Chesapeake Energy 1996 Annual Report Download - page 49

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interests in CEX.
The 12%, 10.5% and 9.125% Senior Note Inden-
tures contain certain covenants, including covenants lim-
iting 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 busi-
ness; dividend and other payment restrictions affecting
Subsidiary Guarantors; mergers or consolidations; and
transactions with affiliates. The company is also obligated
to repurchase 12%, 10.5% and 9.125% 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
COl) 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 distri-
butions from Subsidiary Guarantors be paid to the col-
lateral agent thereunder upon an event of default under
the 12% Senior Notes Indenture. There are no other re-
strictions on the payment of cash dividends by Subsid-
iary 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 94%
and CGDC owns 6% of the company's producing oil
and gas properties, based on the present value of future
net revenue at June 30, 1996 (discounted at 10%).
Set forth below are condensed consolidating financial
statements of CEX, the other Subsidiary Guarantors, all
Subsidiary Guarantors combined, the Non-Guarantor
Subsidiaries and the company. The CEX limited part-
nership 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 busi-
ness as if the partnership were on a stand-alone basis ex-
cept that interest is not charged or allocated. No provi-
sion has been made for income taxes because the part-
nership is not a taxpaying entity. Separate audited finan-
cia1 statements of each Subsidiary Guarantor, other than
CEX, have not been provided because management has
determined that they are not material to investors.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHESAPEAKE E NG,9C OR PU RATION