Chesapeake Energy 1998 Annual Report Download - page 69

Also on March 17, 1997, the Company issued $150 million principal amount of 8.5% Senior Notes due 2012
("8.5% Senior Notes"). The 8.5% Senior Notes are redeemable at the option of the Company at any time prior to
March 15, 2004 at the make-whole prices determined in accordance with the indenture and, on or after March 15,
2004 at the redemption prices set forth therein.
On April 9, 1996, the Company issued $120 million principal amount of 9.125% Senior Notes due 2006
("9.125% Senior Notes"). The 9.125% Senior Notes are redeemable at the option of the Company at any time prior
to April 15, 2001 at the make-whole prices determined in accordance with the indenture and, on or after April 15,
2001 at the redemption prices set forth therein. The Company may also redeem at its option at any time on or prior
to April 15, 1999 up to $42 million of the 9.125% Senior Notes at 109.125% of the principal amount thereof with
the proceeds of an equity offering.
On May 25, 1995, the Company issued $90 million principal amount of 10.5% Senior Notes due 2002 ("10.5%
Senior Notes"). In April 1998, the Company purchased all of its 10.5% Senior Notes for approximately $99
million The early retirement of these notes resulted in an extraordinary charge of $13.3 million
The Company is a holding company and owns no operating assets and has no significant operations independent
of its subsidiaries. The Company's obligations under the 9.625% Senior Notes, the 9.125% Senior Notes, the
7.875% Senior Notes and the 8.5% Senior Notes have been fully and unconditionally guaranteed, on a joint and
several basis, by each of the Company's "Restricted Subsidiaries" (as defmed in the respective indentures governing
the Senior Notes) (collectively, the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is a direct or
indirect wholly-owned subsidiary of the Company.
The senior note indentures contain certain covenants, including covenants limiting the Company and the
Guarantor Subsidiaries with respect to asset sales; restricted payments; the incurrence of additional indebtedness and
the issuance of preferred stock; liens; sale and leaseback transactions; lines of business; dividend and other payment
restrictions affecting Guarantor Subsidiaries; mergers or consolidations; and transactions with affiliates. The
Company is obligated to repurchase the 9.625% and 9.125% Senior Notes in the event of a change of control or
certain asset sales.
The senior note indentures also limit the Company's ability to make restricted payments (as defined), including
the payment of preferred stock dividends, unless certain tests are met. As of December 31, 1998, the Company was
unable to meet the requirements to incur additional unsecured indebtedness, and consequently was not able to pay
cash dividends on its 7% cumulative convertible preferred stock on February 1, 1999 (in the amount of $4,025,000).
Subsequent payments will be subject to the same restrictions and are dependent upon variables that are beyond the
Company's ability to predict. This restriction does not affect the Company's ability to borrow under or expand its
secured commercial bank facility. If the Company fails to pay dividends for six quarterly periods, the holders of
preferred stock would be entitled to elect two additional members to the Board.
Set forth below are condensed consolidating financial statements of the Guarantor Subsidiaries, the Company's
subsidiaries which are not guarantors of the Senior Notes (the "Non-Guarantor Subsidiaries") and the Company.
Separate audited fmancial statements of each Guarantor Subsidiary have not been provided because management
has determined that they are not material to investors.
Chesapeake Energy Marketing, Inc. ("CEMI") was a Non-Guarantor Subsidiary for all periods presented, and
the following were additional Non-Guarantor Subsidiaries: Chesapeake Acquisition Corporation during the
Transition Period, Chesapeake Canada Corporation during fiscal 1997, and Chesapeake Gas Development
Corporation during fiscal 1996. All of the Company's other subsidiaries were Guarantor Subsidiaries during these
periods.
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