net of tax), and a non-cash write-down associated with a reduction in the carrying value of three mid-stream segment systems of $7.1 million pretax ($4.4 million, net of tax). In total for 2015, we incurred non-cash ceiling test write-downs on our oil and natural gas properties of $1.6 billion pretax ($1.0 billion, net of tax). We also incurred a non-cash write-down on certain drilling rigs and other equipment of approximately $8.3 million pretax ($5.1 million, net of tax), and a non-cash write-down associated with a reduction in the carrying value of three mid-stream segment systems of $27.0 million pretax ($16.8 million, net of tax). For the first three-quarters of 2016, we incurred non-cash ceiling test write-downs on our oil and natural gas properties of $161.6 million pretax ($100.6 million, net of tax). In the fourth quarter of 2018, we incurred a non-cash write-down associated with the removal of 41 drilling rigs from our fleet of $147.9 million pre-tax ($111.7 million, net of tax).

 

    As of June 30,     As of December 31,  
    2019     2018     2018     2017     2016     2015     2014  
(In thousands)   (unaudited)                                

Balance sheet data:

             

Current assets:

             

Cash and cash equivalents

  $ 669     $ 104,308     $ 6,452     $ 701     $ 893     $ 835     $ 1,049  

Other current assets

    129,916       122,736       168,661       118,971       120,303       139,423       251,442  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    130,585       227,044       175,113       119,672       121,196       140,258       252,491  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Property and equipment:

             

Oil and natural gas properties, on the full cost method:

             

Proved properties

    6,212,323       5,809,850       6,018,568       5,712,813       5,446,305       5,401,618       4,990,753  

Unproved properties not being amortized

    336,214       325,595       330,216       296,764       314,867       337,099       485,568  

Drilling equipment

    1,284,295       1,612,817       1,284,419       1,593,611       1,565,268       1,567,560       1,620,692  

Gas gathering and processing equipment

    798,503       736,488       767,388       726,236       705,859       689,063       628,689  

Saltwater disposal systems

    69,212       65,218       68,339       62,618       60,638       60,316       56,702  

Corporate land and building

    59,080       59,081       59,081       59,080       59,066       49,890       16,104  

Transportation equipment

    30,019       29,918       29,524       29,631       32,842       40,072       40,693  

Other

    57,900       56,381       57,507       53,439       48,590       45,489       41,602  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 8,847,546     $ 8,695,348     $ 8,615,042     $ 8,534,192     $ 8,233,435     $ 8,191,107     $ 7,800,803  

Less accumulated depreciation, depletion, amortization and impairment

    6,289,575       6,263,504       6,182,726       6,151,450       5,952,330       5,609,980       3,747,412  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property and equipment

    2,557,971       2,431,844       2,432,316       2,382,742       2,281,105       2,581,127       4,133,391  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other long-term assets

    104,973       90,921       90,624       79,038       77,002       78,457       77,591  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets(1)

  $ 2,793,529     $ 2,749,809     $ 2,698,053     $ 2,581,452     $ 2,479,303     $ 2,799,842     $ 4,463,728  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

  $ 194,710     $ 200,714     $ 213,859     $ 181,936     $ 164,915     $ 150,891     $ 304,171  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt less unamortized
discount and debt issuance costs

    756,590       643,371       644,475       820,276       800,917       918,995       801,908  

Other long-term liabilities

    102,700       102,928       101,234       100,203       103,479       140,626       148,785  

Deferred income taxes

    142,485       158,232       144,748       133,477       215,922       275,750       876,215  

Total shareholders’ equity

    1,593,232       1,643,654       1,593,444       1,345,560       1,194,070       1,313,580       2,332,394  

Non-controlling interests in consolidated subsidiaries

    203,359       199,404       202,563       —         —         —         —    

Total shareholders’ equity attributable to Unit Corporation

    1,389,873       1,444,250       1,390,881       1,345,560       1,194,070       1,313,580       2,332,394  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity(2)

  $ 2,793,529     $ 2,749,809     $ 2,698,053     $ 2,581,452     $ 2,479,303     $ 2,799,842     $ 4,463,473  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Six Months Ended
June 30,
    Year Ended December 31,        
    2019     2018     2018     2017     2016     2015     2014  
(In thousands, except ratio data)   (unaudited)                                

Statement of cash flow and other financial data:

             

Net cash provided by operating activities

  $ 127,501     $ 159,640     $ 347,759     $ 265,956     $ 240,130     $ 446,944     $ 708,993  

Net cash used in investing activities

    (242,611     (167,350     (450,342     (293,366     (110,971     (549,778     (920,597

Net cash provided by (used in) financing activities

    109,327       111,317       108,334       27,218       (129,101     102,620       194,060  

Adjusted EBITDA(1)

    149,862       177,745       371,220       313,508       249,449       407,444       785,048  

 

(1)

“Adjusted EBITDA” is a non-GAAP financial measure we define as net income (loss) plus adjustments for income tax expense (benefit), interest expense, net, depreciation, depletion and amortization, impairment of long-lived assets, (gain) loss on derivatives, settlements during the period of matured derivative contracts, stock compensation plans, other non-cash items, and (gain) loss on disposition of assets. Adjusted EBITDA, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated under GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income (loss), net income (loss), or statement of operations or statement of cash flow data prepared under GAAP. Adjusted EBITDA provides no information regarding a company’s capital structure, borrowings, interest costs, capital expenditures, working capital movement, or tax position. Adjusted EBITDA does not represent funds available for discretionary use, because those funds are required for debt service, capital expenditures and working capital, income taxes, and other commitments and obligations. However, our management believes Adjusted EBITDA is useful to an investor in evaluating our operating performance because this measure:

 

   

is widely used by investors in the natural gas and oil industry to measure a company’s operating performance without regard to items excluded from the calculation of such term, which can vary substantially from company to company depending on accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;

 

   

helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure; and

 

   

is used by our management for various purposes, including as a measure of operating performance, for strategic planning and forecasting and by our lenders as defined in the Unit Credit Agreement.

 

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There are significant limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect our net income (loss), the lack of comparability of results of operations to different companies and the different methods of calculating Adjusted EBITDA reported by different companies. The following presents a reconciliation of net income (loss) to Adjusted EBITDA:

 

     Six Months Ended
June 30,
          Year Ended December 31,        
     2019     2018     2018     2017     2016     2015     2014  
(In thousands)    (Unaudited)                                

Reconciliation of Non-GAAP Adjusted EBITDA to GAAP Net Income (Loss):

              

Net income

     (10,299   $ 16,015       (39,767   $ 117,848     $ (135,624   $ (1,037,361   $ 136,276  

Income taxes

     (2,318     5,636       (13,996     (57,678     (71,194     (626,948     86,663  

Depreciation, depletion and amortization

     128,418       115,439       243,605       209,257       208,353       352,742       402,888  

Impairments

     —         —         147,884       —         161,563       1,634,628       158,069  

Interest, net

     17,533       17,733       33,494       38,334       39,829       31,963       17,371  

(Gain) loss on derivatives

     (995     21,223       3,184       (14,732     22,813       (26,345     (30,147

Settlements during the period of matured derivative contracts

     5,314       (8,928     (22,803     173       9,658       46,615       (6,038

Employee stock compensation plans

     11,187       12,073       22,899       17,747       13,812       21,468       24,320  

Other non-cash items

     (171     (1,124     2,576       2,886       2,779       3,453       4,599  

(Gain) loss on disposition of assets

     1,193       (322     (704     (327     (2,540     7,229       (8,593
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     149,862     $ 177,745       371,220     $ 313,508     $ 249,449     $ 407,444     $ 785,408  

Adjusted EBITDA attributable to non-controlling interest

     13,497       7,019       21,488       —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA attributable to Unit Corporation

     136,365     $ 170,726       349,732     $ 313,508     $ 249,449     $ 407,444     $ 785,048  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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DESCRIPTION OF OTHER INDEBTEDNESS

The following descriptions are only summaries of certain of the material provisions of the agreements summarized and do not purport to be complete and are qualified in their entirety by reference to provisions of the agreements being summarized. We urge you to read the agreements governing each of the facilities and notes described below. Copies of the agreements will be contained in our filings with the SEC and can be obtained as described under the heading “Where You Can Find Additional Information.” You may also request a copy of these agreements at our address set forth under the heading “Questions and Answers About the Exchange Offer—Who is making the Exchange Offer?”

Our Credit Agreements and Senior Subordinated Notes

Unit Credit Agreement. Our Senior Credit Agreement (“Unit Credit Agreement”) is scheduled to mature on the earlier of (a) October 18, 2023, (b) November 16, 2020, to the extent that, on or before that date, all the Old Notes are not repurchased, redeemed, or refinanced with indebtedness having a maturity date at least six months following October 18, 2023, and (c) any earlier date on which the commitment amounts under the Unit Credit Agreement are reduced to zero or otherwise terminated. Under that agreement, the amount we can borrow is the lesser of the amount we elect as the commitment amount or the value of the borrowing base as determined by the lenders, but in either event not to exceed the maximum credit agreement amount of $1.0 billion. Our elected commitment amount is $275.0 million. Our borrowing base is $275.0 million. We are currently charged a commitment fee of 0.375% on the amount available but not borrowed. That fee varies based on the amount borrowed as a percentage of the total borrowing base. Total fees of $3.3 million in origination, agency, syndication, and other related fees are being amortized over the life of the agreement. Under the agreement, we have pledged as collateral no less than 80% of the discounted present value of the Company’s proved developed and producing oil and gas properties evaluated in the most recently delivered reserve report pursuant to the Unit Credit Agreement.

On May 2, 2018, we entered into a Pledge Agreement with BOKF, NA (dba Bank of Oklahoma), as administrative agent to benefit the secured parties, granting a security interest in the limited liability membership interests and other equity interests we own in Superior (which as of this report is 50% of the aggregate outstanding equity interests of Superior) as additional collateral for our obligations under the Unit Credit Agreement.

The borrowing base amount—which is subject to redetermination by the lenders on April 1 and October 1 of each year—is based on a percentage of the discounted future value of our oil and natural gas reserves. We or the lenders may request a onetime special redetermination of the borrowing base between each scheduled redetermination. In addition, we may request a redetermination following the completion of an acquisition that meets the requirements in the Unit Credit Agreement.

At our election, any part of the outstanding debt under the Unit Credit Agreement can be fixed at a London Interbank Offered Rate (“LIBOR”). LIBOR interest is computed as the LIBOR base for the term plus 1.50% to 2.50% depending on the level of debt as a percentage of the borrowing base and is payable at the end of each term, or every 90 days, whichever is less. Borrowings not under LIBOR bear interest at the prime rate specified in the Unit Credit Agreement but in no event less than LIBOR plus 1.00% plus a margin. The credit agreement provides that if ICE Benchmark Administration no longer reports the LIBOR or the Administrative Agent (as defined therein) determines in good faith that the rate so reported no longer accurately reflects the rate available to the Lender (as defined therein) in the London Interbank Market or if such index no longer exists or accurately reflects the rate available to the Administrative Agent in the London Interbank Market, the Administrative Agent may select a replacement index. Interest is payable at the end of each month or at the end of each LIBOR contract, and the principal may be repaid in whole or in part at any time, without a premium or penalty. At June 30, 2019, we had $103.5 million outstanding borrowings under the Unit Credit Agreement.

 

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We can use borrowings to finance general working capital requirements for (a) exploration, development, production, and acquisition of oil and gas properties, (b) acquisitions and operation of mid-stream assets up to certain limits, (c) issuance of standby letters of credit, (d) contract drilling services and acquisition of contract drilling equipment, and (e) general corporate purposes.

The Unit Credit Agreement prohibits, among other things:

 

   

the payment of dividends (other than stock dividends) during any fiscal year over 30% of our consolidated net income for the preceding fiscal year;

 

   

the incurrence of additional debt with certain limited exceptions;

 

   

the creation or existence of mortgages or liens, other than those in the ordinary course of business and with certain limited exceptions, on any of our properties, except in favor of our lenders; and

 

   

investments in Unrestricted Subsidiaries (as defined therein) in excess of $200.0 million.

The Unit Credit Agreement requires that we have at the end of each quarter: a current ratio of not less than 1.00 to 1.00. Beginning with the quarter ending September 30, 2018, and for each following quarter, the Unit Credit Agreement requires a leverage ratio of funded debt to consolidated EBITDA for the most recently ended rolling four fiscal quarters of no greater than 4.00 to 1.00.

As of June 30, 2019, we were in compliance with the Unit Credit Agreement’s covenants.

As described under “Prospectus Summary—Recent Developments—Credit Agreement Amendment”, we have engaged in discussions with the lenders under the Unit Credit Agreement to enter into an amendment to the Unit Credit Agreement to, among other things, permit the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes, each of which are currently not permitted under the Unit Credit Agreement. As discussed under the heading “General Terms of the Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation,” our obligation to accept Old Notes in the Exchange Offer is subject to, and conditioned upon, either (i) the consummation of such amendment to the Unit Credit Agreement or (ii) a refinancing or replacement of the Unit Credit Agreement with a credit facility that, among other things, permits the issuance of the New Notes, the incurrence of guarantees of the New Notes and the grant of liens securing the New Notes, which condition will not be waived. We will continue to pursue such amendment, but we cannot provide assurance that we will obtain such amendment on the terms described in this prospectus or at all.

The above summary of the Unit Credit Agreement does not take into account the proposed amendment.

Superior Credit Agreement.  On May 10, 2018, Superior signed a five-year $200.0 million senior secured revolving credit facility with an option to increase the credit amount up to $250.0 million, subject to certain conditions (“Superior Credit Agreement”). The amounts borrowed under the Superior Credit Agreement bear annual interest at a rate, at Superior’s option, equal to (a) LIBOR plus the applicable margin of 2.00% to 3.25% or (b) the alternate base rate (greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) third-day LIBOR plus 1.00%) plus the applicable margin of 1.00% to 2.25%. The obligations under the Superior Credit Agreement are secured by, among other things, mortgage liens on certain of Superior’s processing plants and gathering systems. The credit agreement provides that if ICE Benchmark Administration no longer reports the LIBOR or the Administrative Agent (as defined therein) determines in good faith that the rate so reported no longer accurately reflects the rate available to the Lender (as defined therein) in the London Interbank Market or if such index no longer exists or accurately reflects the rate available to the Administrative Agent in the London Interbank Market, the Administrative Agent may select a replacement index.

Superior is currently charged a commitment fee of 0.375% on the amount available but not borrowed which varies based on the amount borrowed as a percentage of the total borrowing base. Superior paid $1.7 million in origination, agency, syndication, and other related fees. These fees are being amortized over the life of the Superior Credit Agreement.

 

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The Superior Credit Agreement requires that Superior maintain a consolidated EBITDA to interest expense ratio for the most-recently ended rolling four quarters of at least 2.50 to 1.00, and a funded debt to Consolidated EBITDA ratio of not greater than 4.00 to 1.00. The credit agreement also contains several customary covenants that restrict (subject to certain exceptions) Superior’s ability to incur additional indebtedness, create additional liens on its assets, make investments, pay distributions, sign sale and leaseback transactions, engage in certain transactions with affiliates, engage in mergers or consolidations, sign hedging arrangements, and acquire or dispose of assets. As of June 30, 2019, Superior was in compliance with these covenants.

 

The borrowings under the Superior Credit Agreement will fund capital expenditures and acquisitions, provide general working capital, and for letters of credit for Superior. As of June 30, 2019, we had $7.5 million outstanding borrowings under the Superior Credit Agreement.

On June 27, 2018, Superior and the lenders amended the Superior Credit Agreement to revise certain definitions in the credit agreement.

The Superior Credit Agreement is not guaranteed by Unit.

6.625% Senior Subordinated Notes.  We have an aggregate principal amount of $650.0 million of the Old Notes outstanding. Interest on the Old Notes is payable semi-annually (in arrears) on May 15 and November 15 of each year. The Old Notes mature on May 15, 2021. In issuing the Old Notes, we incurred fees of $14.7 million that are being amortized as debt issuance cost over the life of the Old Notes.

The Old Notes are subject to the Existing Indenture, which has been filed as Exhibits 4.2, 4.3 and 4.4 to the registration statement of which this prospectus forms a part, establishing the terms of and providing for issuing the Old Notes. The guarantors under the Existing Indenture are (i) Unit Drilling Company, (ii) Unit Drilling USA Colombia L.L.C., (iii) Unit Drilling Colombia L.L.C., (iv) Unit Petroleum Company, and (v) 8200 Unit Drive, L.L.C (the “Existing Guarantors”).

Unit, as the parent company, has no significant independent assets or operations. The guarantees of the Old Notes by the Existing Guarantors are full and unconditional, joint and several, subject to certain automatic customary releases and the other conditions and terms set forth in the 2011 Indenture. Effective as of April 3, 2018, Superior is no longer a guarantor of the Old Notes. Excluding Superior, any of our other subsidiaries that are not guarantors under the Old Notes are minor. There are no significant restrictions on our ability to receive funds from any of our subsidiaries through dividends, loans, advances, or otherwise.

We may redeem all or, occasionally, a part of the Old Notes at certain redemption prices, plus accrued and unpaid interest. If a change of control occurs, unless the Company has exercised its right to redeem all the Old Notes, we must offer to repurchase from each holder all or any part of that holder’s Old Notes at a purchase price in cash equal to 101% of the principal amount of the Old Notes plus accrued and unpaid interest to the date of purchase.

As of May 15, 2019, we may redeem the Old Notes at a redemption price equal to 100% of the principal amount of the Old Notes plus accrued and unpaid interest to the redemption date. The 2011 Indenture contains customary events of default. The 2011 Indenture also contains covenants including those that limit our ability and the ability of certain of our subsidiaries to incur or guarantee additional indebtedness; pay dividends on our capital stock or redeem capital stock or subordinated indebtedness; transfer or sell assets; make investments; incur liens; enter into transactions with our affiliates; and merge or consolidate with other companies. We were in compliance with all covenants of the Old Notes as of June 30, 2019.

 

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Long-Term Debt

As of the date indicated, our long-term debt consisted of the following:

 

     June 30,
2019
     December 31,
2018
 
     (In thousands)  

Unit Credit Agreement with an average interest rate of 4.2% at June 30, 2019

   $ 103,500      $ —    

Superior Credit Agreement with an average interest rate of 6.5% at June 30, 2019

     7,500        —    

6.625% senior subordinated notes due 2021

     650,000        650,000  
  

 

 

    

 

 

 

Total principal amount

     761,000        650,000  

Less: unamortized discount

     (1,303      (1,623

Less: debt issuance costs, net

     (3,107      (3,902
  

 

 

    

 

 

 

Total long-term debt

   $ 756,590      $ 644,475  
  

 

 

    

 

 

 

Other Long-Term Liabilities

Other long-term liabilities consisted of the following:

 

     June 30,
2019
     December 31,
2018
 
     (In thousands)  

Asset retirement obligation (ARO) liability

   $ 67,433      $ 64,208  

Workers’ compensation

     12,118        12,738  

Finance lease obligations

     9,400        11,380  

Contract liability

     8,513        9,881  

Separation benefit plans

     9,749        8,814  

Deferred compensation plan

     6,002        5,132  

Gas balancing liability

     3,372        3,331  
  

 

 

    

 

 

 
     116,587        115,484  

Less current portion

     13,887        14,250  
  

 

 

    

 

 

 

Total other long-term liabilities

   $ 102,700      $ 101,234  
  

 

 

    

 

 

 

Estimated annual principal payments under the terms of our long-term debt and other long-term liabilities during the five successive 12-month periods beginning July 1, 2019 (and through 2024) are $13.9 million, $697.5 million, $5.6 million, $10.7 million, and $105.8 million, respectively.

 

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GENERAL TERMS OF THE EXCHANGE OFFER AND CONSENT SOLICITATION

Exchange Offer

We are offering, upon the terms and subject to the conditions set forth in this prospectus, to exchange our New Notes for any and all of our Old Notes validly tendered to the Information and Exchange Agent, and not validly withdrawn, on or before the Expiration Date. The exchange consideration will be in full satisfaction of the principal amount of the Old Notes tendered and accepted in the Exchange Offer. Any accrued and unpaid interest to, but excluding the Closing Date on the Old Notes that are tendered and accepted in the Exchange Offer, will be paid in cash on the date on which the Exchange Offer is completed.

Upon the terms and subject to the conditions of the Exchange Offer, (a) for Old Notes tendered at or before the Early Tender Date, accepted for exchange and not validly withdrawn, holders of Old Notes will receive the applicable Early Exchange Consideration set forth in the table below; and (b) for Old Notes tendered after the Early Tender Date and before the Expiration Date, accepted for exchange and not validly withdrawn, holders of Old Notes will receive the applicable Late Exchange Consideration set forth in such table.

 

Title of Old Notes to be Tendered

  

Early Exchange Consideration per
$1,000 Principal Amount of Old Notes if
Tendered and Not Withdrawn Before
Early Tender Date(1)

  

Late Exchange Consideration per $1,000
Principal Amount of Old Notes if
Tendered After the Early Tender Date
and Not Withdrawn Before the
Expiration Date(1)

6.625% Senior Subordinated Notes due 2021    $         principal amount of New Notes    $         principal amount of New Notes

 

(1)

The New Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. No tender of Existing Notes will be accepted if it results in the issuance of less than $2,000 principal amount of New Notes. If under the terms of the Exchange Offer a tendering holder is eligible to receive New Notes in a principal amount that is not an integral multiple of $1,000, we will round downward such principal amount of New Notes to the nearest integral multiple of $1,000. This rounded amount will be the principal amount of New Notes such tendering holder will receive and no additional cash will be paid in lieu of any principal amount of New Notes not received as a result of rounding down.

Tenders of Old Notes may be withdrawn before the Withdrawal Deadline. Any Old Note withdrawn pursuant to the terms of the Exchange Offer will not thereafter be considered tendered for any purpose unless and until such Old Note is again tendered pursuant to the Exchange Offer.

Our obligation to accept Old Notes that are tendered is subject to the conditions described below under “—Conditions of the Exchange Offer and Consent Solicitation.”

Holders of Old Notes do not have any appraisal or dissenters’ rights in connection with the Exchange Offer. We intend to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC.

We currently expect the New Notes to be recorded at the same carrying value as the Old Notes are reflected in our accounting records on the date of the Exchange Offer, as adjusted for the value associated with embedded derivatives, if any. All costs associated with the Exchange Offer will be expensed.

Consent Solicitation

We are soliciting consents from holders of Old Notes upon the terms and subject to the conditions set forth herein. We intend to obtain the Requisite Consents from holders of the Old Notes.

If the Requisite Consents are delivered (and not revoked) before the Expiration Date, upon or promptly following the later of the Consent Revocation Deadline and the receipt and acceptance of the Requisite Consents,

 

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then the Company, the guarantors thereof, and Wilmington Trust, National Association, as trustee, will execute a supplemental indenture setting forth the Proposed Amendments. Under the terms of the supplemental indenture, the Proposed Amendments will become operative on the Closing Date upon consummation of the Exchange Offer. Each non-consenting holder of Old Notes will be bound by the supplemental indenture. The form of the supplemental indenture is filed as an exhibit to this registration statement of which this prospectus forms a part.

Holders that tender Old Notes pursuant to the Exchange Offer before the Expiration Date will be deemed automatically to have delivered a consent with respect to all such Old Notes.

Holders may not revoke consents except as described under “—Withdrawal of Tenders; Revocation of Consents.”

For a description of the Proposed Amendments, please see “Proposed Amendments to Existing Indenture and Old Notes.”

Any questions or requests for assistance or for additional copies of this prospectus or related documents may be directed to the Information and Exchange Agent at one of its telephone numbers set forth on the last page hereof. A holder may also contact such holder’s broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer.

Early Tender Date, Expiration Date, Extensions, Amendments or Termination

The Early Tender Date for the Exchange Offer is 5:00 p.m., New York City time, on             , 2019, subject to our right to extend that time and date in our sole discretion (which right is subject to applicable law), in which case the Early Tender Date means the latest time and date to which the Early Tender Date is extended. The Expiration Date is 11:59 p.m., New York City time, on             , 2019, subject to our right to extend that time and date in our sole discretion (which right is subject to applicable law), in which case the Expiration Date means the latest time and date to which the Exchange Offer is extended. To extend an Early Tender Date or the Expiration Date, we will notify the Information and Exchange Agent and will make a public announcement thereof before 9:00 a.m., New York City time, on the next business day after the previously scheduled Early Tender Date or Expiration Date, as applicable. During any extension of the Early Tender Date or the Expiration Date, all Old Notes previously tendered in the extended Exchange Offer will remain subject to the Exchange Offer and, subject to compliance with the terms of the Exchange Offer and applicable law, may be accepted for exchange by us. The Exchange Offer may not be extended without extending the Consent Solicitation, and the Consent Solicitation may not be extended without extending the Exchange Offer.

Any waiver, amendment or modification of the Exchange Offer and Consent Solicitation will apply to all Old Notes tendered pursuant to the Exchange Offer and Consent Solicitation. If we make a change that we determine to be material in any of the terms of the Exchange Offer or waive a condition of the Exchange Offer and Consent Solicitation that we determine to be material, we will give oral (to be confirmed in writing) or written notice of that amendment or that waiver to the Information and Exchange Agent and will disseminate additional Exchange Offer and consent documents and extend the Exchange Offer and Consent Solicitation and any withdrawal or revocation rights as we determine necessary and to the extent required by law.

We may terminate the Exchange Offer and Consent Solicitation if any condition is not satisfied on or before the Expiration Date. There can be no assurance that we will exercise our right to extend, terminate, or amend the Exchange Offer and Consent Solicitation.

Announcements

Any extension, termination or amendment of the Exchange Offer and Consent Solicitation will be followed as promptly as practicable by announcement thereof, that announcement in the case of an extension to be issued

 

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no later than 9:00 a.m., New York City time, on the next business day following the previously scheduled Expiration Date. Without limiting the manner in which we may choose to make such announcement, we will not, unless otherwise required by law, have any obligation to publish, advertise, or otherwise communicate any such announcement other than by making a release to an appropriate news agency or another means of announcement that we deem appropriate.

Acceptance of Old Notes for Exchange; Accrual of Interest; Effectiveness of Proposed Amendments

Acceptance of Old Notes for Exchange

If the conditions to the Exchange Offer are satisfied, or if we waive (to the extent permitted) all the conditions that have not been satisfied, we will accept, at the Closing Date and after we receive Agent’s Messages (as defined below) with respect to any and all of the Old Notes tendered for exchange at that time, the Old Notes for exchange by notifying the Information and Exchange Agent of our acceptance. The notice may be oral if we promptly confirm it in writing.

We expressly reserve the right, in our sole discretion, to delay acceptance for exchange of, or exchange of, Old Notes tendered under the Exchange Offer (subject to Rule 14e-1c under the Exchange Act, which requires that we issue the offered consideration or return the Old Notes deposited pursuant to the Exchange Offer promptly after termination or withdrawal of the Exchange Offer), or to terminate the Exchange Offer and not accept for exchange any Old Notes not previously accepted for exchange, (1) if any of the conditions to the Exchange Offer have not been satisfied or, if permitted, validly waived by us, or (2) in order to comply in whole or in part with any applicable law.

In all cases, the New Notes will be issued only after timely receipt by the Information and Exchange Agent of (1) Book-Entry Confirmation of the Old Notes into the Information and Exchange Agent’s account at DTC, and (2) an Agent’s Message. The Exchange Offer is scheduled to expire at the Expiration Date, unless extended by us.

For purposes of the Exchange Offer, we will have accepted for exchange tendered Old Notes, if, as, and when we give oral or written notice to the Information and Exchange Agent of our acceptance of the Old Notes for exchange pursuant to the Exchange Offer. In all cases, the exchange of Old Notes pursuant to the Exchange Offer will be made by the deposit of any exchange consideration with the Information and Exchange Agent, which will act as your agent for the purposes of receiving New Notes from us, and delivering New Notes to you. If, for any reason, acceptance for exchange of, or exchange of, any Old Notes tendered pursuant to the Exchange Offer are delayed (whether before or after our acceptance for exchange of, or exchange of, the Old Notes) or we extend the Exchange Offer or are unable to accept for exchange the Old Notes tendered pursuant to the Exchange Offer, then, without prejudice to our rights set forth herein, we may instruct the Information and Exchange Agent to retain tendered Old Notes and those Old Notes may not be withdrawn, subject to the limited circumstances described in “—Withdrawal of Tenders; Revocation of Consents” below.

We will have the right, which may be waived, to reject the defective tender of Old Notes as invalid and ineffective. If we waive our rights to reject a defective tender of Old Notes, subject to the other terms and conditions set forth in this prospectus, you will be entitled to the New Notes.

We will pay or cause to be paid all transfer taxes with respect to the exchange of any Old Notes unless you instruct us to issue the New Notes, or request that Old Notes not tendered or accepted in the Exchange Offer be returned, to a person other than the tendering holder.

Accrued Interest

If Old Notes are validly tendered and accepted for exchange pursuant to the Exchange Offer, the holders of those Old Notes will be entitled to accrued and unpaid interest on those Old Notes to, but excluding, the date on

 

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which the Exchange Offer is completed. The accrued and unpaid interest on those Old Notes will be paid in cash on the date on which the Exchange Offer is completed, and interest will accrue on the New Notes from and after the Closing Date.

Under no circumstances will any special interest be payable because of any delay in the transmission of New Notes to you with respect to exchanged Old Notes or otherwise.

We will pay all fees and expenses of the Information and Exchange Agent in connection with the Exchange Offer.

Effectiveness of Proposed Amendments

Assuming the Requisite Consents are received, it is expected that the supplemental indenture for the Proposed Amendments will be duly executed and delivered by the Company, the guarantors thereof, and Wilmington Trust, National Association, as trustee, upon or promptly following the later of the Consent Revocation Deadline and the receipt and acceptance of the Requisite Consents and the Proposed Amendments will become operative on the Closing Date, upon consummation of the Exchange Offer.

Procedures for Tendering Old Notes

General

In order to participate in the Exchange Offer, you must tender your Old Notes to the Information and Exchange Agent as described below. It is your responsibility to tender your Old Notes. The procedure by which you may tender or cause to be tendered your Old Notes will depend upon the manner in which you hold the Old Notes, as described below.

If you have any questions or need help in tendering your Old Notes, please contact the Information and Exchange Agent whose addresses and telephone numbers are listed on the back cover page of this prospectus.

Deemed Consent by Tender

The tender of Old Notes pursuant to the Exchange Offer and in accordance with the procedures described in this prospectus will be deemed to automatically constitute delivery of a consent with respect to the Old Notes tendered, except as provided herein. All references to procedures for tendering Old Notes shall include such deemed delivery of consents.

Original Notes Held with DTC by a DTC Participant

Pursuant to authority granted by DTC, if you are a DTC participant that has Old Notes credited to your DTC account and thereby held of record by DTC’s nominee, you may directly tender your Old Notes as if you were the record holder. Accordingly, references herein to record holders include DTC participants with Old Notes credited to their accounts. Within two business days after the date of this prospectus, the Exchange Agent will establish accounts with respect to the Old Notes at DTC for purposes of the Exchange Offer.

Tenders of Old Notes will be accepted only in minimum denominations of $2,000 and multiples of $1,000 thereafter. No alternative, conditional, or contingent tenders will be accepted. Holders who tender less than all their Old Notes must continue to hold Old Notes in at least the minimum authorized denomination of $2,000 principal amount.

Any DTC participant may tender Old Notes by effecting a book-entry transfer of the Old Notes to be tendered in the Exchange Offer into the account of the Exchange Agent at DTC and electronically transmitting its acceptance of the Exchange Offer through DTC’s ATOP procedures for transfer before the Expiration Date of

 

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the Exchange Offer. No letter of transmittal will be used in connection with the Exchange Offer. The valid electronic transmission of acceptance through ATOP shall constitute delivery of Old Notes in connection with the Exchange Offer.

DTC will verify each acceptance transmitted to it, execute a book-entry delivery to the Exchange Agent’s account at DTC and send an agent’s message to the Exchange Agent. An “Agent’s Message” is a message, transmitted by DTC to and received by the Exchange Agent and forming part of a book-entry confirmation, which states that DTC has received an express acknowledgement from a DTC participant tendering Old Notes that the participant has received and agrees to be bound by the terms of the Exchange Offer and that we may enforce the agreement against the participant. DTC participants following this procedure should allow enough time for completion of the ATOP procedures before the Expiration Date of the Exchange Offer.

An Agent’s Message, and any other required documents, must be transmitted to and received by the Exchange Agent before the Expiration Date of the Exchange Offer at its address set forth on page 54. Delivery of these documents to Unit or DTC does not constitute delivery to the Exchange Agent.

Original Notes Held Through a Nominee by a Beneficial Owner

Currently, all of the Old Notes are held in book-entry form and can only be tendered by following the procedures described under “—Procedures for Tendering—Original Notes Held with DTC by a DTC Participant”. However, any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owner’s behalf if it wishes to participate in the Exchange Offer. You should keep in mind that your intermediary may require you to take action with respect to the Exchange Offer a number of days before the Expiration Date in order for such entity to tender Old Notes on your behalf at or before the Expiration Date in accordance with the terms of the Exchange Offer.

Representations, Warranties, Acknowledgments, and Undertakings

By tendering Old Notes through the submission of an electronic acceptance instruction in accordance with the requirements of ATOP, a tendering holder of Old Notes:

 

   

acknowledges receipt of this prospectus (as it may be amended or supplemented from time to time), and agrees to all the terms of the Exchange Offer;

 

   

understands, acknowledges, and agrees that tenders of Old Notes pursuant to the Exchange Offer will, upon our acceptance for exchange of the tendered Old Notes, constitute a binding agreement between the holder and us upon the terms and subject to the conditions of the Exchange Offer;

 

   

irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the holder with respect to any tendered Old Notes (with full knowledge that the Exchange Agent also acts as our agent), with full powers of substitution and revocation (the power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) transfer ownership of such Old Notes on the account books maintained by DTC with all accompanying evidences of transfer and authenticity to, or upon our order and (b) present the Old Notes for transfer on our books and receive all benefits and otherwise exercise all rights of beneficial ownership of the Old Notes, all in accordance with the terms of the Exchange Offer;

 

   

represents and warrants that the holder has full power and authority to tender, sell, assign, and transfer the Old Notes it is tendering and give the consent and that we will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges, and encumbrances and not subject to any adverse claim when the same are accepted by us;

 

   

undertakes, upon request, to execute and deliver any additional documents deemed by us or the Exchange Agent to be necessary or desirable to complete the exchange, assignment, and transfer of the Old Notes tendered thereby;

 

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understands, acknowledges, and agrees that all authority herein conferred or agreed to be conferred through the submission of an electronic acceptance instruction in accordance with the requirements of ATOP will survive the death or incapacity of the holder and any obligation of the holder hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives successors, and assigns of such holder;

 

   

understands, acknowledges, and agrees that for purposes of the Exchange Offer, we shall be deemed to have accepted validly tendered Old Notes when and if we have given oral or written notice thereof to the Exchange Agent;

 

   

understands, acknowledges, and agrees that, subject to, and effective upon, the acceptance for exchange of the Old Notes tendered thereby, the holder thereby sells, assigns, and transfers to, or upon the order of, us, all right, title, and interest in and to the Old Notes as are being tendered thereby upon the terms and subject to the conditions set forth in this prospectus (as the same may be amended or supplemented from time to time); and

 

   

understands, acknowledges, and agrees that, except as stated in this prospectus in connection with a valid withdrawal, the tender of the holders Old Notes is irrevocable.

No alternative, conditional, irregular or contingent tenders will be accepted. By tendering Old Notes through the submission of an electronic acceptance instruction in accordance with the requirements of ATOP, the tendering holders of Old Notes waive any right to receive any notice of the acceptance for exchange of their Old Notes.

Miscellaneous

All questions as to the validity, form, eligibility, including time of receipt, and acceptance and withdrawal of tendered Old Notes will be determined by us in our absolute discretion, which determination is final and binding. We reserve the absolute right to reject any and all tendered Old Notes determined by us not to be in proper form or not to be tendered properly or any tendered Old Notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive, in our absolute discretion, any defects, irregularities, or conditions of tender as to particular Old Notes, whether or not waived in the case of other Old Notes. Our interpretation of the terms and conditions of the Exchange Offer is final and binding on all parties.

Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within the time we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of Old Notes, none of we, the Exchange Agent or any other person will be under any duty to give that notification or incur any liability for failure to give that notification. Tenders of Old Notes will not be deemed to have been made until any defects or irregularities therein have been cured or waived.

In addition, we reserve the right, as set forth above under the caption “—Conditions of the Exchange Offer”, to terminate any Exchange Offer. By tendering, each holder represents and acknowledges to us, among other things, that: it has full power and authority to tender, sell, assign, and transfer the Old Notes it is tendering and give the consent and that we will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges, and encumbrances and not subject to any adverse claim when the same are accepted by us.

No letter of transmittal will be used in connection with the Exchange Offer. The valid electronic transmission of acceptance through ATOP shall constitute delivery of Old Notes in connection with the Exchange Offer. There are no guaranteed delivery procedures for the Exchange Offer.

Withdrawal of Tenders; Revocation of Consents

Your right to withdraw Old Notes tendered (and also thereby revoke the consent deemed delivered with such Old Notes) will expire at 11:59 p.m., New York City time, on             , 2019, subject to our right to extend

 

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that time and date in our sole discretion (which right is subject to applicable law), in which case the Withdrawal Deadline is the latest time and date to which such Withdrawal Deadline is extended. You may not withdraw Old Notes after the Withdrawal Deadline unless we are required by law to permit withdrawal. Consents to the Proposed Amendments may be revoked at any time prior to the Consent Revocation Deadline, but may not be revoked at any time thereafter. Consents may be revoked only by validly withdrawing the associated tendered Old Notes. A valid withdrawal of tendered Old Notes prior to the Consent Revocation Deadline will be deemed to be a concurrent revocation of the related consent to the Proposed Amendments, and a revocation of a consent to the Proposed Amendments prior to the Consent Revocation Deadline will be deemed to be a concurrent withdrawal of the related tendered Old Notes. However, a valid withdrawal of Old Notes after the Consent Revocation Deadline will not be deemed a revocation of the related consents and your consents will continue to be deemed delivered.

Beneficial owners desiring to withdraw a tender of Old Notes previously tendered through the ATOP procedures should contact the DTC participant through which they hold their Old Notes. In order to withdraw Old Notes previously tendered, a DTC participant may, before the Withdrawal Date, withdraw its instruction previously transmitted through ATOP by withdrawing its acceptance through ATOP.

If you withdraw Old Notes, you will have the right to re-tender the Old Notes on or before the Expiration Date in accordance with the procedures described above for tendering outstanding Old Notes.

If we amend or modify the terms of the Exchange Offer and Consent Solicitation, or the information concerning the Exchange Offer and Consent Solicitation, in a manner determined by us to constitute a material change to the holders, we will disseminate additional Exchange Offer materials and extend the period of the Exchange Offer, including any withdrawal rights, to the extent required by law and as we determine necessary. An extension of the Expiration Date will not affect a holder’s withdrawal rights, unless otherwise provided or as required by applicable law.

Conditions of the Exchange Offer and Consent Solicitation

Notwithstanding any other provision herein, our obligation to accept Old Notes in the Exchange Offer is subject to, and conditioned upon, (i) the registration statement of which this prospectus forms a part being declared effective by the SEC and (ii) either (a) the consummation of the amendment to the Unit Credit Agreement or (b) a refinancing or replacement of the Unit Credit Agreement, as described under “Prospectus Summary—Recent Developments—Credit Agreement Amendment”, which conditions will not be waived.

Notwithstanding any other provisions of the Exchange Offer, we will not be required to accept for exchange or to exchange Old Notes tendered pursuant to the Exchange Offer, and may terminate, amend or extend the Exchange Offer or delay or refrain from accepting for exchange, or exchanging, the notes or transferring any exchange consideration, if any of the following shall occur:

 

   

any order, statute, rule, regulation, executive order, stay, decree, judgment or injunction will have been enacted, entered, issued, promulgated or enforced by any court or governmental authority that prohibits or materially restricts the consummation of the Exchange Offer or Consent Solicitation, including any applicable interpretation of the staff of the SEC;

 

   

there shall be instituted or pending any action, proceeding, application, claim or counterclaim by any government or governmental authority or agency, domestic or foreign, or by any other person, domestic or foreign, before any court or governmental regulatory or administrative agency, authority or tribunal, domestic or foreign, that, in our reasonable judgment, following the receipt of advice of counsel, would make the acceptance for exchange of, or exchange of, some or all of the Old Notes pursuant to the Exchange Offer illegal; or

 

   

there shall have occurred or be likely to occur any event affecting our business or financial affairs that, in our reasonable judgment, would prevent or materially restrict or delay consummation of the Exchange Offer and Consent Solicitation.

 

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These conditions are for our benefit and may be asserted by us or may be waived by us, including any action or inaction by us giving rise to any condition, in whole or in part, at any time and from time to time, in our reasonable discretion. We may additionally terminate the Exchange Offer if any condition is not satisfied on or before the Expiration Date. If any of these events occur, subject to the termination rights described above, we may (a) return tendered Old Notes to you, (b) extend the Exchange Offer and Consent Solicitation and retain all tendered Old Notes until the expiration of the extended Exchange Offer and Consent Solicitation, or (c) amend the Exchange Offer and Consent Solicitation in any respect by giving oral or written notice of such amendment to the Information and Exchange Agent and making public disclosure of such amendment to the extent required by law.

We have not made a decision as to what circumstances would lead us to waive any condition, and any such waiver would depend on circumstances prevailing at the time of such waiver. Although we have no present plans or arrangements to do so, we reserve the right to amend, at any time, the terms of the Exchange Offer. We will give holders notice of such amendments as may be required by applicable law.

In addition, this Exchange Offer will not be consummated until the registration statement of which this prospectus is a part has been declared effective by the Securities and Exchange Commission.

Subject to the terms and conditions of the Exchange Offer and Consent Solicitation, we will accept tendered Old Notes for exchange at the Closing Date. If we do not accept tendered Old Notes for exchange in the Exchange Offer, the Proposed Amendments will not become effective.

Soliciting Broker Fee

We have agreed to pay a Soliciting Broker Fee equal to $2.50 for each $1,000 principal amount of Old Notes that are validly tendered and accepted for exchange pursuant to the Exchange Offer to retail brokers that are appropriately designated by their clients to receive this fee; provided that such fee will only be paid with respect to the first $200,000 aggregate principal amount of Old Notes exchanged by an individual beneficial holder. No Soliciting Broker Fees will be paid if the Exchange Offer is not consummated. Soliciting Broker Fees will only be paid to retail brokers upon consummation of the Exchange Offer, and the Soliciting Broker Fees will be payable thereafter upon request by the soliciting retail brokers and presentation of such supporting documentation as we may reasonably request, including the Soliciting Broker Form, a copy of which may be obtained from the Information and Exchange Agent.

Information and Exchange Agent

We have appointed Global Bondholder Services Corporation as the Information and Exchange Agent for the Exchange Offer. You should direct questions, requests for assistance, and requests for additional copies of this prospectus that may accompany this prospectus to such agent addressed as follows:

Global Bondholder Services Corporation

65 Broadway—Suite 404

New York, New York 10006

Attn: Corporate Actions

Banks and Brokers call: (212) 430-3774

Toll-Free: (866)-470-4200

Delivery to an address other than set forth above will not constitute a valid delivery.

 

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Dealer Manager

We have retained BofA Securities, Inc. to act as Dealer Manager in connection with the Exchange Offer and Consent Solicitation and will pay the Dealer Manager a customary fee as compensation for its services. We will also reimburse the Dealer Manager for legal expenses related to the Exchange Offer and Consent Solicitation. The obligations of the Dealer Manager to perform this function are subject to certain conditions. We have agreed to indemnify the Dealer Manager against certain liabilities, including liabilities under the federal securities laws. Questions regarding the terms of the Exchange Offer or the Consent Solicitation may be directed to the Dealer Manager at its address and telephone number set forth below.

The Dealer Manager and its respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The Dealer Manager and its respective affiliates have from time to time provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which it has received or will receive customary fees and expenses. The Dealer Manager was an initial purchaser and an underwriter in connection with the issuance of the Old Notes.

In the ordinary course of their various business activities, the Dealer Manager and its respective affiliates, officers, directors and employees have from time to time, and may in the future, purchase, sell or hold a broad array of investments and actively trade debt or equity securities of the Company or its affiliates (including any of the Old Notes), derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of us (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. To the extent that the Dealer Manager or its affiliates hold Old Notes during the Exchange Offer, they may tender such Old Notes pursuant to the terms of the Exchange Offer. The Dealer Manager and its respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

BofA Securities, Inc.

Attention: Debt Advisory

214 North Tryon Street, 14th Floor

Charlotte, North Carolina 28255

Toll Free: (888) 292-0070 or Collect: (980) 388-4813

 

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DESCRIPTION OF NEW NOTES

The Company will issue the New Notes offered hereby under an Indenture, to be dated as of the Issue Date (the “Indenture”), between the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee (the “Trustee”).

This Description of New Notes is intended to be a summary of the material provisions of the New Notes, the Indenture, the Security Documents and the Intercreditor Agreement, is not complete and is qualified in its entirety by reference to all of those agreements, including the definitions of certain terms therein. You can find the definitions of certain terms used in this description under “—Certain Definitions.” The capitalized terms defined in “—Certain Definitions” below are used in this Description of New Notes as so defined. For purposes of this description, references to “the Company,” “we,” “our” and “us” refer only to Unit Corporation and not to its subsidiaries.

General

The New Notes. The New Notes will:

 

   

initially be issued in an aggregate principal amount of up to $650.0 million;

 

   

be unsubordinated secured obligations of the Company, secured on a second-priority basis by the New Notes Collateral described below;

 

   

mature on the              anniversary of the Issue Date;

 

   

be issued only in registered form, without coupons;

 

   

be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000;

 

   

generally be represented by one or more registered New Notes in global form, but in certain circumstances may be represented by New Notes in definitive form, in each case as described in “Book-entry, Delivery and Form”; and

 

   

be unconditionally guaranteed on an unsubordinated secured basis (as described in “—Subsidiary Guarantees”) (x) on the Issue Date, by each Restricted Subsidiary that is a guarantor under the Existing Subordinated Indenture (including each Restricted Subsidiary that is an obligor under the Senior Credit Agreement) on such date and, in addition, (y) after the Issue Date, by any Restricted Subsidiary required to Guarantee the New Notes to the extent described in “—Certain Covenants—Future Subsidiary Guarantors,” in each case, until any such Subsidiary Guarantee is released in accordance with the terms of the Indenture.

The Company may issue additional notes having identical terms as the New Notes (except for issue date, issue price and first interest payment date) (the “Additional Notes”) up to an amount such that the principal amount of New Notes (including any Additional Notes), shall not exceed $650.0 million in the aggregate. The Company may issue such Additional Notes only if at the time of such issuance, we are in compliance with the covenants contained in the Indenture. Any Additional Notes will be part of the same series as the New Notes offered hereby under the Indenture for all purposes, including waivers, amendments, redemptions and offers to purchase, and will vote on all matters with the holders of the New Notes; provided that Additional Notes will not be issued with the same CUSIP, ISIN or other identifying number as the New Notes offered hereby unless such Additional Notes are fungible with the New Notes offered hereby for U.S. federal income tax purposes.

On April 3, 2018, the Company sold 50% of its ownership interests in Superior Pipeline Company, L.L.C. (“Superior”) to SP Investor Holdings, LLC. Superior, its Subsidiaries and SPC Midstream Operating, L.L.C. will initially be Unrestricted Subsidiaries under the terms of the Indenture and will be the only Unrestricted Subsidiaries of the Company on the Issue Date.

 

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Interest. Interest on the New Notes will:

 

   

accrue at the rate of     % per annum;

 

   

accrue from the date of original issuance or, if interest has already been paid, from the most recent interest payment date;

 

   

be payable in cash semi-annually in arrears on May 15 and November 15 each year, commencing on May 15, 2020;

 

   

be payable to the holders of record on the close of business on May 1 and November 1 immediately preceding the related interest payment dates; and

 

   

be computed on the basis of a 360-day year comprised of twelve 30-day months.

Payments on the New Notes; Paying Agent and Registrar

We will pay principal of, premium, if any, and interest on the New Notes at the office or agency of the Company maintained for such purpose, except that we may, at our option, pay interest on the New Notes by check mailed to holders of the New Notes at their addresses set forth in the security registrar or by wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Trustee at least 15 days prior to the date for payment by the Person entitled thereto. We have initially designated the corporate trust office of the Trustee to act as our paying agent and registrar in respect of the New Notes. We may, however, change any paying agent or registrar without notice to any holder of the New Notes. The Company or any of its Subsidiaries may act in any such capacity.

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

Transfer and Exchange

The New Notes will be issued in registered form and will be transferable only upon the surrender of the New Notes being transferred for registration of transfer. No service charge will be imposed by the Company, the Trustee or the registrar for any registration of transfer or exchange of New Notes, but we may require a holder to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto, other than those expressly provided in the Indenture to be made at the Company’s own expense or without expense or without charge to the holders. The Company will not be required (a) to issue, register the transfer of or exchange any New Notes for a period of 15 days next preceding any mailing of notice of redemption of New Notes or (b) to register the transfer of or exchange any New Notes selected, called or being called for redemption in whole or in part, except, in the case of New Notes to be redeemed in part, the portion thereof not to be so redeemed. The registered holder of a Note will be treated as its owner for all purposes.

Optional Redemption

The Company may redeem all or, from time to time, a part of the New Notes, upon notice as described under “—Selection and Notice”, at a redemption price equal to         % of the principal amount of the New Notes to be redeemed, plus accrued and unpaid interest thereof, to, but excluding, 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).

If the optional redemption date is on or after an interest payment record date and on or before the related interest payment date, the accrued and unpaid interest will be paid to the Person in whose name the Note is registered at the close of business on the record date, and no further interest will be payable to holders whose New Notes will be subject to redemption.

 

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Selection and Notice

In the case of any partial redemption, selection of the New 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 New Notes are listed (to the extent such listing is known to the Trustee) and in compliance with the requirements of DTC; or

 

   

if the New Notes are not listed or such exchange prescribes no method of selection and the New Notes are not held through DTC or DTC prescribes no method of selection, then on a pro rata basis, by lot or by such other method, subject to adjustments so that no Note in an unauthorized denomination remains outstanding after such redemption, as the Trustee in its sole discretion may deem to be fair and appropriate;

provided that no Note of a minimum denomination of $2,000 in original principal amount or less will be redeemed in part.

Notices of redemption will be delivered electronically or mailed by first-class mail at least 15 days but not more than 60 days before the redemption date to each holder of New Notes to be redeemed at such holder’s address appearing in the security register or otherwise in accordance with the applicable procedures of DTC, except that redemption notices may be delivered electronically or mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the New Notes or a satisfaction and discharge of the Indenture.

At the Company’s request (made to the Trustee at least 3 Business Days (or such shorter period as the Trustee may agree) prior to the date such notice is to be sent), the Trustee will give the notice of redemption in the Company’s name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 20 days prior to the redemption date (or such shorter period as the Trustee may agree), an Officers’ Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the Indenture.

If any Note is to be redeemed in part only, the notice of redemption that relates to that Note shall state the portion of the principal amount thereof to be redeemed, in which case a portion of the original Note will be issued in the name of the holder thereof upon cancellation of the original Note. In the case of a global note, an appropriate notation will be made on such Note to decrease the principal amount thereof to an amount equal to the unredeemed portion thereof. Subject to the terms of the applicable redemption notice, New Notes called for redemption become due on the date fixed for redemption. In addition, any notice of redemption may, at the Company’s discretion, be given prior to the completion of a transaction (including an equity offering, incurrence of Indebtedness, a Change of Control or other transaction) and any redemption described in such notice of redemption may, at the Company’s discretion, be subject to one or more conditions precedent described in such notice of redemption. On and after the redemption date, unless the Company defaults in the payment of the redemption price, interest ceases to accrue on New Notes or portions of them called for redemption.

The Company will notify the Trustee of the redemption price with respect to the redemption promptly after the calculation thereof. The Trustee will not be responsible for calculating the redemption price.

Mandatory Redemption or Sinking Fund

The Company is not required to make mandatory redemption or sinking fund payments with respect to the New Notes. However, under certain circumstances, the Company may be required to offer to repurchase New Notes as described under the captions “—Change of Control” and “—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock.” The Company may at any time and from time to time purchase New Notes in the open market or otherwise.

 

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Subsidiary Guarantees

Subject to the provisions of the Indenture, each of the Subsidiary Guarantors will, jointly and severally, fully and unconditionally guarantee, on an unsubordinated secured basis, the Company’s obligations under the New Notes and the Indenture. The Subsidiary Guarantors will be obligated to pay, in addition to the amount stated above, any costs and expenses (including reasonable counsel fees and expenses) Incurred by the Trustee or the holders in enforcing any rights under the Subsidiary Guarantees.

The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Subsidiary Guarantor that are relevant under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under the provisions of the Indenture related to the Subsidiary Guarantees, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. By virtue of this limitation, a Subsidiary Guarantor’s obligation under its Subsidiary Guarantee could be significantly less than amounts payable with respect to the New Notes, or a Subsidiary Guarantor may have effectively no obligation under its Subsidiary Guarantee. See “Risk Factors—Risks Relating to the New Notes and Our Indebtedness—Fraudulent conveyance laws may permit courts to void the guarantors’ guarantees of the New Notes in specific circumstances, which would interfere with any payment under the guarantors’ guarantees.”

The Subsidiary Guarantee of a Subsidiary Guarantor and all of its other obligations under the Indenture will be automatically released:

 

  (1)

in connection with any issuance, sale, disposition or other transfer (including through merger or consolidation) (x) of the Capital Stock of such Subsidiary Guarantor following which such Subsidiary Guarantor is no longer a Subsidiary of the Company or (y) of all or substantially all the assets of the applicable Subsidiary Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, provided that, in the case of each of clause (x) and (y), such issuance, sale, disposition or other transfer is made in compliance with the Indenture, including those provisions described under “—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock,” and all of the obligations of the Subsidiary Guarantor under any Credit Facility and related documentation and any other agreements relating to any other Indebtedness of the Company or its Restricted Subsidiaries terminate upon consummation of such transaction;

 

  (2)

in connection with the defeasance of the New Notes and the Subsidiary Guarantees, as described under “—Defeasance” or the satisfaction and discharge of the Indenture, as described under “—Satisfaction and Discharge”;

 

  (3)

if the Company designates any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with the Indenture; or

 

  (4)

if such Subsidiary Guarantor (i) is released from all of its obligations under the Senior Credit Agreement (other than a release resulting from a payment under its guarantee thereof (it being understood that a release subject to a contingent reinstatement is still considered a release, and if any such obligations or guarantee are so reinstated, such Subsidiary Guarantee shall also be reinstated)) and (ii) does not guarantee any other Indebtedness of the Company or any other Subsidiary Guarantor in excess of $25.0 million.

Ranking

The New Notes will:

 

   

be unsubordinated secured obligations of the Company;

 

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be secured on a second-priority basis by the New Notes Collateral;

 

   

be effectively senior to all unsubordinated unsecured Indebtedness of the Company to the extent of the value of the New Notes Collateral (after giving effect to any senior or prior Liens on the New Notes Collateral);

 

   

without giving effect to security interests, rank equally in right of payment with all existing and future unsubordinated Indebtedness of the Company;

 

   

be senior in right of payment to all existing and future Subordinated Indebtedness of the Company;

 

   

be effectively subordinated to all existing and future Indebtedness of the Company that is either (i) secured by a Lien on the New Notes Collateral that is senior or prior to the second-priority Liens securing the New Notes, including first-priority Liens securing the Senior Credit Agreement and any other first-priority Permitted Liens or (ii) secured by assets that are not part of the New Notes Collateral securing the New Notes, in each case, to the extent of the value of the assets securing such Indebtedness; and

 

   

be structurally subordinated to all existing and future Indebtedness and other obligations, including trade payables, of our Subsidiaries that are not Subsidiary Guarantors.

Each Subsidiary Guarantee will:

 

   

be a unsubordinated secured obligation of the applicable Subsidiary Guarantor;

 

   

be secured on a second-priority basis by the New Notes Collateral;

 

   

be effectively senior to all unsubordinated unsecured Indebtedness of the applicable Subsidiary Guarantor to the extent of the value of the New Notes Collateral (after giving effect to any senior or prior Liens on the New Notes Collateral);

 

   

without giving effect to security interests, rank equally in right of payment with all existing and future unsubordinated Indebtedness of the applicable Subsidiary Guarantor;

 

   

be senior in right of payment to all existing and future Subordinated Indebtedness of the applicable Subsidiary Guarantor;

 

   

be effectively subordinated to all existing and future Indebtedness of the applicable Subsidiary Guarantor that is either (i) secured by a Lien on the New Notes Collateral that is senior or prior to the second-priority Liens securing the New Notes, including first-priority Liens securing the Senior Credit Agreement and any other first-priority Permitted Liens or (ii) secured by assets that are not part of the New Notes Collateral securing the New Notes, in each case, to the extent of the value of the assets securing such Indebtedness; and

 

   

be structurally subordinated to all existing and future Indebtedness and other obligations, including trade payables, of the existing and future Subsidiaries of the applicable Guarantor that are not Subsidiary Guarantors.

Assuming that we had consummated the Exchange Offer with 100% participation by the holders of the Existing Subordinated Notes, as of June 30, 2019:

 

   

in addition to the New Notes and the Subsidiary Guarantees, the Company and the Subsidiary Guarantors would have had $113.25 million of unsubordinated Indebtedness outstanding (excluding intercompany liabilities), of which $113.25 million would have been Indebtedness outstanding under our Senior Credit Agreement and secured by a first-priority Lien;

 

   

the Company and the Subsidiary Guarantors would have had no Subordinated Indebtedness outstanding; and

 

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our non-guarantor Subsidiaries (including Unrestricted Subsidiaries) would have had approximately $188.65 million of total indebtedness outstanding (excluding intercompany liabilities).

Although the Indenture will limit the amount of Indebtedness that we and our Restricted Subsidiaries may Incur, the Indenture permits us and our Restricted Subsidiaries to incur a significant amount of additional Indebtedness, including Indebtedness that may be secured by a first-priority Lien on the New Notes Collateral or by a Lien on certain assets that do not constitute New Notes Collateral. The Indenture does not limit our Unrestricted Subsidiaries from incurring Indebtedness in any manner. See “—Certain Covenants—Limitation on Indebtedness,” “—Certain Covenants—Limitation on Liens” and the definition of “Permitted Liens.”

Security for the New Notes

The Note Obligations will be secured by second-priority Liens on the New Notes Collateral granted to the Collateral Trustee for the benefit of the holders of the New Notes and the other Parity Lien Obligations. For all purposes of this Description of New Notes and the Indenture, all references to “second-priority” Liens means Liens that are junior in priority to the Liens securing Priority Lien Obligations.

Except as otherwise provided in the Intercreditor Agreement, the Indenture will provide that the New Notes Collateral will consist of substantially all of the assets of the Company and the Subsidiary Guarantors that secure the Senior Credit Agreement, which currently consists of (i) mortgage liens on no less than 80% of the discounted present value of the Company’s proved developed and producing oil and gas properties evaluated in the most recently delivered reserve report pursuant to the Senior Credit Agreement and (ii) a pledge of the Company’s 50% equity interests in Superior; provided that the New Notes Collateral does not include any Parity Lien Excluded Collateral.

Certain security interests or liens in the New Notes Collateral may not be in place on the date of the Indenture or may not be perfected on the Issue Date. The Indenture will provide for a 90-day period following the Issue Date for the Company to deliver, and file or submit to the appropriate government agency or office for recording, Mortgages establishing Parity Liens on all real property that constitutes the New Notes Collateral. See “Risk Factors—Security over certain collateral, including all mortgages on oil and gas properties, on which a lien in favor of the Collateral Trustee is required, may not be perfected on the Closing Date.”

The Security Documents providing for the Parity Liens will be substantially in the form of the corresponding instruments providing for the Priority Liens, with such changes as are reasonably necessary to reflect the terms of the Intercreditor Agreement and with such deletions or modifications of representations, warranties and covenants as are customary with respect to security documents establishing Liens securing publicly traded debt securities.

The Intercreditor Agreement

On the date of the Indenture, the Collateral Trustee will enter into the Intercreditor Agreement with the Priority Lien Collateral Agent, to provide for, among other things, the junior nature of the Parity Liens with respect to Priority Liens. Although the holders of the New Notes will not be parties to the Intercreditor Agreement, by their acceptance of the New Notes they will agree to be bound thereby. The Intercreditor Agreement will permit the Priority Lien Obligations and the Parity Lien Obligations to be refunded, refinanced or replaced by certain permitted refinancing indebtedness without affecting the Lien priorities set forth in the Intercreditor Agreement, in each case without the consent of any holder of Priority Lien Obligations or Parity Lien Obligations (including holders of the New Notes).

Lien Priorities

The Intercreditor Agreement will provide that any Priority Lien on any Collateral held for the benefit of any Priority Lien Secured Party shall be senior in right, priority, operation, payment from the proceeds of any

 

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disposition of such Collateral (whether received in connection with any disposition, liquidation, enforcement or exercise of any rights or remedies with respect to any portion of the Collateral or otherwise, whether in any Insolvency or Liquidation Proceeding or otherwise), effect and in all other respects to any and all Parity Liens on any Collateral.

The provisions described under the caption “—Lien Priorities” are intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future Priority Lien Secured Party and each present and future Parity Lien Secured Party. No other Person will be entitled to rely on, have the benefit of or enforce those provisions.

Limitation on Enforcement of Remedies

The Intercreditor Agreement will provide that, except as provided below, prior to the Discharge of Priority Lien Obligations, neither the Parity Lien Collateral Trustee nor any Parity Lien Secured Party may commence any judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, or take any other action available to it in respect of, any Collateral under any Parity Lien Security Document, applicable law or otherwise (including, but not limited to, any right of set off). Prior to the Discharge of Priority Lien Obligations, the Priority Lien Collateral Agent will have the exclusive right to take any such actions or exercise any such remedies with respect to the Collateral, in each case without consultation with or consent of the Parity Lien Collateral Trustee or any other Parity Lien Secured Party. Until the Discharge of Priority Lien Obligations, the Priority Lien Collateral Agent will have the exclusive right to deal with that portion of the Collateral consisting of deposit accounts and securities accounts, including exercising rights under control agreements with respect to such accounts. The Intercreditor Agreement will provide that, notwithstanding the foregoing, the Parity Lien Collateral Trustee may, but will have no obligation to take all such actions (not adverse to the Priority Liens or the rights of the Priority Lien Collateral Agent and the Priority Lien Secured Parties) it deems necessary to perfect or continue the perfection of the Parity Liens in the Collateral or to create, preserve or protect (but not enforce) the Parity Liens in the Collateral (other than the Parity Lien Excluded Collateral).

Nothing in the Intercreditor Agreement limits the right or ability of the Parity Lien Secured Parties to (i) purchase (by credit bid or otherwise) all or any portion of the Collateral in connection with any enforcement of remedies by the Priority Lien Collateral Agent (or, to the extent permitted in the Intercreditor Agreement, by the Parity Lien Collateral Trustee) to the extent that, and so long as, in the case of a credit bid, the Priority Lien Secured Parties receive payment in full in cash of all Priority Lien Obligations after giving effect thereto, (ii) file a proof of claim with respect to the Parity Lien Obligations or (iii) file any responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding, or other pleading objecting to or otherwise seeking the disallowance of the claims or Liens of any Parity Lien Secured Parties (other than claims or Liens on or respecting any Parity Lien Excluded Collateral, none of which claims or Liens are permitted under the Intercreditor Agreement).

Standstill

Notwithstanding the foregoing, prior to the Discharge of Priority Lien Obligations, both before and during an Insolvency or Liquidation Proceeding, (i) subject to the immediately following clause (ii), the Parity Lien Collateral Trustee and the Parity Lien Secured Parties shall not commence any action or proceeding (including any Insolvency or Liquidation Proceeding) to enforce or exercise any rights or remedies with respect to any Collateral, and (ii) after a period of 180 days has elapsed (which period will be tolled during any period in which (a) the Priority Lien Collateral Agent is diligently pursuing the enforcement or exercise of any rights or remedies with respect to a material portion of, or substantially all of the Collateral, (b) the Priority Lien Collateral Agent is not entitled, on behalf of the Priority Lien Secured Parties, to enforce or exercise any rights or remedies with respect to any Collateral as a result of (1) any injunction issued by a court of competent jurisdiction or (2) the

 

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automatic stay or any other stay or prohibition in any Insolvency or Liquidation Proceeding, (c) the Parity Lien purchasers are exercising the purchase option available under the Intercreditor Agreement or (d) if the acceleration of the Parity Lien Obligations (if any) is rescinded in accordance with the terms of the Indenture or otherwise) since the earlier of (X) the date on which the Parity Lien Collateral Trustee has delivered to the Priority Lien Collateral Agent written notice of the acceleration of any Parity Lien Debt, and (Y) the date on which the Parity Lien Collateral Trustee has delivered to the Priority Lien Collateral Agent written notice of the existence of any “Event of Default” (as defined in any Parity Lien Document) under any Parity Lien Document (the “Parity Lien Standstill Period”), the Parity Lien Collateral Trustee and the Parity Lien Secured Parties may enforce or exercise any rights or remedies with respect to any Collateral; provided, however, that notwithstanding the expiration of the Parity Lien Standstill Period or anything in the Collateral Trust Agreement or any Parity Lien Document to the contrary, in no event may the Parity Lien Collateral Trustee or any other Parity Lien Secured Party enforce or exercise any rights or remedies with respect to any Collateral, or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding, if the Priority Lien Collateral Agent or any other Priority Lien Secured Party shall have commenced, and shall be diligently pursuing (or, if necessary to permit the commencement and pursuit thereof, shall have sought or requested relief from, or modification of, the automatic stay or any other stay or prohibition in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof), the enforcement or exercise of any rights or remedies (including permitting any disposition) with respect to the Collateral or any such action or proceeding (prompt written notice thereof to be given to the Parity Lien Representatives by the Priority Lien Collateral Agent); provided, further, that, at any time after the expiration of the Parity Lien Standstill Period, if neither the Priority Lien Collateral Agent nor any other Priority Lien Secured Party shall have commenced and be diligently pursuing (or shall have sought or requested relief from, or modification of, the automatic stay or any other stay or other prohibition in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof) the enforcement or exercise of any rights or remedies (including permitting any disposition) with respect to any material portion of the Collateral or any such action or proceeding in respect of such rights or remedies, then the Parity Lien Collateral Trustee shall be free to commence (or refrain from commencing) the enforcement or exercise of any rights or remedies with respect to any material portion of the Collateral, or any such action or proceeding in respect of such rights and remedies, and for so long as the Parity Lien Collateral Trustee is diligently pursuing such rights or remedies, neither the Priority Lien Collateral Agent nor any Priority Lien Secured Party shall take any action of a similar nature with respect to such Collateral or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding; provided, further, that, if the Parity Lien Collateral Trustee or any Parity Lien Secured Party exercises rights or remedies in accordance with the foregoing, then such Person shall promptly give written notice thereof to the Priority Lien Collateral Agent and any collection by such Person as a result thereof shall be subject to the second paragraph under the caption “—No Interference; Payment Over.”

No Interference; Payment Over

The Intercreditor Agreement will provide that the Parity Lien Collateral Trustee and each Parity Lien Secured Party:

 

  (1)

prior to the Discharge of Priority Lien Obligations, will not take or cause to be taken any action the purpose or effect of which is, or could be, to make any Parity Lien pari passu with, or to give such Parity Lien Secured Party any preference or priority relative to, any Priority Lien with respect to the Collateral or any part thereof or any proceeds therefrom (including from any disposition);

 

  (2)

will not challenge or question in any proceeding the validity or enforceability of any Priority Lien Obligations or Priority Lien Document or the validity, attachment, perfection or priority of any Priority Lien, or the validity or enforceability of the priorities, rights or duties established by the provisions of the Intercreditor Agreement;

 

  (3)

will not take or cause to be taken any action the purpose or effect of which is, or could be, to interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the Collateral by any Priority Lien Secured Party in any enforcement action or otherwise;

 

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  (4)

will have no right to (A) direct the Priority Lien Collateral Agent or any other Priority Lien Secured Party to exercise any right, remedy or power with respect to any Collateral or (B) consent to the exercise by the Priority Lien Collateral Agent or any other Priority Lien Secured Party of any right, remedy or power with respect to any Collateral;

 

  (5)

will not institute any suit or assert in any suit or Insolvency or Liquidation Proceeding, any claim against the Priority Lien Collateral Agent or any Priority Lien Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to, and neither the Priority Lien Collateral Agent nor any other Priority Lien Secured Party will be liable for, any action taken or omitted to be taken by the Priority Lien Collateral Agent or other Priority Lien Secured Party with respect to any Priority Lien Collateral;

 

  (6)

will not attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of the Intercreditor Agreement;

 

  (7)

will not object to forbearance by the Priority Lien Collateral Agent or any Priority Lien Secured Party; and

 

  (8)

prior to the Discharge of Priority Lien Obligations, will not assert, and thereby waive, to the fullest extent permitted by law, any right to demand, request, plead or otherwise assert or claim the benefit of any marshalling, appraisal, valuation or other similar right that may be available under applicable law with respect to the Collateral or any similar rights a junior secured creditor may have under applicable law.

The Intercreditor Agreement will provide that if the Parity Lien Collateral Trustee or any other Parity Lien Secured Party obtains possession of any Collateral or realizes any proceeds or payment in respect of any Collateral, pursuant to the exercise of any rights or remedies with respect to the Collateral under any Parity Lien Security Document or by the exercise of any rights available to it under applicable law or in any Insolvency or Liquidation Proceeding, or from any disposition of any Priority Lien Collateral, at any time prior to the Discharge of Priority Lien Obligations, to the extent the Priority Lien Obligations are secured, or intended to be secured, by such Collateral, then it will hold such Collateral, proceeds or payment in trust for the Priority Lien Collateral Agent and the Priority Lien Secured Parties and transfer such Collateral, proceeds or payment, as the case may be, to the Priority Lien Collateral Agent as promptly as practicable. The Parity Lien Collateral Trustee on behalf of the Parity Lien Secured Parties will further agree that if, at any time, it obtains written notice that all or part of any payment with respect to any Priority Lien Obligations previously made shall be rescinded for any reason whatsoever, it will promptly pay over to the Priority Lien Collateral Agent any payment received by it and then in its possession or under its direct control in respect of any such Collateral secured by Priority Liens and shall promptly turn any such Collateral then held by them over to the Priority Lien Collateral Agent, in each case, for application in accordance with the section below entitled “—Application of Proceeds” to the extent such application is required by such section, and the provisions set forth in the Intercreditor Agreement will be reinstated as if such payment had not been made, until the Discharge of Priority Lien Obligations. All Parity Liens will remain attached to, and enforceable against all proceeds so held or remitted, subject to the priorities set forth in the Intercreditor Agreement. The Intercreditor Agreement will provide that, prior to an Insolvency or Liquidation Proceeding, the provisions described in this paragraph will not apply to any proceeds of Collateral realized in a transaction not prohibited by the Priority Lien Documents and as to which the possession or receipt thereof by the Parity Lien Collateral Trustee or any other Parity Lien Secured Party is otherwise permitted by both the Priority Lien Documents and the Intercreditor Agreement.

Automatic Release of Parity Liens

The Intercreditor Agreement will provide that, prior to the Discharge of Priority Lien Obligations, the Parity Lien Collateral Trustee for itself and on behalf of each other Parity Lien Secured Party will agree that, if the Priority Lien Secured Parties release their Lien on any Collateral, the Parity Lien on such Collateral will terminate and be released automatically and without further action if such release is (i) effected in connection

 

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with a sale, transfer or other disposition of Collateral (other than to the Company or its Subsidiaries) in a transaction or under a circumstance that is expressly permitted under the Parity Lien Documents, (ii) effected in connection with the Priority Lien Collateral Agent’s foreclosure upon, or other exercise of rights or remedies with respect to, such Collateral, (iii) effected in connection with a sale or other disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code or other Bankruptcy Law if the Priority Lien Secured Parties shall have consented to such sale or disposition of such Collateral or (iv) expressly permitted under the Priority Lien Documents or otherwise consented to by the requisite Priority Lien Secured Parties under the Priority Lien Documents; provided, in the case of each of clauses (i), (ii), (iii) or (iv), the Parity Liens on such Collateral shall remain in place and shall attach in the same rank and priority (and, prior to the Discharge of Priority Lien Obligations, shall remain subject and subordinate to all Priority Liens securing Priority Lien Obligations) with respect to any proceeds of a sale, transfer or other disposition of Collateral not paid to the Priority Lien Secured Parties or that remain after the Discharge of Priority Lien Obligations.

Agreements With Respect to Insolvency or Liquidation Proceedings

The Intercreditor Agreement is a “subordination agreement” under Section 510(a) of the Bankruptcy Code and shall continue in full force and effect, notwithstanding the commencement of any Insolvency or Liquidation Proceeding by or against Unit or any Subsidiary Guarantor. If Unit or any of its Subsidiary Guarantors become subject to any Insolvency or Liquidation Proceeding and, as debtor(s)-in-possession, or if any receiver or trustee for such Person or Persons, moves for approval of financing (“DIP Financing”) to be provided by one or more lenders under Section 364 of the Bankruptcy Code and/or the use of Collateral that constitutes cash collateral under Section 363 of the Bankruptcy Code, the Intercreditor Agreement will provide that none of the Parity Lien Collateral Trustee nor the Parity Lien Secured Parties will raise any objection, contest or oppose, and will waive any claim such Person may now or hereafter have, to any such financing or to the Liens on the Collateral securing the same (“DIP Financing Liens”), or to any use, sale or lease consistent with the Intercreditor Agreement of cash collateral or to any grant of administrative expense priority under Section 364 of the Bankruptcy Code, unless (1) the Priority Lien Collateral Agent or the Priority Lien Secured Parties oppose or object to such DIP Financing or such DIP Financing Liens or such use of cash collateral or (2) the terms of such DIP Financing provide for the sale of a substantial part of the Collateral or require the confirmation of a plan of reorganization containing specific terms or provisions (other than repayment in cash of such DIP Financing on the effective date thereof or the subordination of Liens on Collateral in accordance with the Intercreditor Agreement). To the extent such DIP Financing Liens are senior to, or rank pari passu with, the Priority Liens, the Parity Lien Collateral Trustee will, for itself and on behalf of the Parity Lien Secured Parties, subordinate the Parity Liens on the Collateral to the Priority Liens, and to such DIP Financing Liens, so long as the Parity Lien Collateral Trustee, on behalf of the Parity Lien Secured Parties, retains Liens on all the Collateral, including proceeds thereof arising after the commencement of any Insolvency or Liquidation Proceeding, with the same priority relative to the Priority Liens as existed prior to the commencement of the case under the Bankruptcy Code.

The Intercreditor Agreement will provide that, prior to the Discharge of Priority Lien Obligations, without the consent of the Priority Lien Collateral Agent, in its sole discretion, the Parity Lien Collateral Trustee for itself and on behalf of the other Parity Lien Secured Parties agrees not to propose or enter into any DIP Financing or support any DIP Financing except as permitted under the Intercreditor Agreement. The Parity Lien Collateral Trustee, for itself and on behalf of each Parity Lien Secured Party, will not object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) a sale or other disposition, a motion to sell or dispose or the bidding procedure for such sale or disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if (1) the Priority Lien Collateral Agent or the requisite holders of Priority Lien Obligations shall have consented to such sale or disposition of such Collateral and (2) all Parity Liens on the Collateral securing the Parity Lien Obligations shall attach to the proceeds of such sale in the same respective priorities as set forth in the Intercreditor Agreement with respect to the Collateral. The Intercreditor Agreement will further provide that the Parity Lien Collateral Trustee, for itself and on behalf of the other Parity Lien Secured Parties will waive any claim that may be had

 

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against the Priority Lien Collateral Agent or any other Priority Lien Secured Party arising out of any DIP Financing Liens (granted in a manner that is consistent with the Intercreditor Agreement), request for adequate protection or administrative expense priority under Section 364 of the Bankruptcy Code. The Intercreditor Agreement will further provide that neither the Parity Lien Collateral Trustee nor any other Parity Lien Secured Party will file or prosecute in any Insolvency or Liquidation Proceeding any motion for adequate protection (or any comparable request for relief) based upon their interest in the Collateral, and will not object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) (a) any request by the Priority Lien Collateral Agent or any Priority Lien Secured Party for adequate protection or (b) any objection by the Priority Lien Collateral Agent or any Priority Lien Secured Party to any motion, relief, action or proceeding based on the Priority Lien Collateral Agent or any Priority Lien Secured Party claiming a lack of adequate protection, except that the Parity Lien Secured Parties may:

 

  1)

freely seek and obtain relief granting adequate protection solely in the form of a replacement Lien co-extensive in all respects with, but subordinated to, and with the same relative priority to the Priority Liens as existed prior to the commencement of the Insolvency or Liquidation Proceeding, all Liens granted in the Insolvency or Liquidation Proceeding to, or for the benefit of, the Priority Lien Secured Parties; and

 

  2)

freely seek and obtain any relief upon a motion for adequate protection (or any comparable relief), without any condition or restriction whatsoever, at any time after the Discharge of Priority Lien Obligations.

The Intercreditor Agreement will additionally provide that the Parity Lien Collateral Trustee and each other Parity Lien Secured Party will waive any claim that may be had against the Priority Lien Collateral Agent or any other Priority Lien Secured Party (or their representatives) arising out of any election by the Priority Lien Collateral Agent or any Priority Lien Secured Party in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code.

In any Insolvency or Liquidation Proceeding, without the prior consent of the Priority Lien Collateral Agent, neither the Parity Lien Collateral Trustee nor any other Parity Lien Secured Party shall, prior to the Discharge of Priority Lien Obligations, support or vote to accept any plan of reorganization or disclosure statement of Unit or any Subsidiary Guarantor unless (x) such plan is accepted by the Priority Lien Secured Parties in accordance with Section 1126(c) of the Bankruptcy Code or otherwise provides for the payment in full in cash of all Priority Lien Obligations (including all post-petition interest approved by the bankruptcy court, fees and expenses and cash collateralization of all letters of credit) on the effective date of such plan of reorganization, or (y) such plan provides on account of the Priority Lien Secured Parties for the retention by the Priority Lien Collateral Agent, for the benefit of the Priority Lien Secured Parties, of the Liens on the Collateral securing the Priority Lien Obligations, and on all proceeds thereof whenever received, and such plan also provides that any Liens retained by, or granted to, the Parity Lien Collateral Trustee are only on property securing the Priority Lien Obligations and shall have the same relative priority with respect to the Collateral or other property, respectively, as provided in the Intercreditor Agreement with respect to the Collateral. Except as previously provided in the Intercreditor Agreement, the Parity Lien Secured Parties shall remain entitled to vote their claims in any such Insolvency or Liquidation Proceeding.

Neither the Parity Lien Collateral Trustee nor any other Parity Lien Secured Party shall seek relief, pursuant to Section 362(d) of the Bankruptcy Code or otherwise, from the automatic stay of Section 362(a) of the Bankruptcy Code or from any other stay in any Insolvency or Liquidation Proceeding in respect of the Collateral without the prior written consent of the Priority Lien Collateral Agent.

Neither the Parity Lien Collateral Trustee nor any Parity Lien Secured Party shall oppose or seek to challenge any claim by the Priority Lien Collateral Agent or any other Priority Lien Secured Party for allowance or payment in any Insolvency or Liquidation Proceeding of Priority Lien Obligations consisting of post-petition interest, fees or expenses or cash collateralization of all letters of credit to the extent of the value of the Priority Liens (it being understood that such value will be determined without regard to the existence of the Parity Liens).

 

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Neither the Priority Lien Collateral Agent nor any Priority Lien Secured Party shall oppose or seek to challenge any claim by the Parity Lien Collateral Trustee or any Parity Lien Secured Party for allowance or payment in any Insolvency or Liquidation Proceeding of Parity Lien Obligations consisting of post-petition interest, fees or expenses to the extent of the value of the Parity Liens on the Collateral; provided that if the Priority Lien Collateral Agent or any other Priority Lien Secured Party shall have made any such claim, such claim (i) shall have been approved or (ii) will be approved contemporaneously with the approval of any such claim by the Parity Lien Collateral Trustee or any Parity Lien Secured Party.

Without the express written consent of the Priority Lien Collateral Agent, none of the Parity Lien Collateral Trustee or any other Parity Lien Secured Party shall (or shall join with or support any third party to), in any Insolvency or Liquidation Proceeding involving Unit or any Subsidiary Guarantor, (i) oppose, object to or contest the determination of the extent of any Liens held by any Priority Lien Secured Party or the value of any claims of any such holder under Section 506(a) of the Bankruptcy Code or (ii) oppose, object to or contest the payment to the Priority Lien Secured Parties of interest, fees or expenses under Section 506(b) of the Bankruptcy Code.

Until the Discharge of Priority Lien Obligations has occurred, notwithstanding anything to the contrary contained in the Intercreditor Agreement, if in any Insolvency or Liquidation Proceeding a determination by a court of competent jurisdiction is made that any Priority Lien encumbering any Collateral is not enforceable for any reason, the Parity Lien Collateral Trustee, for itself and on behalf of the Parity Lien Secured Parties agrees that, any distribution or recovery they may receive in respect of such Collateral shall be segregated and held in trust and forthwith paid over to the Priority Lien Collateral Agent for the benefit of the Priority Lien Secured Parties, to be applied in accordance with section below entitled Application of Proceeds, in the same form as received without recourse, representation or warranty (other than a representation of the Parity Lien Collateral Trustee that it has not otherwise sold, assigned, transferred or pledged any right, title or interest in and to such distribution or recovery), but with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. Until Discharge of Priority Lien Obligations has occurred, the Parity Lien Collateral Trustee, for itself and on behalf of the Parity Lien Secured Parties, appoint the Priority Lien Collateral Agent, and any officer or agent of the Priority Lien Collateral Agent, with full power of substitution, the attorney-in-fact of the Parity Lien Collateral Trustee and the Parity Lien Secured Parties for the limited purpose of carrying out the provisions related to this paragraph and taking any action and executing any instrument that the Priority Lien Collateral Agent may deem necessary or advisable to accomplish the purposes of this paragraph, which appointment is irrevocable and coupled with an interest.

The Parity Lien Collateral Trustee and the Parity Lien Secured Parties will agree that the Priority Lien Collateral Agent shall have the exclusive right to credit bid the Priority Lien Obligations and further that none of the Parity Lien Collateral Trustee or any other Parity Lien Secured Party shall (or shall join with or support any third party in opposing, objecting to or contesting, as the case may be) oppose, object to or contest such credit bid by the Priority Lien Collateral Agent.

Without the consent of the Priority Lien Collateral Agent in its sole discretion, the Parity Lien Collateral Trustee, for itself and on behalf of the Parity Lien Secured Parties agrees it will not file an involuntary bankruptcy claim or seek the appointment of an examiner or a trustee.

The Parity Lien Collateral Trustee, for itself and on behalf of each other Parity Lien Secured Party, waives any right to assert or enforce any claim under Section 506(c) or 552 of the Bankruptcy Code as against any Priority Lien Secured Party or any of the Collateral except as expressly permitted by the Intercreditor Agreement.

Amendment to Parity Lien Documents

Prior to the Discharge of Priority Lien Obligations, without the prior written consent of the Priority Lien Collateral Agent, no Parity Lien Document may be amended, supplemented, restated or otherwise modified and/or refinanced or entered into to the extent such amendment, supplement, restatement or modification and/or refinancing, or the terms of any new Parity Lien Document would (i) adversely affect the lien priority rights of

 

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the Priority Lien Secured Parties or the rights of the Priority Lien Secured Parties to receive payments owing pursuant to the Priority Lien Documents, (ii) except as otherwise provided for in the Intercreditor Agreement, add any Liens on any additional property granted under the Parity Lien Security Documents, unless such additional property is added as Collateral under the Priority Lien Documents or (iii) contravene the provisions of the Intercreditor Agreement or the Priority Lien Documents then in effect (and if any such amendment, supplement, restatement or modification of any Parity Lien Document, and/or any refinancing of any Parity Lien Obligation, does contravene any provision of this Agreement or the Priority Lien Documents then in effect, then such amendment, supplement, restatement, modification and/or any refinancing shall be automatically hereby rendered null, void and of no further force and effect ab initio).

Purchase Option

Notwithstanding anything in the Intercreditor Agreement to the contrary, on or at any time after (i) the commencement of an Insolvency or Liquidation Proceeding, (ii) the acceleration of the Priority Lien Obligations, (iii) the exercise or undertaking of any rights of set-off in respect of any Collateral by any Priority Lien Secured Parties under any Priority Lien Document, (iv) the occurrence of any event of default based on non-payment of principal under any Priority Lien Document or (v) any sale or disposition consented to by the requisite holders of Priority Lien Obligations of any Collateral under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code or the delivery of any notice of such a sale, each of the Parity Lien Secured Parties and each of their respective designated Affiliates (the “Initial Parity Lien Purchasers”) will have the right, at their sole option and election (but will not be obligated), at any time upon prior written notice to the Priority Lien Collateral Agent, to purchase (in the manner set forth in the paragraph below) from the Priority Lien Secured Parties both of the following in whole but not in part (a) all (but not less than all) Priority Lien Obligations (including unfunded commitments), and (b) all (but not less than all) of any loans provided by the Priority Lien Secured Parties in connection with a DIP Financing that are outstanding on the date of such purchase (the “Purchasable Obligations”). Promptly following the receipt of such notice, the Priority Lien Collateral Agent will deliver to the Parity Lien Collateral Trustee and the Parity Lien Purchaser Representative (or if there is no Parity Lien Purchase Representative, the Initial Parity Lien Purchasers) a statement (the “Initial Purchase Option Statement”) of the respective amounts of Priority Lien Debt and other Priority Lien Obligations and DIP Financing provided by any of the Priority Lien Secured Parties, if any, then outstanding and the amount of the cash collateral requested by the Priority Lien Collateral Agent to be delivered pursuant to clause (2) of the immediately following paragraph. The right to purchase provided for in this paragraph will expire unless (and can only be exercised by the Initial Parity Lien Purchasers who), within 10 Business Days after the receipt by the Parity Lien Secured Parties and the Parity Lien Purchaser Representative (or if there is no Parity Lien Purchaser Representative, the Initial Parity Lien Purchasers) of such notice from the Priority Lien Collateral Agent, the Parity Lien Purchaser Representative or Parity Lien Secured Parties and each of their respective designated Affiliates (the “Parity Lien Purchasers”) delivers to the Priority Lien Collateral Agent an irrevocable commitment of the Parity Lien Purchasers to purchase the Purchasable Obligations in their entirety and to otherwise complete such purchase on the terms set forth under this provision.

On the date specified by the Parity Lien Purchaser Representative (on behalf of the Parity Lien Purchasers) in such irrevocable commitment (which shall not be less than five Business Days, nor more than 20 Business Days, after the receipt by the Priority Lien Collateral Agent of such irrevocable commitment), the Priority Lien Secured Parties shall sell to the Parity Lien Purchasers the entirety of the Purchasable Obligations subject to any required approval of any Governmental Authority then in effect, if any, and only if on the date of such sale, the Priority Lien Collateral Agent receives the following:

 

  1)

payment in cash, as the purchase price for all Purchasable Obligations sold in such sale, of an amount equal to the full par value amount of the Purchasable Obligations (other than outstanding letters of credit as referred to in the clause (2) of this paragraph) (including principal, interest, fees, reasonable attorneys’ fees and legal expenses, but excluding contingent indemnification obligations for which no claim or demand for payment has been made at or prior to such time); provided that, in the case of Rate

 

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  Management Obligations that constitute Priority Lien Obligations, the Parity Lien Purchasers shall cause the applicable agreements governing such Rate Management Obligations to be assigned and novated or, if such agreements have been terminated, such purchase price shall include an amount equal to the sum of any unpaid amounts then due in respect of such Rate Management Obligations, calculated in accordance with the terms of the applicable agreement governing the Rate Management Obligations and after giving effect to any netting arrangements;

 

  2)

a cash collateral deposit in such amount as the Priority Lien Collateral Agent determines is reasonably necessary to secure the payment of any outstanding letters of credit constituting Priority Lien Obligations that may become due and payable after such sale (but not in any event in an amount greater than one hundred five percent (105%) of the amount then reasonably estimated by the Priority Lien Collateral Agent to be the aggregate outstanding amount of such letters of credit at such time), which cash collateral shall be (A) held by the issuer of such letters of credit as security solely to reimburse the issuers of such letters of credit that become due and payable after such sale and any fees and expenses incurred in connection with such letters of credit and (B) returned to the Parity Lien Purchaser Representative (except as may otherwise be required by applicable law or any order of any court or other Governmental Authority) promptly after the expiration or termination from time to time of all payment contingencies affecting such letters of credit; and

 

  3)

any agreements, documents or instruments which the Priority Lien Collateral Agent may reasonably request pursuant to which the Parity Lien Purchaser Representative and the Parity Lien Purchasers in such sale expressly waive any and all claims against the Priority Lien Collateral Agent and the other Priority Lien Secured Parties (other than for a certain breach of a representation referred to two paragraphs below) arising out of the Intercreditor Agreement and the transactions contemplated thereby with respect to the Purchasable Obligations as a result of exercising the purchase option provided for by this section, and the Parity Lien Purchasers assume and adopt all of the obligations of the Priority Lien Collateral Agent and the Priority Lien Secured Parties under the Priority Lien Documents and all obligations in connection with loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing on and after the date of the purchase and sale, and the Parity Lien Purchaser Representative (or any other representative appointed by the holders of a majority in aggregate principal amount of the Parity Lien Debt then outstanding owned by such Parity Lien Purchasers) becomes a successor agent thereunder.

Such purchase of the Purchasable Obligations shall be made on a pro rata basis among the Parity Lien Purchasers (or on such other basis as they may determine) giving notice to the Priority Lien Collateral Agent of their interest to exercise the purchase option under the Intercreditor Agreement according to each such Parity Lien Purchaser’s portion of the Parity Lien Debt outstanding on the date of purchase or such portion as such Parity Lien Purchasers may otherwise agree among themselves. Such purchase price and cash collateral shall be remitted by wire transfer in federal funds to such bank account of the Priority Lien Collateral Agent as the Priority Lien Collateral Agent may designate in writing to the Parity Lien Purchaser Representative for such purpose. Interest shall be calculated to but excluding the Business Day on which such sale occurs if the amounts so paid by the Parity Lien Purchasers to the bank account designated by the Priority Lien Collateral Agent are received in such bank account prior to 12:00 noon, New York City time, and interest shall be calculated to and including such Business Day if the amounts so paid by the Parity Lien Purchasers to the bank account designated by the Priority Lien Collateral Agent are received in such bank account later than 12:00 noon, New York City time.

Such sale shall be expressly made without representation or warranty of any kind by the Priority Lien Secured Parties as to the Purchasable Obligations, the Collateral or otherwise and without recourse to any Priority Lien Secured Party, except that the applicable Priority Lien Secured Parties shall represent and warrant severally as to the Purchasable Obligations: (i) that such applicable Priority Lien Secured Party owns such Purchasable Obligations; and (ii) that such applicable Priority Lien Secured Party has the necessary corporate or other governing authority to assign such interests.

 

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After such sale becomes effective, the outstanding letters of credit will remain enforceable against the issuers thereof and will remain secured by the Priority Liens upon the Collateral in accordance with the applicable provisions of the Priority Lien Documents as in effect at the time of such sale, and the issuers of letters of credit will remain entitled to the benefit of the Priority Liens upon the Collateral and sharing rights in the proceeds thereof in accordance with the provisions of the Priority Lien Documents as in effect at the time of such sale, as fully as if the sale of the Priority Lien Debt had not been made, except with respect to cash collateral (which cash collateral shall be deemed to constitute Collateral securing the Priority Lien Obligations for all intents and purposes of the Intercreditor Agreement) held by the issuer(s) of such letters of credit, but only the Person or successor agent to whom the Priority Liens are transferred in such sale will have the right to foreclose upon or otherwise enforce the Priority Liens and only the Parity Lien Purchasers in the sale will have the right to direct such Person or successor as to matters relating to the foreclosure or other enforcement of the Priority Liens.

The Parity Lien Collateral Trustee’s sole responsibility in connection with the purchase option is to forward the Initial Purchase Option Statement to the Parity Lien Secured Parties or to each applicable Parity Lien Representative.

Application of Proceeds

Prior to the Discharge of Priority Lien Obligations, and regardless of whether an Insolvency or Liquidation Proceeding has been commenced, Collateral or proceeds received in connection with any disposition thereof or otherwise, or Collateral or proceeds received in connection with the enforcement or exercise of any rights or remedies with respect to any portion of the Collateral (in all cases with respect to the Parity Lien Obligations, other than Parity Lien Excluded Collateral or any proceeds from Parity Lien Excluded Collateral), will be applied:

1. first, to the payment in full in cash of all Priority Lien Obligations, including the payment of amounts owed to the Priority Lien Collateral Agent under the Priority Lien Documents,

2. second, to the payment in full in cash of all Parity Lien Obligations, including the payments of amounts owed to the Parity Lien Collateral Trustee under the Parity Lien Documents, and

3. third, to Unit and the other Subsidiary Guarantors, or as otherwise required by applicable law.

Postponement of Subrogation

The Intercreditor Agreement will provide that no payment or distribution to any Priority Lien Secured Party pursuant to the provisions of the Intercreditor Agreement shall entitle any Parity Lien Secured Party to exercise any rights of subrogation in respect thereof until the Discharge of Parity Lien Obligations shall have occurred. Following the Discharge of Priority Lien Obligations, but subject to certain reinstatement rights provided for in the Intercreditor Agreement, each Priority Lien Secured Party will execute such documents, agreements, and instruments as any Parity Lien Secured Party may reasonably request to evidence the transfer by subrogation to any such Person of an interest in the Priority Lien Obligations resulting from payments or distributions to such Priority Lien Secured Party by such Person, so long as all costs and expenses (including all reasonable legal fees and disbursements) incurred in connection therewith by such Priority Lien Secured Party are paid by such Person upon request for payment thereof.

Collateral Trust Agreement

On the date of the Indenture, Unit and the Subsidiary Guarantors will enter into a Collateral Trust Agreement with the Collateral Trustee and the Trustee. The Collateral Trust Agreement will set forth the terms on which the Collateral Trustee will receive, hold, administer, maintain, enforce and distribute the proceeds of all Liens upon any property of Unit or any Subsidiary Guarantor at any time held by it, in trust for the benefit of the current and future Parity Lien Secured Parties.

 

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Release of Liens

The Indenture and the Collateral Trust Agreement will provide that the Collateral Trustee’s Parity Liens upon the Collateral will no longer secure the New Notes outstanding under the Indenture or any other Obligations under the Note Documents, and the right of the holders to the benefits and proceeds of the Collateral Trustee’s Parity Liens on the Collateral will terminate and be discharged:

 

  1)

upon satisfaction and discharge of the Indenture as set forth under the caption “—Satisfaction and Discharge”;

 

  2)

upon a Legal Defeasance or Covenant Defeasance of the New Notes as set forth under the caption “—Defeasance”;

 

  3)

upon payment in full in cash and discharge of all New Notes outstanding under the Indenture and all other Parity Lien Obligations that are outstanding, due and payable under the Indenture and the other Note Documents at the time the New Notes are paid in full in cash and discharged (other than contingent indemnity obligations for which no claim has been made);

 

  4)

as to any Collateral of Unit or a Subsidiary Guarantor that is sold, transferred or otherwise disposed of by Unit or any Subsidiary Guarantor to a Person that is not (either before or after such sale, transfer or disposition) Unit or a Restricted Subsidiary of Unit in a transaction or other circumstance that complies with the provisions described in the first paragraph under the caption “—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock” below (other than the obligation to apply proceeds of such Asset Disposition as provided in such provision) and is permitted by all of the other Note Documents, at the time of such sale, transfer or other disposition to the extent of the interest sold, transferred or otherwise disposed of; provided that the Collateral Trustee’s Liens upon the Collateral will not be released if the sale or disposition is subject to the covenant described below under the caption “—Certain Covenants—Merger and Consolidation”;

 

  5)

in whole or in part, with the consent of the holders of the requisite percentage of New Notes in accordance with the provisions described below under the caption “—Modification and Waiver”;

 

  6)

with respect to the assets of any Subsidiary Guarantor, at the time that such Subsidiary Guarantor is released from its Subsidiary Guarantee as described above under the caption “—Subsidiary Guarantees”; or

 

  7)

if and to the extent required by the provisions of Collateral Trust Agreement or the provisions of the Intercreditor Agreement described under the caption “—The Intercreditor Agreement—Automatic Release of Parity Liens.”

Provisions of the Indenture Relating to Security

Further Assurances; Liens on Additional Property

The Indenture will provide that the Company and each of the Subsidiary Guarantors will do or cause to be done all acts and things that may be required, or that the Collateral Trustee from time to time may reasonably request, to assure and confirm that the Collateral Trustee holds, for the benefit of the Indenture Secured Parties, duly created and enforceable and perfected Liens upon the Collateral (including any property or assets constituting Collateral that are acquired or otherwise become, or are required by any Note Document to become, Collateral after the New Notes are issued), in each case, as contemplated by, and with the Lien priority required under, the Note Documents and in connection with any merger, consolidation or sale of assets of the Company or any Subsidiary Guarantor, the property and assets of the Person which is consolidated or merged with or into the Company or any Subsidiary Guarantor, to the extent that they are property or assets of the types which would constitute Collateral under the Security Documents, shall be treated as after-acquired property and the Company or such Subsidiary Guarantor shall take such action as may be reasonably necessary to cause such property and assets to be made subject to the Parity Liens, in the manner and to the extent required under the Security Documents.

 

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Upon the reasonable request of the Collateral Trustee or any Parity Lien Representative at any time and from time to time, the Company and each of the Subsidiary Guarantors will promptly execute, acknowledge and deliver such Security Documents, instruments, certificates, notices and other documents, and take such other actions as shall be reasonably required, or that the Collateral Trustee may reasonably request, to create, perfect, protect, assure or enforce the Liens and benefits intended to be conferred, in each case as contemplated by the Note Documents for the benefit of the Indenture Secured Parties; provided that no such Security Document, instrument or other document shall be materially more burdensome upon the Company and the Subsidiary Guarantors than the Note Documents executed and delivered (or required to be executed and delivered promptly after the date of the Indenture) by the Company and the Subsidiary Guarantors in connection with the issuance of the New Notes on or about the date of the Indenture.

Subject to certain limitations and exceptions including the terms of the Intercreditor Agreement with respect to excluded Collateral, if the Company or any Subsidiary Guarantor acquires any property or rights which are of a type constituting Collateral under any Security Document, it will be required to execute and delivery such security instruments, financing statements and such certificates as are required under the Indenture or any Security Document to vest in the Collateral Trustee a perfected security interest (subject to Permitted Liens) in such after-acquired collateral and to take such actions to add such after-acquired collateral to the Collateral, and thereupon all provisions of the Indenture and the Security Documents relating to the Collateral shall be deemed to relate to such after-acquired collateral to the same extent and with the same force and effect.

Change of Control

If a Change of Control occurs, unless the Company has exercised its right to redeem all of the New Notes as described under “Optional Redemption,” the Company will be required to offer to repurchase from each holder all or any part (equal to minimum denominations of $2,000 or an integral multiple of $1,000 in excess thereof) of such holder’s New Notes at a purchase price in cash equal to 101% of the principal amount of the New Notes plus accrued and unpaid interest to, but excluding, the date of repurchase (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 the New 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 the Company is offering to repurchase the holder’s New Notes at a purchase price in cash equal to 101% of the principal amount of the New Notes plus accrued and unpaid interest to, but excluding, the date of repurchase (subject to the right of holders of record at the close of business on a record date to receive interest on the relevant interest payment date) (the “Change of Control Payment”);

 

  (2)

the repurchase date (which will 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 to have its New Notes repurchased.

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

 

  (1)

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

 

  (2)

deposit with the paying agent for the New Notes an amount equal to the Change of Control Payment in respect of all New Notes or portions of New Notes so tendered; and

 

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  (3)

deliver or cause to be delivered to the Trustee the New Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of New Notes or portions of New Notes being repurchased by the Company in accordance with the terms of this covenant.

The paying agent will promptly mail to each holder of New Notes properly tendered the Change of Control Payment for such New Notes (or, if all the New Notes are then in global form, it will make such payment through the facilities of DTC), and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal amount to any unpurchased portion of the New Notes surrendered, if any; provided that each new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof.

If the Change of Control Payment Date is on or after an interest payment 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 the record date, and no further interest will be payable to holders who tender pursuant to the Change of Control Offer.

The Company will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements in the Indenture applicable to a Change of Control Offer made by the Company and purchases all New Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption of all outstanding New Notes has been given pursuant to the Indenture as described under “Optional Redemption,” unless and until there is a default in payment of the applicable redemption price on the applicable redemption date or the redemption is not consummated due to the failure of a condition precedent contained in the applicable redemption notice to be satisfied.

Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditional upon the occurrence of such Change of Control.

The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of New 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 be deemed not to have breached its obligations described in the Indenture by virtue of such compliance.

Notwithstanding the foregoing, in connection with any Change of Control Offer, if holders of not less than 90% of the aggregate principal amount of the outstanding New Notes validly tender and do not withdraw such New Notes in such Change of Control Offer, and the Company, or any third party making such Change of Control Offer in lieu of the Company, purchases all of the New Notes validly tendered and not withdrawn by such holders, the Company or such third party will have the right, upon not less than 15 nor more than 60 days’ prior notice, given not more than 30 days following the Change of Control Payment Date, to redeem all of the New Notes that remain outstanding following such purchase at a redemption price equal to the Change of Control Payment.

Several factors may limit the Company’s ability to repurchase New Notes pursuant to a Change of Control Offer. The occurrence of any of the events that constitute a Change of Control may constitute a default under the Senior Credit Agreement or other agreements governing the Company’s Indebtedness. Also, certain events that may constitute a change of control under the Senior Credit Agreement or other debt agreement and cause a default under such 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 New Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such

 

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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 Senior Credit Agreement may (and other Indebtedness may) prohibit the Company’s prepayment or repurchase of New Notes before their scheduled maturity.

Consequently, if the Company cannot prepay the Indebtedness arising under the Senior Credit Agreement and any other Indebtedness containing similar restrictions or obtain requisite consents to allow the Company to consummate a Change of Control Offer, the Company will be unable to consummate a Change of Control Offer, which would be an Event of Default under the Indenture. A default under the Indenture may result in a cross-default under the Senior Credit Agreement or under the Company’s other Indebtedness.

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 these transactions.

The definition of “Change of Control” includes a 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 property and assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act). 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 uncertainty about whether a particular transaction would involve a disposition of “all or substantially all” of the property and assets of a Person. As a result, it may be unclear whether a Change of Control has occurred and the Company is obligated to make a Change of Control Offer. The provisions under the Indenture obligating the Company to make a Change of Control Offer may be waived or modified with the written consent of the holders of a majority in principal amount of the New Notes.

Certain Covenants

Effectiveness of Covenants

From and after the first day on which:

 

  (1)

the New Notes have an Investment Grade Rating either Ratings Agency; and

 

  (2)

no Default has occurred and is continuing under the Indenture;

the Company and its Restricted Subsidiaries will cease to be subject to the provisions of the Indenture summarized under the subheadings below:

 

  (1)

“Limitation on Indebtedness”;

 

  (2)

“Limitation on Restricted Payments”;

 

  (3)

“Limitation on Restrictions on Distributions from Restricted Subsidiaries”;

 

  (4)

“Limitation on Sales of Assets and Subsidiary Stock”;

 

  (5)

“Limitation on Affiliate Transactions”;

 

  (6)

“Future Subsidiary Guarantors”;

 

  (7)

“Limitation on Lines of Business”; and

 

  (8)

Clause (4) of “Merger and Consolidation”

(collectively, the “Suspended Covenants”). If at any time the New Notes fail to have an Investment Grade Rating by either Rating Agency for any reason, then the Suspended Covenants will thereafter be reinstated (the date of

 

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such reinstatement, the “Reinstatement Date”) and again be applicable pursuant to the terms of the Indenture, unless and until the New Notes subsequently attain an Investment Grade Rating from either Rating Agency and no Default under the Indenture is continuing at such time. Neither the failure of the Company or any of its Subsidiaries to comply with a Suspended Covenant during the period commencing on the date the Suspended Covenants are suspended as provided above and ending on the Reinstatement Date (such period, the “Suspension Period”) nor compliance by the Company or any of its Subsidiaries with any contractual obligation entered into in compliance with the Indenture during the Suspension Period will constitute a Default, Event of Default or breach of any kind under the Indenture, the New Notes or the Subsidiary Guarantees. The Trustee will not have any obligation to monitor whether the commencement and termination of any period when the Suspended Covenants are suspended has occurred and will not have any obligation to notify the holders of the New Notes thereof.

On the Reinstatement Date, all Indebtedness Incurred during the Suspension Period will be deemed to have been outstanding on the Issue Date, so that it is classified as permitted under clause (4)(e) of the second paragraph of “—Certain Covenants—Limitation on Indebtedness.” Calculations made after the Reinstatement Date of the amount available to be made as Restricted Payments under “—Certain Covenants—Limitation on Restricted Payments” will be made as though the covenants described under “—Certain Covenants—Limitation on Restricted Payments” had been in effect since the Issue Date and throughout the Suspension Period. Accordingly, Restricted Payments made during the Suspension Period will reduce the amount available to be made as Restricted Payments under the first paragraph of “—Certain Covenants—Limitation on Restricted Payments.” On the Reinstatement Date, the amount of Excess Proceeds shall be reset at zero. Any Affiliate Transaction entered into after the Reinstatement Date pursuant to an agreement entered into during any Suspension Period will be deemed to have been outstanding on the Issue Date, so that it is classified as permitted under clause (9) of the second paragraph under “—Certain Covenants—Limitation on Affiliate Transactions.” Any encumbrance or restriction on the ability of any Restricted Subsidiary to take any action described in clauses (1) through (3) of the first paragraph of “—Certain Covenants—Limitation on Restrictions on Distributions from Restricted Subsidiaries” that becomes effective during the Suspension Period will be deemed to have existed on the Issue Date, so that it is classified as permitted under clause (a) of the second paragraph under “—Certain Covenants—Limitation on Restrictions on Distributions from Restricted Subsidiaries.” In addition, within 60 days of the Reinstatement Date, the Company must comply with the terms of the covenant described under “—Certain Covenants—Future Subsidiary Guarantors.”

During any period when the Suspended Covenants are not in effect, the Board of Directors of the Company may not designate any of the Company’s Restricted Subsidiaries as Unrestricted Subsidiaries pursuant to the Indenture.

Limitation on Indebtedness

The Company may not, and may not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (including Acquired Indebtedness); except, that the Company and any Subsidiary Guarantor 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 1.0; and

 

  (2)

no Default or Event of Default shall have occurred and be continuing or would occur as a consequence of Incurring the Indebtedness.

The first paragraph of this covenant will not prohibit the Incurrence of the following Indebtedness:

 

  (1)

Indebtedness of the Company or any Restricted Subsidiary Incurred pursuant to a Credit Facility (including letters of credit or bankers’ acceptances issued or created under any Credit Facility) and Guarantees in respect of such Indebtedness, in an aggregate principal amount outstanding at any time

 

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  not to exceed the greater of (a) $450.0 million, (b) 25% of Adjusted Consolidated Net Tangible Assets, determined as of the date such Indebtedness was Incurred after giving effect to the application of the proceeds therefrom, and (c) the Borrowing Base then in effect;

 

  (2)

Guarantees by the Company or any Subsidiary Guarantor of any Indebtedness Incurred in accordance with the provisions of the Indenture; provided that, if the Indebtedness that is being Guaranteed is Subordinated Indebtedness of the Company or a Subsidiary Guarantor, then such Guarantee shall be subordinated in right of payment to the New Notes or the Subsidiary Guarantee as the case may be;

 

  (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, that:

 

  (a)

if the Company is the obligor on the Indebtedness and the obligee is not a Subsidiary Guarantor, the Indebtedness is subordinated in right of payment to all obligations with respect to the New Notes;

 

  (b)

if a Subsidiary Guarantor is the obligor on the Indebtedness and the Company or a Subsidiary Guarantor is not the obligee, such Indebtedness is subordinated in right of payment to the Subsidiary Guarantees of that Subsidiary Guarantor; and

 

  (c)

any subsequent issuance or transfer of Capital Stock, sale or other transfer of any such Indebtedness or other event that results in any such Indebtedness being held by 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 Restricted Subsidiary, as the case may be, as of the date such Indebtedness first became held by such Person;

 

  (4)

(a) up to $650.0 million aggregate principal amount of New Notes (and the related Subsidiary Guarantees thereof) issued in exchange for or to refinance the Existing Subordinated Notes, (b) any Existing Subordinated Notes and the related Guarantees outstanding on the Issue Date; and (c) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in clause (4)(a) or Incurred pursuant to clauses (5), (7), (11) or (13) or the first paragraph of this covenant;

 

  (5)

Indebtedness of a Person that becomes a Restricted Subsidiary or is acquired by the Company or a Restricted Subsidiary or merged into the Company or a Restricted Subsidiary Incurred and outstanding on the date on which such Person became a Restricted Subsidiary or was acquired by or was merged into the Company or a Restricted Subsidiary (other than Indebtedness Incurred (a) to provide all or any portion of the funds utilized to consummate the transaction or series of related transactions pursuant to which such Person became a Restricted Subsidiary or was otherwise acquired by or merged into the Company or a Restricted Subsidiary or (b) otherwise in connection with, or in contemplation of, such acquisition); provided, however, that, at the time such Person became a Restricted Subsidiary or is acquired by or merged into the Company or a Restricted Subsidiary, either (I) the Company would have been able to Incur $1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after giving effect to the Incurrence of such Indebtedness and such acquisition or (II) the Consolidated Coverage Ratio of the Company and its Restricted Subsidiaries after giving effect to the Incurrence of such Indebtedness and such acquisition is equal to or greater than the Consolidated Coverage Ratio of the Company and its Restricted Subsidiaries immediately prior (and without giving effect) to such transactions;

 

  (6)

Indebtedness under Currency Agreements, Commodity Agreements and Interest Rate Agreements; provided, that, in the case of Currency Agreements or Commodity Agreements, such Currency Agreements or Commodity Agreements are related to business transactions of the Company or its Restricted Subsidiaries entered into in the ordinary course of business and, in the case of Currency Agreements, Commodity Agreements and Interest Rate Agreements, such Currency Agreements, Commodity Agreements and Interest Rate Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the senior management of the Company);

 

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  (7)

the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, including by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case Incurred for the purpose of financing or refinancing all or any part of the business of the Company or the Restricted Subsidiary, and any Refinancing Indebtedness Incurred under clause (4) to refinance any Indebtedness Incurred pursuant to this clause (7), in an aggregate principal amount outstanding at any time not to exceed the greater of (i) $50.0 million and (ii) 5% of Adjusted Consolidated Net Tangible Assets, determined as of the date such Indebtedness was Incurred;

 

  (8)

Indebtedness Incurred in respect of workers’ compensation claims, self-insurance obligations, bid, reimbursement, performance, surety, appeal and similar bonds, asset retirement obligations, completion guarantees provided by the Company or a Restricted Subsidiary in the ordinary course of business, or required by regulatory authorities in connection with the conduct by the Company and its Restricted Subsidiaries of their businesses, including supporting Guarantees and letters of credit (in each case other than for an obligation for money borrowed);

 

  (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 acquisition or disposition of any business, assets or Capital Stock of the Company or a Restricted Subsidiary;

 

  (10)

Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of the Incurrence;

 

  (11)

Indebtedness Incurred by a Foreign Subsidiary (including any Refinancing Indebtedness Incurred under clause (4) to refinance any Indebtedness Incurred pursuant to this clause (11)) in an aggregate amount outstanding at any time not to exceed the greater of $30 million or 15% of such Foreign Subsidiary’s Adjusted Consolidated Net Tangible Assets, determined as of the date such Indebtedness was Incurred;

 

  (12)

any Guarantee by the Company or any Restricted Subsidiary that directly owns Capital Stock of an Unrestricted Subsidiary that is recourse only to, and secured only by, such Capital Stock;

 

  (13)

in addition to the items referred to in clauses (1) through (12) above, Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount outstanding at any time which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (13) and outstanding at such time (including any Refinancing Indebtedness Incurred under clause (4) to refinance any Indebtedness Incurred pursuant to this clause (13)) will not exceed the greater of $25 million or 3% of the Company’s Adjusted Consolidated Net Tangible Assets, determined as of the date such Indebtedness was Incurred.

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)

Indebtedness permitted by this covenant need not be permitted solely by 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;

 

  (2)

in the event that Indebtedness meets the criteria of more than one of the provisions permitting the Incurrence of Indebtedness described in the first and second paragraphs above, the Company, in its sole discretion, may classify (or subsequently reclassify) such item of Indebtedness as being permitted by one or more such provisions;

 

  (3)

all Indebtedness outstanding on the Issue Date under the Senior Credit Agreement shall be deemed Incurred under clause (1) of the second paragraph above and not the first paragraph or clause (4) of the second paragraph above;

 

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  (4)

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;

 

  (5)

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;

 

  (6)

no item of Indebtedness will be given effect more than once in any calculation contemplated by this covenant and no individual item or related items of Indebtedness will be given effect at an aggregate amount in excess of the aggregate amount required to satisfy and discharge the principal amount of such item or related items of Indebtedness;

 

  (7)

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; and

 

  (8)

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

Accrual of interest, accrual of dividends, the 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. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof in the case of any Indebtedness issued with original issue discount and (ii) the principal amount or liquidation preference thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.

In addition, the Company will not permit any of its Unrestricted Subsidiaries to Incur any Indebtedness or issue any shares of Disqualified Stock, 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 “—Certain Covenants—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 will be calculated based on the relevant currency exchange rate in effect on the date the 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 the 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 the 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, will be calculated based on the currency exchange rate applicable to the currencies in which the Refinancing Indebtedness is denominated that is in effect on the date of such refinancing.

 

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Limitation on Restricted Payments

The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to make any 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 “—Certain Covenants—Limitation on Indebtedness” above after giving effect, on a pro forma basis, to the Restricted Payment; or

 

  (c)

the aggregate amount of the Restricted Payment and all other Restricted Payments made subsequent to the Issue Date (excluding Restricted Payments permitted by clauses (1), (2), (3), (6), (7), and (8) of the following paragraph) would exceed the sum of:

 

  (i)

50% of Consolidated Net Income for the period (treated as one accounting period) from the beginning of the most recent fiscal quarter ended prior to the Issue Date 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 Additional Assets received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Issue Date (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, option 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 the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries convertible into 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 payments received by the Company or any Restricted Subsidiary in respect of, or 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 the Person in which such Restricted Investments are made, proceeds realized upon the sale of such Restricted Investment to an unaffiliated purchaser or payments in respect of such Restricted Investment, whether through interest payments, principal payments, dividends, distributions or otherwise, by such Person to the Company or any Restricted Subsidiary; or

 

  (B)

the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary;

which amount in each case under this clause (iv) was included in the calculation of the amount of Restricted Payments; provided, however, that no amount will be included under 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 of the Company or Subordinated Indebtedness made by exchange for, or out of the proceeds of the

 

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  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 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 Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent Incurrence of, Subordinated Indebtedness that is permitted to be Incurred as described under “—Certain Covenants—Limitation on Indebtedness” and that in each case constitutes Refinancing Indebtedness;

 

  (3)

any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Disqualified Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Company is permitted to be Incurred pursuant to the covenant described under “—Certain Covenants—Limitation on Indebtedness” and that in each case constitutes Refinancing Indebtedness;

 

  (4)

dividends paid within 60 days after the date of declaration if at such date of declaration the dividend would have complied with this provision;

 

  (5)

so long as no Default or Event of Default has occurred and is continuing,

 

  (a)

the purchase, redemption or other acquisition, cancellation or retirement for value of Capital Stock, or options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock of the Company or any direct or indirect parent of the Company held by any existing or former employees or directors of the Company or any Subsidiary of the Company or their assigns, estates or heirs, in each case in accordance with the terms of employee stock option or stock purchase agreements or other agreements to compensate employees or directors; provided that such purchases, redemptions acquisitions, cancellations or retirements pursuant to this clause will not exceed $7.5 million in the aggregate during any calendar year (with unused amounts carried over into the following year, provided that the total amounts paid pursuant to this clause 5(a), including any amounts carried over from the previous year, will not exceed $10.0 million in the aggregate during any calendar year);

 

  (b)

loans or advances to employees or directors of the Company or any Subsidiary of the Company the proceeds of which are used to purchase Capital Stock of the Company, in an aggregate amount not in excess of $2.0 million at any one time outstanding; and

 

  (c)

payments made or expected to be made by the Company or any Restricted Subsidiary in respect of withholding or similar taxes payable upon exercise of options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock of the Company or any direct or indirect parent of the Company held by any existing or former employees or directors and any repurchases of options, warrants, equity appreciation rights or other rights deemed to occur upon exercise thereof representing a portion of the exercise price;

 

  (6)

so long as no Default or Event of Default has occurred and is continuing, the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company issued in accordance with the terms of the Indenture to the extent such dividends are included in the definition of “Consolidated Interest Expense”;

 

  (7)

repurchases of Capital Stock deemed to occur upon the exercise of stock options, warrants or other convertible securities if such Capital Stock represents a portion of the exercise price thereof;

 

  (8)

the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Subordinated Indebtedness (i) at a purchase price not greater than 101% of the principal amount of such Subordinated Indebtedness plus accrued and unpaid interest in the event of a Change of Control in

 

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  accordance with provisions similar to the “Change of Control” covenant described herein or (ii) at a purchase price not greater than 100% of the principal amount thereof plus accrued and unpaid interest in accordance with provisions similar to the “—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock” covenant described herein; provided that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, the Company has made the Change of Control Offer or Asset Disposition Offer, as applicable, as required with respect to the New Notes and has completed the repurchase or redemption of all New Notes validly tendered for payment in connection with such Change of Control Offer or Asset Disposition Offer;

 

  (9)

any redemption of share purchase rights at a redemption price not to exceed $0.01 per right;

 

  (10)

the payment of cash in lieu of issuing fractional shares of Capital Stock in connection with any transaction otherwise permitted under the Indenture;

 

  (11)

payments to dissenting stockholders not to exceed $5.0 million (x) pursuant to applicable law or (y) in connection with the settlement or other satisfaction of legal claims made pursuant to or in connection with a consolidation, merger or transfer of assets in connection with a transaction that is not prohibited by the Indenture; and

 

  (12)

Permitted Distributions so long as (i) no Default or Event of Default has occurred and is continuing and (ii) immediately after giving effect to such Restricted Payment on a pro forma basis, the Company’s Consolidated Leverage Ratio would be less than 2.5 to 1.0.

The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the 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 the 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, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such Fair Market Value is estimated in good faith by the Board of Directors of the Company to exceed $25.0 million.

Limitation on Liens

The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur, assume or suffer to exist any Lien of any kind securing Indebtedness on any assets or property of the Company or any Restricted Subsidiary, now owned or hereafter acquired, other than Permitted Liens; provided that any Lien shall be permitted on any asset or property that is not New Notes Collateral if the New Notes and the Subsidiary Guarantees are equally and ratably secured with (or, at the Issuer’s election, on a senior basis to) the Indebtedness so secured until such time as such Indebtedness is no longer secured by such Lien.

Limitation on Restrictions on Distributions from Restricted Subsidiaries

The Company may not, and may 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 (the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on Common Stock and any subordination of any such Indebtedness or other obligations being deemed not to constitute such encumbrances or restrictions);

 

  (2)

make any loans or advances to the Company or any Restricted Subsidiary (the subordination of loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness Incurred by the

 

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  Company or any Restricted Subsidiary being deemed not to constitute such an encumbrance or restriction); or

 

  (3)

transfer any of its property or assets to the Company or any Restricted Subsidiary.

The preceding provisions will not prohibit:

 

  (a)

any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date, including, without limitation, the Senior Credit Agreement in effect on such date;

 

  (b)

any encumbrance or restriction pursuant to the Note Documents;

 

  (c)

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 the Restricted Subsidiary was acquired by the Company (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 or transactions) 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;

 

  (d)

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 (a) or (b) of this paragraph or this clause (c) or contained in any amendment, restatement, modification, renewal, supplement, refunding, replacement or refinancing of an agreement referred to in clause (a) or (b) of this paragraph or this clause (c), including successive refundings, replacements or refinancings; provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement taken as a whole are no less favorable in any material respect to the holders of the New Notes than the encumbrances and restrictions contained in such agreements referred to in clauses (a) or (b) 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 (as determined in good faith by the Company);

 

  (e)

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

 

  (i)

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;

 

  (ii)

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

 

  (iii)

pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary;

 

  (f)

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

 

  (g)

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

 

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  (h)

customary encumbrances or restrictions imposed pursuant to any agreement referred to in the definition of “Permitted Business Investment”;

 

  (i)

net worth provisions in leases and other agreements entered into by the Company or any Restricted Subsidiary in the ordinary course of business;

 

  (j)

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

 

  (k)

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

 

  (l)

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

 

  (i)

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

 

  (ii)

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

 

  (m)

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

 

  (n)

provisions with respect to the disposition or distribution of assets or property in operating agreements, joint venture agreements, development agreements, area of mutual interest agreements and other agreements that are customary in the Oil and Gas Business and entered into in the ordinary course of business; and

 

  (o)

any encumbrance or restriction arising pursuant to an agreement or instrument relating to any Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under “—Certain Covenants—Limitation on Indebtedness” if (a) the Company determines at the time of entry into such agreement or instrument that such encumbrances or restrictions will not adversely affect, in any material respect, the Company’s ability to make principal or interest payments on the New Notes or (b) such encumbrance or restriction applies only during the continuance of a default relating to such agreement or instrument.

Limitation on Sales of Assets and Subsidiary Stock

The Company may not, and may not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless:

 

  (1)

the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of the Asset Disposition at least equal to the Fair Market Value of the assets subject to the Asset Disposition (determined on the date of contractually agreeing to such Asset Disposition), as determined in good faith by senior management of the Company or, if the consideration with respect to such Asset Disposition exceeds $75.0 million, the Board of Directors of the Company (including as to the value of all non-cash consideration); and

 

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  (2)

at least 75% of the consideration received by the Company or the 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.

The Company or such Restricted Subsidiary, as the case may be, may elect to apply all or any portion of the Net Available Cash from such Asset Disposition within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash either:

 

  (1)

to prepay, repay, purchase, repurchase, redeem, defease or otherwise acquire or retire any Obligations constituting:

 

  (i)

Priority Lien Obligations (and to correspondingly reduce commitments with respect thereto),

 

  (ii)

(a) the New Notes and (b) other Parity Lien Obligations; provided that if the Company or any Restricted Subsidiary shall so reduce the Parity Lien Obligations under this clause (b), the Issuer will equally and ratably reduce the Obligations under the New Notes,

 

  (iii)

in the case of Net Available Cash from any assets not constituting New Notes Collateral, Indebtedness secured by a Lien on the asset or assets that were subject to such Asset Disposition;

 

  (2)

to invest in Additional Assets or make Permitted Business Investments; provided that any Additional Assets or Permitted Business Investments acquired with the Net Available Cash from any assets constituting New Notes Collateral shall become New Notes Collateral securing the New Notes; provided that a binding commitment shall be treated as a permitted application of the Net Available Cash from the date of such commitment so long as the Company or such Restricted Subsidiary enters into such commitment with the good faith expectation that such Net Available Cash will be applied to satisfy such commitment within 180 days of such commitment (an “Acceptable Commitment”) and, in the event any Acceptable Commitment is later cancelled or terminated for any reason before the Net Available Cash is applied in connection therewith, the Company or such Restricted Subsidiary enters into another Acceptable Commitment (a “Second Commitment”) within 180 days of such cancellation or termination (or, if later, within 365 days after the receipt of such Net Available Cash); provided further that if any Second Commitment is later cancelled or terminated for any reason before such Net Available Cash is applied, then such Net Available Cash shall constitute Excess Proceeds (as defined below);

provided that, pending the final application of any such Net Available Cash in accordance with clauses (1) or (2) 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 is not applied or invested as provided in the preceding paragraph will be deemed to constitute “Excess Proceeds.” On the 30th day after the aggregate amount of Excess Proceeds exceeds $30.0 million, the Company will make an offer (“Asset Disposition Offer”) to all holders of New Notes and, to the extent required by the terms of other Parity Lien Obligations, to all holders of other Parity Lien Obligations outstanding with similar provisions requiring the Company to make an offer to purchase such Parity Lien Obligations with the proceeds from any Asset Disposition, to purchase the maximum principal amount of New Notes and such Parity Lien Obligations to which the Asset Disposition Offer applies that may be purchased out of the Excess Proceeds. The offer price in any Asset Disposition Offer will be in cash in an amount equal to 100% of the principal amount of the New Notes and such Parity Lien Obligations plus accrued and unpaid interest to, but excluding, the date of purchase, in accordance with the procedures set forth in the Indenture or the agreements governing such Parity Lien Obligations, as applicable, in the case of the New Notes, in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof. To the extent that the aggregate amount of New Notes and Parity Lien Obligations 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

 

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Excess Proceeds for general corporate purposes, including repaying, redeeming or repurchasing any unsecured Indebtedness, subject to the other covenants contained in the Indenture. If the aggregate principal amount of New Notes surrendered by holders thereof and any Parity Lien Obligations surrendered by holders or lenders, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the New Notes and the Company shall select such Parity Lien Obligations to be purchased pro rata on the basis of the aggregate principal amount of tendered New Notes and Parity Lien Obligations, subject to adjustments to maintain the authorized denominations for the New Notes. Upon completion of the Asset Disposition Offer, the amount of Excess Proceeds will be reset at zero.

The Asset Disposition Offer must 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 New Notes and any Parity Lien Obligations required to be purchased pursuant to the Asset Disposition Offer (the “Asset Disposition Offer Amount”) or, if less than the Asset Disposition Offer Amount has been so validly tendered, all New Notes and Parity Lien Obligations validly tendered in response to the Asset Disposition Offer.

If the Asset Disposition Purchase Date is on or after an interest payment 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 interest will be payable to holders who tender New Notes pursuant to the Asset Disposition Offer.

On or before the Asset Disposition Purchase Date, the Company must, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Asset Disposition Offer Amount of New Notes and Parity Lien Obligations or portions of New Notes and Parity Lien Obligations 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 New Notes and Parity Lien Obligations so validly tendered and not properly withdrawn, in the case of the New Notes, in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof. The Company or the paying agent, as the case may be, must promptly (but in any case not later than five business days after the termination of the Asset Disposition Offer Period) mail or deliver to each tendering holder of New Notes or holder or lender of Parity Lien Obligations, as the case may be, an amount equal to the purchase price of the New Notes or Parity Lien Obligations 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 must promptly issue a new Note, and the Trustee, upon delivery of an Officers’ Certificate from the Company, must authenticate and mail or deliver such new Note to such holder, in a principal amount equal to any unpurchased portion of the Note surrendered; provided that each such new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. In addition, the Company must take any and all other actions required by the agreements governing the Parity Lien Obligations. Any Note not so accepted must 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 this covenant, the following will be deemed to be cash:

 

  (1)

the assumption by the transferee of Indebtedness (other than Subordinated Indebtedness or Disqualified Stock) of the Company or a Restricted Subsidiary and the release of the Company or the Restricted Subsidiary from all liability on such Indebtedness in connection with the Asset Disposition;

 

  (2)

securities, New Notes or other obligations received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 90 days after consummation of the receipt thereof; and

 

  (3)

any Designated Non-cash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Disposition having an aggregate Fair Market Value, taken together with all other

 

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  Designated Non-cash Consideration received pursuant to this clause (3) that is at that time outstanding, not to exceed 5% of Adjusted Consolidated Net Tangible Assets at the time of the receipt of such Designated Non-cash Consideration (with the Fair Market Value of each item of Designated Non-cash Consideration being determined on the date of contractually agreeing to such Asset Disposition).

The Company may not, and may not permit any Restricted Subsidiary to, engage in any Asset Swaps, unless:

 

  (1)

at the time of entering into the Asset Swap and immediately after giving effect to the Asset Swap, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and

 

  (2)

in the event the Asset Swap involves the transfer by the Company or any Restricted Subsidiary of assets having an aggregate Fair Market Value, as determined by the Board of Directors of the Company in good faith, in excess of $25.0 million, the terms of the Asset Swap have been approved by a majority of the members of the Board of Directors of the Company.

The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of New 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 be deemed not to have breached its obligations under the Indenture by virtue of such compliance.

Limitation on Affiliate Transactions

The Company may not, and may 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 the Affiliate Transaction are not materially less favorable to the Company or the Restricted Subsidiary, as the case may be, than those that might reasonably have been obtained in a comparable transaction at the time of such transaction on an arm’s-length basis from a Person that is not an Affiliate of the Company, as determined in good faith by the Company;

 

  (2)

in the event the Affiliate Transaction involves an aggregate consideration in excess of $10.0 million but not greater than $50.0 million, the Company delivers to the Trustee an Officers’ Certificate certifying that such Affiliate Transaction satisfies the criteria in clause (1) above; and

 

  (3)

in the event the Affiliate Transaction involves an aggregate consideration in excess of $50.0 million, the Company delivers to the Trustee an Officers’ Certificate certifying that such Affiliate Transaction satisfies the criteria in clause (1) above and that 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.

The preceding paragraph will not apply to:

 

  (1)

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

 

  (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 or similar employee plans and/or insurance and indemnification arrangements provided to or for the benefit of employees and directors approved by the Board of Directors of the Company;

 

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  (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 $2.0 million in the aggregate outstanding at any one time with respect to all loans or advances made since the Issue Date;

 

  (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 the covenant described under “—Certain Covenants—Limitation on Indebtedness”;

 

  (5)

any transaction with a joint venture or other entity other than an Unrestricted Subsidiary which would constitute an Affiliate Transaction solely because the Company or a Restricted Subsidiary owns, directly or indirectly, an equity interest in or otherwise controls such joint venture or other entity;

 

  (6)

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

 

  (7)

indemnities of officers, directors and employees of the Company or any of its Restricted Subsidiaries permitted by charter documents or statutory provisions and any employment agreement or other employee compensation plan or arrangement entered into in the ordinary course of business by the Company or any of its Restricted Subsidiaries;

 

  (8)

the payment of reasonable compensation and fees paid to, and indemnity provided on behalf of, officers or directors of the Company or any Restricted Subsidiary;

 

  (9)

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, 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 so excluded only if its terms are not materially less favorable to the Company or the Restricted Subsidiary, as the case may be, than those in effect as of or on the Issue Date or that might reasonably have been obtained in a comparable transaction at the time of such transaction on an arm’s-length basis from a Person that is not an Affiliate of the Company, as determined in good faith by the Company;

 

  (10)

transactions in which the Company or any Restricted Subsidiary, as the case may be, delivers to the Trustee a letter from an accounting, appraisal or investment banking firm or consultant, in each case of nationally recognized standing, that is, in the good faith determination of the Company, qualified to perform the task for which it has been engaged, stating that such transaction is fair to the Company or such Restricted Subsidiary from a financial point of view and meets the requirements of clause (1) of the preceding paragraph; and

 

  (11)

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

SEC Reports

Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the SEC (to the extent the SEC will accept such filing), and make available to the Trustee and the registered holders of the New Notes, the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that are specified in Sections 13 and 15(d) of the Exchange Act; provided, however, that the Company shall not be so obligated to file such reports with the SEC if the SEC does not permit such filing, in which case the Company will nevertheless make available such Exchange Act information to the

 

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Trustee and the holders of the New Notes as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

Notwithstanding anything to the contrary set forth above, if the Company has filed with the SEC the reports described in the preceding paragraph with respect to the Company, the Company shall be deemed to be in compliance with the provisions of this covenant relating to the filing or furnishing of such reports (and, for avoidance of doubt, will not be required to separately furnish such reports to the holders of the New Notes or post such reports to its website, IntraLinks or otherwise).

Delivery of such information, documents and reports to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants under the Indenture (as to which the Trustee is entitled to exclusively rely on Officers’ Certificates).

Merger and Consolidation

The Company may not consolidate with, or merge with or into, any other Person, or transfer all or substantially all of its properties and assets to another Person, unless:

 

  (1)

either (a) the Company is the continuing or surviving Person in the consolidation or merger, or (b) the Person (if other than the Company) formed by the consolidation or into which the Company is merged or to which all or substantially all of the Company’s properties and assets are transferred (the “Successor Entity”) is a corporation, partnership, limited liability company, business trust, trust or other legal entity organized and validly existing under the laws of the United States, any State thereof, or the District of Columbia, and expressly assumes, by a supplemental indenture and other applicable documentation, all of the Company’s obligations under the New Notes, the Indenture and the other Note Documents to which the Company is a party (provided that, if the Successor Entity is not a corporation, there is a co-obligor of the New Notes that is a corporation organized or existing under such laws);

 

  (2)

immediately after the transaction and the Incurrence or anticipated Incurrence of any Indebtedness to be Incurred in connection therewith, no Event of Default shall have occurred and be continuing;

 

  (3)

immediately after giving effect to such transaction, either (a) the continuing or surviving Person would be able to Incur at least an additional $1.00 of Indebtedness pursuant to the first paragraph of the “—Certain Covenants—Limitation on Indebtedness” covenant or (b) the Consolidated Coverage Ratio of the continuing or surviving Person and its Restricted Subsidiaries after giving effect to such transaction is equal to or greater than the Consolidated Coverage Ratio of the Company and its Restricted Subsidiaries immediately prior (and without giving effect) to such transactions;

 

  (4)

the Successor Entity, if applicable, will take such action (or agree to take such action) as may be reasonably necessary to cause any property or assets that constitute New Notes Collateral owned by or transferred to the Successor Entity to be subject to the Parity Liens in the manner and to the extent required under the Note Documents;

 

  (5)

each Subsidiary Guarantor shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to the obligations of such Person (if other than the Company) under the Indenture and the New Notes and shall continue to be in effect; and

 

  (6)

the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating to the effect that the conditions set forth above have been satisfied.

For purposes of the first paragraph 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 its Subsidiaries, would constitute all or

 

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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.

This covenant will not apply to any sale, assignment, transfer, conveyance, lease or other disposition of properties or assets between or among the Company and any Subsidiary Guarantors.

The continuing, surviving or successor Person (if not the Company) will succeed to and be substituted for, and may exercise every right and power of, the Company with the same effect as if it had been named in the Indenture as a party thereof, and thereafter the predecessor Person will automatically be released and discharged from all obligations and covenants under the Indenture and the New 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 uncertainty about whether a particular transaction would involve “all or substantially all” of the property or assets of a Person.

Notwithstanding the preceding clauses (3) and (4) above and clause (1)(b) below, (x) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company or another Restricted Subsidiary and (y) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction; provided that, in the case of a Restricted Subsidiary that merges into the Company, the Company will not be required to comply with clause (5) above.

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

 

  (1)

(a) the Person formed by the consolidation or into which the Subsidiary Guarantor merged or to which all, or substantially all of the Subsidiary Guarantor’s properties and assets are transferred is a corporation, partnership, limited liability company, business trust, trust or other legal entity organized and validly existing under the laws of the United States, any State thereof, or the District of Columbia and such Person (if not such Subsidiary Guarantor) will expressly assume, by supplemental indenture, all the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee; (b) immediately after the transaction and the Incurrence or anticipated Incurrence of any Indebtedness to be Incurred in connection therewith, no Event of Default shall have occurred and be continuing; and (c) the Company will deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel, each to the effect that the conditions set forth above have been satisfied; or

 

  (2)

the transaction is made in compliance with the covenant described under “—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock” and results in the release of the Subsidiary Guarantor from its obligations under the Indenture and its Guarantee after and in compliance with the provisions described under “—Subsidiary Guarantees.”

In the case of clause (1) above, the continuing, surviving or successor Person (if not the Subsidiary Guarantor) will succeed to and be substituted for, and may exercise every right and power of, such Subsidiary Guarantor under the Indenture, the New Notes and its Subsidiary Guarantee with the same effect as if it had been named in the Indenture as a party thereof, and thereafter such Subsidiary Guarantor will automatically be released and discharged from all obligations and covenants under the Indenture, the New Notes and its Subsidiary Guarantee.

Future Subsidiary Guarantors

After the Issue Date, any Restricted Subsidiary that Guarantees or becomes a borrower under the Senior Credit Agreement or that Guarantees or becomes a borrower under any Indebtedness of the Company or any

 

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Subsidiary Guarantor in excess of $25.0 million, will become a Subsidiary Guarantor by executing a supplemental indenture in substantially the form specified in this Indenture and delivering an Opinion of Counsel to the Trustee within 30 days after the date that such Restricted Subsidiary incurred or guaranteed such Indebtedness.

Limitation on Lines of Business

The Company may not, and may not permit any Restricted Subsidiary to, engage in any business other than the Oil and Gas Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole.

Events of Default

The following are Events of Default under the Indenture with respect to the New Notes:

 

  (1)

default in the payment of principal of or premium, if any, on any Note when due whether at its Stated Maturity, on any redemption or repurchase date or otherwise;

 

  (2)

default in the payment of any interest on any Note when due, which default continues for 30 calendar days;

 

  (3)

failure by the Company or any Subsidiary Guarantor to comply with its obligations under “Certain Covenants—Merger and Consolidation”;

 

  (4)

(i) a breach by the Company of the covenant described under “Change of Control”, which failure or breach continues for 30 calendar days after written notice thereof has been given to the Company by the Trustee or by the holders of not less than 25.0% of the principal amount of the New Notes outstanding; or (ii) a breach by the Company of the covenant described under “—Certain Covenants— SEC Reports”, which failure or breach continues for 180 calendar days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the holders of not less than 25.0% of the principal amount of the New Notes outstanding;

 

  (5)

failure to perform, or breach of, any of the other covenants in the Indenture, which failure or breach continues for 60 calendar days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the holders of not less than 25.0% of the principal amount of the New Notes outstanding;

 

  (6)

any default (beyond any applicable grace period) under any agreement or instrument relating to any other Indebtedness of (or Guaranteed by) the Company or a Significant Subsidiary, which default (i) is caused by a failure to pay when due any principal of, premium, if any, or interest, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a “payment default”) or (ii) results in the acceleration of the maturity of the Indebtedness prior to its stated maturity or occurs at the final maturity thereof, and, in each case, the principal amount of 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 $35.0 million or more;

 

  (7)

specified events of bankruptcy, insolvency or reorganization involving the Company or a Significant Subsidiary;

 

  (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 judgments aggregating in excess of $35.0 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 calendar days after such judgments become final and non-appealable;

 

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  (9)

any Subsidiary Guarantee of a Significant Subsidiary or group of Subsidiary Guarantors 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; or

 

  (10)

so long as the Security Documents have not otherwise been terminated in accordance with their terms and the New Notes Collateral as a whole has not otherwise been released from the Liens of the Security Documents securing the New Notes in accordance with the terms thereof, with respect to New Notes Collateral having a Fair Market Value in excess of $35 million, (a) any default by the Company or any Subsidiary Guarantor in the performance of its obligations under the Security Documents (after the lapse of any applicable grace periods) which adversely affects the condition or value of such New Notes Collateral, in any material respect, and continuance of such default for 60 days after notice of such default has been given to the Company by the Trustee in accordance with the terms of the Indenture or Holders of at least 25% of the aggregate principal amount of New Notes then outstanding, (b) except as permitted by the Note Documents, any Parity Lien purported to be granted under any Note Document ceases to be an enforceable and perfected second priority Lien, subject to the Intercreditor Agreement, provided that if such failure is susceptible to cure, no Event of Default shall arise with respect thereto until 60 days after any officer of the Company or any Restricted Subsidiary becomes aware of such failure, which failure has not been cured during such time period; provided further, that no Event of Default shall occur under this clause (10) if the Company and the Subsidiary Guarantors cooperate with the Collateral Trustee to replace or perfect such Lien, such Lien is promptly replaced or perfected (as needed) and the rights, powers and privileges of the Indenture Secured Parties are not materially adversely affected by such replacement or perfection, (c) repudiation or disaffirmation in writing by the Company or any Subsidiary Guarantor of its respective obligations under the Security Documents and (d) the final non-appealable determination in a judicial proceeding that the Security Documents are unenforceable or invalid against the Company or any Subsidiary Guarantor for any reason.

Pursuant to the Trust Indenture Act, the Trustee is required, within 90 calendar days after the occurrence of a Default in respect of the New Notes is actually known to a responsible officer of the Trustee, to give to the holders of the New Notes notice of all uncured Defaults known to it, except that, other than in the case of a Default of the character contemplated in clause (1) or (2) above, the Trustee may withhold notice if and so long as it in good faith determines that the withholding of notice is in the interests of the holders of the New Notes.

If an Event of Default described in clause (7) above occurs, the principal of, premium, if any, and accrued interest on the New Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any holder of the New Notes.

If any other Event of Default with respect to New Notes at the time outstanding occurs and is continuing, unless the principal of and interest on all New Notes have already become due and payable, either the Trustee or the holders of not less than 25.0% in aggregate principal amount of the New Notes outstanding, by notice in writing to the Company (and to the Trustee if given by the holders), may declare the principal of and interest on all New Notes to be due and payable immediately, and upon any such declaration the same will become and will be immediately due and payable, anything in the Indenture or in the New Notes contained to the contrary notwithstanding.

The holders of a majority in principal amount of the New Notes by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree already

 

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rendered and if all existing Events of Default have been cured or waived, except nonpayment of principal or interest that has become due solely because of acceleration, and if the Company shall have paid or deposited with the Trustee a sum sufficient to pay all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Upon any such rescission, the parties hereto shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the parties hereto shall continue as though no proceeding had been taken.

In case the Trustee or any holder shall have proceeded to enforce any right under the Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee or such holder, then and in every such case the parties hereto shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the parties hereto shall continue as though no such proceeding had been taken.

Subject to the duty of the Trustee to act with the required standard of care during an Event of Default, the Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the written request, order or direction of any of the holders of the New Notes pursuant to the provisions of the Indenture, unless such holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which may be Incurred therein or thereby. Subject to the provisions of the Indenture, including those requiring security or indemnification of the Trustee, the holders of a majority in aggregate principal amount of the New Notes at the time outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the New Notes.

No holder of New Notes shall have any right by virtue or by availing of any provision of the Indenture to institute any action or proceeding at law or in equity or in bankruptcy or otherwise, upon or under or with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default with respect to the New Notes and of the continuance thereof and unless the holders of not less than 25.0% in aggregate principal amount of the outstanding New Notes shall have made written request upon the Trustee, and provided security or indemnity reasonably satisfactory to the Trustee, to institute such action or proceedings in respect of such Event of Default in its own name as Trustee hereunder and shall have offered to the Trustee such indemnity as it may require against the costs, expenses and liabilities to be Incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action or proceedings and no direction inconsistent with such written request shall have been given to the Trustee pursuant to the Indenture; it being understood and intended, and being expressly covenanted by the holder of every Note with every other holder and the Trustee, that no one or more holders shall have any right in any manner whatever by virtue or by availing of any provision of the Indenture to affect, disturb or prejudice the rights of any holders, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under the Indenture, except in the manner therein provided and for the equal, ratable and common benefit of all such holders. For the protection and enforcement of the provisions of this paragraph, each and every holder and the Trustee shall be entitled to such relief as can be given either at law or in equity.

Notwithstanding any other provision in the Indenture, however, the right of any holder of New Notes to receive payment of the principal of, and premium, if any, and interest on, such Note on or after the respective due dates expressed in such Note, and to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder.

We are required to furnish to the Trustee annually a statement as to our performance of our obligations under the Indenture and as to any default in our performance.

 

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Modification and Waiver

Except as provided below, the Note Documents may be amended with the consent of the Holders of at least a majority in principal amount of the New Notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, New Notes), and any existing default or compliance with any provision of the Note Documents may be waived with the consent of the Holders of a majority in principal amount of the then outstanding New Notes (including consents obtained in connection with a tender offer or exchange offer for New Notes), in each case in addition to any required consent of holders of other Parity Lien Obligations required with respect to any amendment or waiver under any Note Document.

The Company, the Trustee and the other parties thereto may from time to time and at any time, without the consent of any holder of New Notes, amend or supplement the Indenture, the New Notes or any other Note Document (or provide its consent thereto, if requested), and the Company may direct the Trustee or Collateral Trustee, and the Trustee or Collateral Agent, as applicable shall, enter into an amendment to any of the Note Documents, for one or more of the following purposes:

 

   

to evidence the succession of another Person to the Company’s or a Subsidiary Guarantor’s obligations under the Indenture, the New Notes or any other Note Document to which the Company or such Subsidiary Guarantor is a party in compliance with the covenant described above under “—Certain Covenants—Merger and Consolidation”;

 

   

to surrender any right or power herein conferred upon the Company, to add to the covenants of the Company such further covenants, restrictions, conditions or provisions for the protection of the holders of the New Notes, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions, conditions or provisions a Default or an Event of Default permitting the enforcement of all or any of the several remedies provided in the Indenture; provided that, in respect of any such additional covenant, restriction, condition or provision, such supplemental indenture may provide for a particular period of grace after Default (which period may be shorter or longer than that allowed in the case of other Defaults) or may provide for an immediate enforcement upon such Default or may limit the remedies available to the Trustee upon such Default or may limit the right of the Holders of a majority in aggregate principal amount of the New Notes to waive such default;

 

   

to cure any ambiguity, omission, inconsistency, or to correct or supplement any provision contained in the Indenture, the New Notes or any other Note Document that may be defective or inconsistent with any other provision contained therein;

 

   

to conform any provision contained in the Indenture, the New Notes or any other Note Document to any provision in this “Description of New Notes”;

 

   

to make such other provisions in regard to matters or questions arising under the Indenture, the New Notes or any other Note Document as shall not adversely affect the interests of any holders of the New Notes;

 

   

to modify or amend the Indenture in such a manner as to permit the qualification of the Indenture or any indenture supplemental thereto under the Trust Indenture Act as then in effect, except that nothing therein contained shall permit or authorize the inclusion in any indenture supplemental thereto of the provisions referred to in Section 316(a)(2) of the Trust Indenture Act;