Chesapeake Energy 1995 Annual Report Download - page 38

2. SENIOR NOTES
On May 25, 1995, the Company completed a private offering
of $90 million principal amount of 10.5% Senior Notes due
2002 ("10.5% Senior Notes"). The 10.5% Senior Notes are
redeemable at the option of the Company at any time on or
after June 1, 1999. The Company may also redeem at its
option any time prior to June 1, 1998 up to $30 million of
the 10.5% Senior Notes with the proceeds of an equity
offering. In September 1995, the Company exchanged the
10.5% Senior Notes for substantially identical notes in a
registered exchange offer.
On March 31, 1994, the Company completed a private
offering of 47,500 Units consisting of an aggregate of $47.5
million principal amount of 12% Senior Notes due 2001
("12% Senior Notes") and warrants ("Warrants") to purchase
973,750 shares of the Company's Common Stock at an
exercise price of $01 per Warrant. All of the Warrants were
subsequently exercised. In exchange for 8,000 Units, the
Company acquired from Trust Company of the West
("TCW") 576,923 shares of the Company's 9% cumulative
convertible preferred stock and all rights to dividends thereon,
warrants to purchase 624,002 shares of the Company's
Common Stock and 50% of an outstanding overriding
royalty interest held by TCW The 12% Senior Notes are
redeemable at the option of the Company at any time on or
after March 1, 1998. In November 1994, the Company
exchanged the 12% Senior Notes for substantially identical
notes in a registered exchange offer (in either case, the "12%
Senior Notes").
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 12%
Senior Notes and 10.5% Senior Notes have been fully and
unconditionally guaranteed, on a joint and several basis, by
each of the Company's "Restricted Subsidiaries" (as defined in
the respective Indentures governing the Notes): COl, Lindsay
Oil Field Supply, Inc., Sander Trucking Company, Inc.,
'X/hitmire Dozer Service, Inc. and CEX (collectively, the
"Subsidiary Guarantors"). The only subsidiary of the
Company that is not a Subsidiary Guarantor is CGDC,
which was formed in December 1994. Each of the Subsidiary
Guarantors is a direct or indirect wholly-owned subsidiary of
the Company. The securities of the Subsidiary Guarantors
have been pledged to secure performance of the Company's
obligations under the 12% Senior Notes. The only affiliate
securities constituting a substantial portion of the collateral
for the 12% Senior Notes are the partnership interests in
CEX.
The 12% and 10.5% Senior Note Indentures contain
certain covenants, including covenants limiting the Company
and the Subsidiary Guarantors 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 subsidiary Guarantors; mergers or
consolidations; and transactions with affiliates. The Company
is also obligated to repurchase 12% and 10.5% Senior Notes if
it fails to maintain a specified ratio of assets to debt and in the
event of a change of control or certain asset sales.
The Company's bank credit agreement prohibits any
distributions by CEX to its partners (the Company and COI)
if the maturity of any obligations to the lender has been
accelerated. The pledge agreement relating to the 12% Senior
Notes requires that all dividends and distributions ftom
Subsidiary Guarantors be paid to the collateral agent
thereunder upon an event of default under the 12% Senior
Notes Indenture. There are no other restrictions on the
payment of cash dividends by Subsidiary Guarantors.
CEX is a limited partnership which is 10% owned by COT,
as sole general partner, and 90% owned directly by the
Company, as sole limited partner. CEX owns 86% and
CGDC owns 14% of the Company's producing oil and gas
properties, based on the present value of future net revenue at
June 30, 1995 (discounted at 10%).
Set forth below are condensed consolidating financial
statements of CEX, the other Subsidiary Guarantors, all
Subsidiary Guarantors combined, CGDC and the Company.
The CEX limited partnership condensed financial statements
were prepared on a separate entity basis as reflected in the
Company's books and records and include all material costs
of doing business as if the partnership were on a stand-alone
basis except that interest is not charged or allocated. No
provision has been made for income taxes because the
partnership is not a taxpaying entity.
36 CHESAPEAKE ENERGY CORPORATION