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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
As filed with the Securities and Exchange Commission on September 4, 2013
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EP ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
1311
(Primary Standard Industrial Classification Code Number) |
46-3472728
(I.R.S. Employer Identification Number) |
1001 Louisiana Street
Houston, Texas 77002
713-997-1200
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
Marguerite N. Woung-Chapman
Senior Vice President, General Counsel and Corporate Secretary
EP Energy Corporation
1001 Louisiana Street
Houston, Texas 77002
713-997-1200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Rosa A. Testani John Goodgame Akin Gump Strauss Hauer & Feld LLP One Bryant Park New York, NY 10036 212-872-8115 |
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Gregory A. Ezring Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 212-373-3458 |
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Sean T. Wheeler Latham & Watkins LLP 811 Main Street, Suite 3700 Houston, TX 77002 713-546-7418 |
Approximate date of commencement of proposed sale of the securities to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
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.:
Large Accelerated filer o | Accelerated filer o |
Non-accelerated filer
ý
(Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
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Title of each class of securities
to be registered |
Proposed maximum
aggregate offering price(1) |
Amount of
registration fee |
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Class A Common Stock, $0.01 par value per share |
$100,000,000 | $13,640 | ||
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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, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated September 4, 2013
PRELIMINARY PROSPECTUS
Shares
EP Energy Corporation
Common Stock
$ per share
This is our initial public offering. We are selling shares of Class A common stock, $0.01 par value per share. All references to common stock herein refer to Class A common stock.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for our common stock. We intend to apply to list our common stock on the New York Stock Exchange under the symbol "EPE." Following the completion of this offering, we will remain a "controlled company" as defined under the NYSE listing rules because the group consisting of our Sponsors, which is comprised of affiliates of Apollo Global Management, LLC, Riverstone Holdings LLC, Access Industries and Korea National Oil Corporation, will beneficially own % of our shares of outstanding common stock, assuming the underwriters do not exercise their option to purchase up to additional shares from us. See "Principal Stockholders."
Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 19 of this prospectus.
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Price to Public
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Underwriting
Discounts and Commissions |
Proceeds to
EP Energy Corporation |
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Per Share |
$ | $ | $ | |||
Total |
$ | $ | $ | |||
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We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an additional shares of our common stock at the initial public offering price less the underwriting discount.
Delivery of the shares of common stock will be made on or about , 2013.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2013.
You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with any information or represent anything about us or this offering that is not contained in this prospectus. If given or made, any such other information or representation should not be relied upon as having been authorized by us. We are not making an offer in any jurisdiction where an offer or sale is not permitted. The information contained in this prospectus is current only as of its date.
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This prospectus includes statements regarding factors that have impacted our and our customers' industries, such as our customers' access to capital. Such statements regarding our and our customers' industries and market share or position are statements of belief and are based on market share and industry data and forecasts that we have obtained from industry publications and surveys, as well as internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of such information. Although we believe that the third party sources are reliable, we have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. In addition, while we believe that the market share, market position and other industry information included herein is generally reliable, such information is inherently imprecise. While we are not aware of any misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under "Risk Factors."
PRESENTATION OF RESERVES INFORMATION
The Securities and Exchange Commission (the "SEC") permits oil and gas companies, in their filings with the SEC, to disclose only estimated proved, probable and possible reserves that meet the SEC's definitions of such terms. We disclose estimated proved reserves in this prospectus. Our estimates of proved reserves contained in this prospectus were estimated by our internal staff of engineers and comply with the rules and definitions promulgated by the SEC. For the year ended December 31, 2012 and the six months ended June 30, 2013, we engaged Ryder Scott Company, L.P., an independent petroleum engineering consultant firm, to perform reserve audit services with respect to a substantial portion of our proved reserves.
This prospectus presents certain production and reserves-related information on an "equivalency" basis. When we refer to oil and natural gas in "equivalents," we are doing so to compare quantities of oil with quantities of natural gas or to express these different commodities in a common unit. In calculating equivalents, we use a generally recognized standard in which one Bbl of oil and/or NGLs is equal to six Mcf of natural gas. Also, when we refer to cubic feet measurements, all measurements are at a pressure of 14.73 pounds per square inch. These conversions are based on energy equivalency conversion methods primarily applicable at the burner tip and do not represent value equivalencies at the wellhead. Although these conversion factors are industry accepted norms, they are not reflective of price or market value differentials between product types.
USE OF NON-GAAP FINANCIAL INFORMATION
In this prospectus, we use certain non-GAAP financial measures. We believe these supplemental measures provide meaningful information to our investors. Below are the non-GAAP measures used along with reference to where they are defined and reconciled with their comparable GAAP measures:
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iii
This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. You should carefully read the entire prospectus, including the information presented under "Risk Factors" and the pro forma and historical financial statements and related notes included elsewhere in this prospectus. Certain oil and gas industry terms used in this prospectus are defined in the "Glossary of Oil and Natural Gas Terms" beginning on page A-1 of this prospectus.
Except as otherwise indicated or unless the context otherwise requires, the terms "EP Energy," "we," "us," "our," "the Company" and "our company" refer to (i) EP Energy Corporation and its subsidiaries on a consolidated basis for periods following the completion of the Corporate Reorganization on August 30, 2013 and (ii) EPE Acquisition, LLC and its predecessor entities and their subsidiaries on a consolidated basis for periods prior to the Corporate Reorganization (including the operations of predecessor entities prior to the Acquisition (as defined below)).
Except as otherwise indicated, all of the information in this prospectus assumes (i) no exercise of the underwriters' option to purchase up to additional shares of common stock from us, (ii) an initial offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and (iii) a for one stock split will be effected as of the effective date of the registration statement of which this prospectus forms a part. The number of shares of common stock to be outstanding after completion of this offering is based on shares of our common stock to be sold by us in this offering and, except where indicated otherwise, does not give effect to shares of common stock reserved for future issuance under the Omnibus Incentive Plan (as defined in "ManagementExecutive Compensation").
Estimates of our oil, natural gas and NGLs reserves, related future net cash flows and the present values thereof as of June 30, 2013 included in this prospectus were prepared by our internal staff of engineers and audited by the independent petroleum engineering firm of Ryder Scott Company, L.P. ("Ryder Scott").
Unless we indicate otherwise, all production, reserve and operating data in this prospectus give effect to our pending and recently completed divestitures described in "Recent Divestitures."
We are an independent exploration and production company engaged in the acquisition and development of unconventional onshore oil and natural gas properties in the United States. We are focused on creating shareholder value through the development of our low-risk drilling inventory located in four core areas: the Eagle Ford Shale (South Texas), the Wolfcamp Shale (Permian Basin in West Texas), the Uinta Basin (Utah) and the Haynesville Shale (North Louisiana). In our core areas, we have identified in excess of 5,200 drilling locations, of which approximately 96% are oil wells. At current activity levels, this represents approximately 24 years of drilling inventory. As of June 30, 2013, we had proved reserves of 501 MMBoe (57% oil and 66% liquids) and for the three months ended June 30, 2013, we had average net daily production of 93,674 Boe/d (37% oil and 46% liquids).
Our management team has a proven track record of identifying, acquiring and developing unconventional oil and natural gas assets. The majority of our senior management team has worked together for over a decade and the team has significant experience at prominent oil and gas companies that have included El Paso Corporation, ConocoPhillips and Burlington Resources. We believe our management's experience in both acquiring resource-rich leasehold positions and efficiently developing those properties will enable us to generate attractive rates of return on our capital programs.
Each of our core areas is characterized by a favorable operating environment, long-lived reserve base and high drilling success rates. We have established significant contiguous leasehold positions in
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each area, representing approximately 450,000 net (620,000 gross) acres in total. Beginning in 2012, our capital programs have focused predominantly on the Eagle Ford Shale, the Wolfcamp Shale and the Uinta Basin, three of the premier unconventional oil plays in the United States, resulting in oil reserve and production growth of 47% and 88%, respectively, from December 31, 2011 to December 31, 2012. In July and August 2013, we divested non-core domestic natural gas assets for a total consideration of approximately $1.3 billion. Additionally, in July 2013, we entered into a Quota Purchase Agreement relating to the sale of our Brazil operations, which is expected to close by the end of the first quarter of 2014. As a result of this strategic repositioning, we are a higher-growth, 100% onshore U.S., oil-weighted company with a large inventory of high-return, low-risk drilling locations. We intend to continue developing our oil-weighted assets, which offer the best rates of return in our portfolio in the current commodity price environment. In addition, our Haynesville Shale position is 100% held-by-production, which gives us the flexibility to allocate capital in the future to this natural gas-weighted asset.
The following table provides a summary of oil, natural gas and NGLs reserve and production information for each of our areas of operation as of June 30, 2013. Our estimated proved reserves have been prepared by our internal reserve engineers and audited by Ryder Scott Company, L.P., our independent petroleum engineering consultants since 2004.
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Estimated Proved Reserves |
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PV-10(1) |
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Average
Net Daily Production(2) (MBoe/d) |
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Oil
(MMBbls) |
NGL
(MMBbls) |
Natural Gas
(Bcf) |
Total
(MMBoe) |
Liquids
(%) |
Proved
Developed (%) |
Value
($MM) |
% of Total
(%) |
R/P
(Years)(3) |
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Core Areas |
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Eagle Ford Shale |
167.7 | 27.3 | 217.4 | 231.2 | 84 | % | 22 | % | 4,084 | 55 | % | 34.9 | 18.1 | ||||||||||||||||||
Wolfcamp Shale |
43.4 | 8.6 | 58.3 | 61.7 | 84 | % | 22 | % | 711 | 10 | % | 4.4 | 38.6 | ||||||||||||||||||
Uinta Basin |
71.9 | | 148.4 | 96.6 | 74 | % | 35 | % | 1,765 | 24 | % | 11.4 | 23.2 | ||||||||||||||||||
Haynesville Shale |
| | 373.1 | 62.2 | 0 | % | 69 | % | 430 | 6 | % | 29.0 | 5.9 | ||||||||||||||||||
Total Core Areas |
283.1 | 35.8 | 797.2 | 451.7 | 71 | % | 31 | % | 6,991 | 95 | % | 79.7 | 15.5 | ||||||||||||||||||
Other(4) |
2.0 | 1.0 | 71.7 | 14.9 | 20 | % | 83 | % | 135 | 2 | % | 5.3 | 7.7 | ||||||||||||||||||
Total Consolidated |
285.0 | 36.8 | 868.9 | 466.7 | 69 | % | 33 | % | 7,126 | 97 | % | 85.0 | 15.0 | ||||||||||||||||||
Four Star |
2.1 | 6.2 | 155.9 | 34.3 | 24 | % | 93 | % | 260 | 3 | % | 8.7 | 10.8 | ||||||||||||||||||
Total Combined |
287.2 | 43.0 | 1,024.8 | 501.0 | 66 | % | 37 | % | 7,386 | 100 | % | 93.7 | 14.7 | ||||||||||||||||||
Core Areas
Eagle Ford Shale. The Eagle Ford Shale, located in South Texas, is one of the premier unconventional oil plays in the United States, having produced over 750 MMBoe since 2008, including approximately 348 MMBoe in 2012. We were an early entrant into this play in late 2008, and since that time have acquired a leasehold position in the core of the oil window, primarily in La Salle and Atascosa counties. The Eagle Ford formation in La Salle county has up to 125 feet of net thickness (165 feet gross), which results in some of the most prolific acreage in the area. Due to its high carbonate content, the formation is also very brittle, and exhibits high productivity when fractured, with initial 30-day oil equivalent production rates up to 1,100 Boe/d. We currently have 97,689 net (105,416 gross) acres in the Eagle Ford, in which we have identified 983 drilling locations.
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For the three months ended June 30, 2013, our average net daily production was 34,944 Boe/d, representing growth of 115% over the same period in 2012. As of June 30, 2013, we had five rigs running and plan to drill 126 wells in 2013 (of which 67 have been drilled through June 30, 2013), representing 58% of our total wells planned in 2013. For the six months ended June 30, 2013 our average cost per well was $7.5 million, representing an 11% decline from our average cost per well for the same period in 2012. We expect our average cost per well to continue to decline.
Wolfcamp Shale. The Wolfcamp Shale is located in the Permian Basin, which has produced more than 29 billion barrels of oil and 75 Tcf of gas over the past 90 years and is estimated by industry experts to contain remaining recoverable oil and natural gas reserves exceeding what has already been produced. With oil production of over 880 MBbls/d from over 80,000 wells during the six months ended June 30, 2013, the Permian Basin represented 51% of the crude oil produced in the State of Texas and approximately 17% of the crude oil and condensate produced onshore in the lower 48 United States. The basin is characterized by numerous, stacked oil reservoirs that provide excellent targets for horizontal drilling. We are currently targeting the Wolfcamp Shale in the Southern Midland Basin, where industry horizontal drilling has added over 50 MBoe/d to the basin's production since 2010.
In 2009 and 2010, we leased 138,130 net (138,468 gross) acres on the University of Texas Land System in the Wolfcamp Shale, located primarily in Reagan, Crockett, Upton and Irion counties. Our large, contiguous acreage positions are characterized by stacked pay zones, including the Wolfcamp A, B, and C, which combine for over 750 feet of net (approximately 1,000 feet of gross) thickness. The Wolfcamp has high organic content and is composed of interbedded shale, silt, and fine-grained carbonate that respond favorably to fracture stimulation. Following our drilling results in 2012, we moved forward to full development of the Wolfcamp B, and began delineation of the Wolfcamp C. Our initial 30-day oil equivalent production rates are up to 600 Boe/d for the Wolfcamp B. As of June 30, 2013, we have identified 2,938 drilling locations in the Wolfcamp A, the Wolfcamp B and the Wolfcamp C across our acreage.
The acreage is also prospective for the Cline Shale, which has approximately 100 feet of net (approximately 200 feet of gross) thickness, and potential vertical drilling locations in the Spraberry and other stacked formations.
For the three months ended June 30, 2013, our average net daily production was 4,382 Boe/d, representing growth of 152% over the same period in 2012. As of June 30, 2013, we had three rigs running and plan to drill 65 wells in 2013 (of which 25 have been drilled through June 30, 2013), representing 30% of our total wells planned in 2013. For the six months ended June 30, 2013 our average cost per well was $5.9 million, representing a 24% decline from our average cost per well for the same period in 2012. Similar to the Eagle Ford Shale, we expect our average cost per well to continue to decline.
Uinta Basin. The Uinta Basin, located in northeastern Utah, has produced 577 MMbbls since its discovery in 1949 and is characterized by naturally fractured, tight oil sands with multiple zones. Our operations are primarily focused on developing the Altamont Field (including the Bluebell and Cedar Rim fields), which is the largest field in the basin. We own 172,293 net (318,568 gross) acres in Duchesne and Uinta Counties, making us the largest lease owner in the Altamont Field. Since their discovery, the Altamont, Bluebell and Cedar Rim fields have produced a combined total of over 300 MMBbls from the oil-rich Wasatch and Green River sandstones. With gross thicknesses over 4,300 feet across multiple sandstone and carbonate intervals, the Wasatch and Green River formations are ideal targets for low-risk, infill, vertical drilling and modern fracture stimulation techniques. The commingled production from over 1,500 feet of net stimulated rock results in initial 30-day oil production rates of up to 900 Boe/d. Our current activity is mainly focused on the development of our vertical inventory on 160-acre spacing. We have identified an inventory of 1,104 drilling locations (758 vertical and 346 horizontal). The industry is currently piloting 80-acre vertical downspacing programs in
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the Wasatch and Green River formations and horizontal development programs in the multiple shale and tight sand intervals. Due to the largely held-by-production nature of our acreage position, if these programs are successful, it will result in additional vertical and horizontal drilling opportunities that could be added to our inventory of drilling locations.
For the three months ended June 30, 2013, our average net daily production was 11,433 Boe/d, representing growth of 14% over the same period in 2012. As of June 30, 2013, we had two rigs running and plan to drill 26 wells in 2013 (of which 13 have been drilled through June 30, 2013), representing 12% of our total wells planned in 2013. For the six months ended June 30, 2013 our average cost per well was $5.2 million, representing a 13% decline from our average cost per well for the same period in 2012.
Haynesville Shale. In addition to our key oil programs, we hold significant natural gas assets in the Haynesville Shale, located in East Texas and Northern Louisiana. Our operations are concentrated primarily in Desoto Parish, Louisiana in the Holly Field. This area is within the core of the Haynesville Shale with net thickness of 114 feet (210 feet gross), resulting in initial 30-day gas equivalent production rates up to 18 MMcfe/d. We currently have 40,029 net (59,210 gross) acres in this area. As of June 30, 2013, we have identified 190 drilling locations.
For the three months ended June 30, 2013, our average net daily production was 174 MMcfe/d. As of June 30, 2013, we had 191 producing wells, which provide cash flow to fund the development of our core oil programs. We do not plan to drill any new wells in the Haynesville in 2013. Although we believe our wells generate attractive returns in the current natural gas price environment, we have chosen to allocate capital to our higher-return, oil-weighted areas. Our acreage in the Haynesville Shale is 100% held-by-production, giving us the flexibility to allocate capital in the future to this natural gas-weighted asset.
The following table provides a summary of acreage and inventory data for our core areas as of June 30, 2013:
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Core Acreage and Inventory Summary as of June 30, 2013(1) | ||||||||||||||||||
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Acres |
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2013
Drilling Locations(2) (#) |
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Drilling
Locations (#) |
2010 - 2013
Drilling Success Rate |
Inventory
Life (Years)(3) |
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Gross | Net | |||||||||||||||||
Core Areas |
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Eagle Ford Shale |
105,416 | 97,689 | 983 | 126 | 100 | % | 7.8 | ||||||||||||
Wolfcamp Shale |
138,468 | 138,130 | 2,938 | 65 | 93 | % | 45.2 | ||||||||||||
Uinta Basin |
318,568 | 172,293 | 1,104 | 26 | 100 | % | 42.5 | ||||||||||||
Haynesville Shale |
59,210 | 40,029 | 190 | | 100 | % | NA | ||||||||||||
Total Core Areas |
621,662 | 448,141 | 5,215 | 217 | 99 | % | 24.0 | ||||||||||||
Other
In addition to our core areas, we have other producing assets that contribute cash flow toward the development of our oil-focused core areas. These assets are comprised of our South Louisiana Wilcox assets, located primarily in Beauregard Parish, Louisiana, and our Arklatex Tight Gas assets located in Northern Louisiana that produce from reservoirs such as Travis Peak, Hosston, and Cotton Valley.
We also have an approximate 49% equity interest in Four Star Oil & Gas Company ("Four Star"), an unconsolidated entity that operates primarily in the San Juan, Permian, Hugoton and South Alabama basins.
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We are a high-growth, 100% onshore U.S., oil-weighted company with a large inventory of high-return, low-risk drilling locations. We are focused on creating shareholder value by implementing the following strategies:
Grow Oil Production, Cash Flow and Reserves through the Development of our Extensive Drilling Inventory
We have assembled a drilling inventory of over 5,200 drilling locations across approximately 450,000 net (620,000 gross) acres in the Eagle Ford Shale, the Wolfcamp Shale, the Uinta Basin and the Haynesville Shale. The concentration and scale of our core leasehold positions, coupled with our technical understanding of the reservoirs, should allow us to efficiently develop our core areas and allocate capital to maximize the value of our resource base. In 2012, we invested $1.5 billion (92% in our core oil areas) of capital expenditures and grew oil production by 11,511 Bbls/d, or 88%, from an average of 13,042 Bbls/d in 2011 to an average of 24,553 Bbls/d in 2012. Pro Forma Adjusted EBITDAX increased by 46% from 2011 to 2012. We also increased proved oil reserves by 82 MMBbls, or 47%, from 175 MMBbls at December 31, 2011 to 257 MMBbls at December 31, 2012. In 2013, we plan to invest approximately $1.9 billion of capital expenditures, of which 95% is dedicated to developing our core oil areas. For the six months ended June 30, 2013, our capital expenditures were $937 million. We believe that our extensive inventory of low-risk drilling locations, combined with our operating expertise, will enable us to continue to deliver production, cash flow and reserve growth and create shareholder value. We consider our inventory of drilling locations to be low risk because they are in areas where we (and other producers) have extensive drilling and production experience and success. For additional information regarding Adjusted EBITDAX, please read "Management's Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Measures."
Maintain an Extensive Low-Risk Drilling Inventory
We have a demonstrated track record of identifying and cost effectively acquiring low-risk resource development opportunities. We follow a geologically driven strategy to establish large, contiguous leasehold positions in the core of prolific basins and opportunistically add to those positions through bolt-on acquisitions over time. We were an early entrant into the Eagle Ford and Wolfcamp Shales through grassroots leasing efforts, amassing average positions of over 100,000 net acres, and we methodically expanded our position in the Uinta Basin through targeted acquisitions. We will continue to identify and opportunistically acquire additional acreage and producing assets to add to our multi-year drilling inventory.
Enhance Returns by Continuously Improving Capital and Operating Efficiencies
We maintain a disciplined, returns-focused approach to capital allocation. Our large and diverse portfolio of drilling locations allows us to conduct cost-efficient operations and allocate capital to our highest-margin assets in a variety of commodity price environments. We continuously monitor and adjust our development program in order to maximize the value of our extensive portfolio of drilling opportunities. In each of our core areas, we have realized improvements in EURs while delivering reductions in drilling and completion costs since 2011. We have reduced our average cost per well in the Wolfcamp by 40%, Eagle Ford by 24% and Uinta Basin by 22% from 2011 through the first half of 2013. These cost reductions have been due to many improvements, including substantial reductions in cycle times and successful negotiations for supplies and services. We expect further cost reductions going forward due to additional learning and efficiencies, including drilling wells from common pad sites, shared use of pre-existing central facilities and other economies of scale.
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Identify and Develop Additional Drilling Opportunities in our Portfolio
Our existing asset base provides numerous opportunities for our highly experienced technical team to create shareholder value by increasing our inventory beyond our currently identified drilling locations. In the Permian Basin, we have evaluated multiple Wolfcamp horizons, and we are currently running pilot delineation programs in the Wolfcamp A and C horizons. Additionally, this acreage is prospective for the Cline Shale, the Spraberry and other stacked formations. The Uinta Basin has a significant inventory of low-risk, vertical infill drilling locations and is also currently being assessed for additional horizontal development potential in multiple shale and tight sands intervals. Our primary focus in the Eagle Ford Shale is increasing incremental returns through a reduction in drilling and completion costs. Our 3-D seismic programs in the Uinta and Permian Basins should further enhance our ability to increase the number of and high grade our drilling locations.
Maintain Liquidity and Financial Flexibility
We intend to fund our organic growth predominantly with internally generated cash flows while maintaining ample liquidity. We will continue to maintain a disciplined approach to spending whereby we allocate capital in order to optimize returns and create shareholder value. Upon completion of this offering, we will have $2.5 billion available for borrowing under our reserve-based revolving credit facility (the "RBL Facility"). As we pursue our strategy of developing high-return opportunities in our core areas, we expect our cash flow and borrowing base to grow, thereby further enhancing our liquidity and financial strength. We protect these future cash flows and liquidity levels by maintaining a three year rolling hedge program. In general, we target hedging levels of over 50% of expected production on a rolling three year basis.
We believe the following strengths provide us with significant competitive advantages:
Large, Concentrated Operated Positions in the Core Areas of Prolific Oil Resource Plays
We own and operate contiguous leasehold positions in the core areas of three of the premier North American oil resource plays: the Eagle Ford Shale, the Wolfcamp Shale and the Uinta Basin. We have approximately 410,000 net (560,000 gross) acres across these three plays that we have substantially de-risked through our ongoing drilling programs. Since 2010, we have drilled and completed 338 wells across these three plays with a success rate of approximately 99%. Based on our analysis of subsurface data and the production history of our wells and those of offset operators, we have confirmed high quality reservoir characteristics across a broad aerial extent with significant hydrocarbon resources in place. Based upon our well costs and production rates, we believe our core oil areas offer some of the best single well rates of return of all North American resource plays.
Multi-Year Inventory of Low-Risk Drilling Opportunities
Our 5,215 low-risk drilling locations across our core areas as of June 30, 2013 provide us with approximately 24 years of drilling inventory, of which 96% are oil wells. We have used the subsurface data from our development programs to identify and prioritize our inventory. These drilling locations are included in our inventory after they have passed through a rigorous technical evaluation. In addition to our 5,215 identified drilling locations, we believe we have the potential to increase our multi-year drilling inventory with horizontal drilling locations in the Cline Shale and vertical drilling locations in the Spraberry and other stacked formations in the Permian Basin and vertical infill and horizontal drilling locations in the Wasatch and Green River formations in the Uinta Basin. Our ongoing technical assessment and development activities provide the potential for identification of additional drilling opportunities on our properties.
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High-Quality Proved Reserve Base with Substantial Current Production
Our leasehold position and inventory of low-risk drilling locations is complemented by a substantial proved reserve base. As of June 30, 2013, we had proved reserves of 501 MMBoe (57% oil and 66% liquids) with a PV-10 of $7.4 billion (86% oil and 91% liquids). For the three months ended June 30, 2013, our average net daily production was 93,674 Boe/d, which was 37% oil and 46% liquids. Our current production provides a stable source of cash flow to fund the development of our core programs. This significantly reduces our reliance on outside sources of capital. In addition, our extensive inventory improves our ability to replace and grow proved reserves.
Significant Operational Control with Low Cost Operations
Our significant operational control permits us to efficiently manage the amount and timing of our capital outflows, allowing us to continually improve our drilling and operating practices. We operate over 83% of our producing wells and have operational control of approximately 95% of our core area drilling inventory as of June 30, 2013. We employ a centralized operational structure to accelerate our internal knowledge transfer between our drilling and completion programs and to continually enhance our field operations and base production performance. We have decreased our average cost per well by 24%, 11% and 13% in the Wolfcamp Shale, Eagle Ford Shale and Uinta Basin, respectively, for the six months ended June 30, 2013, compared to our average cost per well for the same period in 2012.
Capital Allocation Flexibility and Scale across Multiple Basins
Our existing assets are geographically diversified among many of the major basins of North America, which helps to insulate us from regional commodity pricing and cost dislocations that occur from time to time. While our existing producing assets are well diversified, they are also of a critical mass (on average over 100,000 net acres in each core area), which enables us to drive efficiencies and benefit from economies of scale across multiple basins. Furthermore, because of our centralized operational structure, we are able to quickly transfer operational efficiencies from one project to the next. From January 1, 2008 to June 30, 2013, we have drilled 386 horizontal shale wells. From this deep operational knowledge base and sizeable, concentrated positions in multiple basins, we have the flexibility to allocate significant amounts of capital across our properties in an efficient and value-maximizing manner.
Ability to Direct Capital to the Prolific Haynesville Shale
The Haynesville Shale is a key asset for us and is likely to compete for development capital if natural gas prices improve. Because our operations are surrounded by existing infrastructure, future returns are primarily driven by drilling and completion costs and natural gas prices. Since our Haynesville wells have demonstrated high initial production rates and strong EURs, small movements in natural gas prices can drive significant incremental value creation. Since these leases are held-by-production, we have the ability to redirect capital to this prolific asset in the future.
Significant Liquidity and Financial Flexibility
Upon completion of this offering, we will have $2.5 billion available for borrowing under our RBL Facility. We maintain a robust hedging program in order to protect our cash flows through commodity cycles. As of August 2, 2013, our hedged volumes for 2013, 2014, 2015 and 2016 represent 89%, 83%, 61% and 6%, respectively, based on our total equivalent production for the three months ended June 30, 2013. After the completion of this offering, we expect that liquidity provided by operating cash flow, availability under the RBL Facility and available cash will give us the financial flexibility to pursue our planned capital expenditures for the foreseeable future.
7
Experienced Management Team with Proven Track Record
With an average of 24 years of experience, our senior management team has a strong track record built at El Paso Corporation and in former leadership roles with Burlington Resources, ConocoPhillips and other leading energy companies. The majority of our senior management team has worked together for over a decade and has significant experience in identifying, acquiring and developing unconventional oil and natural gas assets, including experience in horizontal drilling and developing shales. Through a combination of invested equity and incentive programs, we believe our management is motivated to deliver high returns, create shareholder value and maintain safe and reliable operations.
We have a projected 2013 capital program of approximately $1.9 billion. Our capital program will remain focused on continuing to grow production, cash flows, and reserves in our highest return oil programs. In particular, the Eagle Ford Shale currently generates the highest returns in our portfolio and, as a result we are investing the majority of our capital in this program. We expect that liquidity provided by operating cash flow, availability under the RBL Facility and available cash will be sufficient to fund the 2013 capital plan.
|
2013 Capital Program |
|
|
Six months ended
June 30, 2013 |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in Millions)
|
Drilling &
Completion |
Facilities &
Other |
Total |
% of
Total |
Active Rigs(2) |
2013 Drilling
Locations(3) |
Capital
Expenditures |
Gross Wells
Drilled |
|||||||||||||||||
Core Areas |
|||||||||||||||||||||||||
Eagle Ford Shale |
$ | 897 | $ | 221 | $ | 1,118 | 58 | % | 5 | 126 | $ | 600 | 67 | ||||||||||||
Wolfcamp Shale |
447 | 54 | 501 | 26 | % | 3 | 65 | 236 | 25 | ||||||||||||||||
Uinta Basin |
137 | 58 | 195 | 10 | % | 2 | 26 | 94 | 13 | ||||||||||||||||
Haynesville Shale |
| 1 | 1 | 0 | % | | | 1 | | ||||||||||||||||
Total Core Areas |
$ | 1,481 | $ | 334 | $ | 1,815 | 95 | % | 10 | 217 | $ | 931 | 105 | ||||||||||||
Other(1) |
14 | 85 | 99 | 5 | % | | 1 | 6 | | ||||||||||||||||
Total |
$ | 1,495 | $ | 419 | $ | 1,914 | 100 | % | 10 | 218 | $ | 937 | 105 | ||||||||||||
In the beginning of the year, we projected a 2013 capital program of approximately $1.7 billion. Based on the results of the first half of the year and the results of our asset divestitures, we increased our 2013 capital program by up to $175 million for incremental drilling and completion activity. This incremental capital has added 36 wells to the original budget of 182 wells to be completed this year.
During the third quarter of 2013, we sold certain of our natural gas properties, including our CBM properties (Raton, Arkoma and Black Warrior Basin), the majority of our Arklatex natural gas properties and our natural gas properties in South Texas. The total consideration from these transactions was approximately $1.3 billion, and proceeds were used to repay outstanding borrowings under the RBL Facility and to fund capital expenditures.
Additionally, in July 2013, certain of our subsidiaries entered into a Quota Purchase Agreement relating to the sale of all of our Brazil operations. Pursuant to the Quota Purchase Agreement, the subsidiaries have agreed to sell all of our equity interests in two Brazilian subsidiaries to a third party. The transaction is expected to close by the end of the first quarter of 2014, subject to Brazilian regulatory approval and certain other customary closing conditions.
8
As a result of these pending and completed divestitures, we are a higher-growth, 100% onshore U.S., oil-weighted company with a large inventory of high-return, low-risk drilling locations.
Investing in our common stock involves risks that include the speculative nature of oil and natural gas exploration, competition, volatile commodity prices and other material factors. For a discussion of these risks and other considerations that could negatively affect us, including risks related to this offering and our common stock, please read "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements."
Corporate History and Structure
EP Energy Corporation, which was incorporated on August 8, 2013, is a holding company, and its sole asset is its direct and indirect ownership of EPE Acquisition, LLC ("EPE Acquisition") and EPE Acquisition's subsidiaries. On May 24, 2012, EPE Acquisition indirectly acquired all of the equity interests in various entities that collectively owned all of El Paso Corporation's exploration and production assets (the "Acquisition").
Prior to our corporate reorganization (the "Corporate Reorganization") on August 30, 2013, affiliates of Apollo Global Management, LLC, Riverstone Holdings LLC, Access Industries and Korea National Oil Corporation (collectively, the "Sponsors"), other co-investors, members of our management team and certain of our employees directly and indirectly owned all of the Class A membership units and Class B membership units in EPE Acquisition. Class A membership units represented full value or capital interests and Class B membership units represented profits interests. Members of our management and certain employees held their Class B membership units through EPE Employee Holdings, LLC.
As part of our Corporate Reorganization, through a series of contributions (i) all of the Class A membership units in EPE Acquisition were directly or indirectly exchanged for shares of common stock of EP Energy Corporation, which have substantially the same interests, rights and obligations as the Class A membership units and (ii) all of the Class B membership units in EPE Acquisition were exchanged for shares of Class B common stock of EP Energy Corporation, which have substantially the same interests, rights and obligations as the Class B membership units. We refer to (i) these direct and indirect holders of common stock and their permitted transferees as the "Legacy Class A Stockholders," (ii) the holder of the Class B common stock and its permitted transferees as the "Legacy Class B Stockholder" and (iii) the Legacy Class A Stockholders and the Legacy Class B Stockholder together as the "Legacy Stockholders." Please read "Corporate Reorganization."
9
The diagram below sets forth a simplified version of our organizational structure after giving effect to the Corporate Reorganization, our pending and completed divestitures and this offering. The diagram is provided for illustrative purposes only and does not represent all legal entities affiliated with us.
10
Apollo Global Management, LLC (together with its subsidiaries, "Apollo"), founded in 1990, is a leading global alternative investment manager with offices in New York, Los Angeles, Houston, London, Frankfurt, Luxembourg, Singapore, Mumbai and Hong Kong. As of June 30, 2013, Apollo had assets under management of approximately $113 billion in private equity, credit and real estate funds invested across a core group of nine industries, including natural resources, where Apollo has considerable knowledge and resources. Apollo's team of more than 250 seasoned investment professionals possesses a broad range of transactional, financial, managerial and investment skills, which has enabled the firm to deliver strong long-term investment performance throughout expansionary and recessionary economic cycles.
Riverstone Holdings LLC (together with its affiliates, "Riverstone"), founded in 2000, is an energy and power-focused private equity firm with approximately $25 billion of equity capital raised across seven investment funds and co-investments. Riverstone conducts buyout and growth capital investments in the midstream, exploration & production, oilfield services, power and renewable sectors of the energy industry. With offices in New York, London and Houston, the firm has committed approximately $23.7 billion to 102 investments in North America, Latin America, Europe, Africa and Asia.
Access Industries ("Access") is a privately held, U.S.-based industrial group with long-term holdings worldwide. Founded by industrialist Len Blavatnik, Access' focus spans three key sectors: natural resources and chemicals; telecommunications and media; and real estate. Access has offices in New York, London and Moscow.
Korea National Oil Corporation ("KNOC") was incorporated in 1979 to engage in the development of oil fields, distribution of crude oil, maintenance of petroleum reserve stock and improvement of the petroleum distribution structure under the Korea National Oil Corporation Act. KNOC is wholly owned by the Korean government and located in Anyang, Gyeonggi-do in Korea. KNOC also has nine petroleum stockpile offices, one domestic gas field management office, 13 overseas offices in Vietnam and other countries and numerous overseas subsidiaries and affiliates in the United States and other countries.
Our principal executive offices are located at 1001 Louisiana Street, Houston, Texas 77002. Our telephone number is (713) 997-1000. Our website address is www.epenergy.com. We expect to make available our periodic reports and other information filed with or furnished to the SEC, free of charge through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this prospectus.
11
Issuer |
EP Energy Corporation | |
Common stock offered by us |
shares |
|
Common stock to be outstanding immediately after the offering |
shares |
|
Class B common stock to be outstanding immediately after the offering |
shares (see "Description of Capital StockClass B common stock"). |
|
Underwriters' option to purchase additional shares of common stock in this offering |
We have granted to the underwriters a 30-day option to purchase up to additional shares at the initial public offering price less underwriting discounts and commissions. |
|
Common stock voting rights |
Each share of our common stock will entitle its holder to one vote. |
|
Dividend policy |
We currently intend to retain all future earnings, if any, for use in the operation of our business and to fund future growth. The decision whether to pay dividends will be made by our board of directors (our "Board") in light of conditions then existing, including factors such as our financial condition, earnings, available cash, business opportunities, legal requirements, restrictions in our debt agreements and other contracts, including requirements under the Stockholders Agreement described elsewhere in this prospectus, and other factors our Board deems relevant. See "Dividend Policy." |
|
Use of proceeds |
We estimate that our net proceeds from this offering will be approximately $ million after deducting the estimated underwriting discounts and commissions and other expenses of $ million payable by us, assuming the shares are offered at $ per share, which represents the midpoint of the range set forth on the front cover of this prospectus. We intend to use the net proceeds (i) to redeem all of the outstanding 8.125%/8.875% Senior PIK Toggle Notes due 2017 issued by our subsidiaries, EPE Holdings LLC and EP Energy Bondco Inc., and pay the redemption premium and the accrued and unpaid interest on those notes, (ii) to repay outstanding borrowings under the RBL Facility, (iii) to pay an approximately $ million fee under the transaction fee agreement with certain affiliates of our Sponsors and (iv) for general corporate purposes. See "Use of Proceeds." |
|
Listing |
We intend to list our common stock on the New York Stock Exchange ("NYSE") under the trading symbol "EPE." |
|
Risk factors |
You should carefully read and consider the information set forth under "Risk Factors" beginning on page 19 of this prospectus and all other information set forth in this prospectus before deciding to invest in our common stock. |
12
Summary Historical and Pro Forma Consolidated Financial Data
Set forth below is the summary historical consolidated financial data for the periods and as of the dates indicated for EPE Acquisition, LLC, the ultimate holding company prior to our Corporate Reorganization. Historical financial results of EPE Acquisition, LLC in this prospectus for the period before the Acquisition on May 24, 2012 are referred to as those of the predecessor and after the Acquisition are referred to as those of the successor in accordance with the required GAAP presentation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and related notes appearing elsewhere in this prospectus.
We have derived the summary historical consolidated balance sheet data as of December 31, 2012 (successor) and December 31, 2011 (predecessor), and the statements of income data and statements of cash flow data for the period from February 14, 2012 (inception) to December 31, 2012 (successor), the period from January 1, 2012 through May 24, 2012 (predecessor) and each of the two years in the period ended December 31, 2011 (predecessor), from the audited consolidated financial statements of EPE Acquisition, LLC appearing elsewhere in this prospectus. We have derived the summary historical consolidated balance sheet data as of December 31, 2010 from the audited consolidated financial statements not included herein of EP Energy Corporation, the predecessor of EPE Acquisition, LLC and referred to herein as Historical EP Energy Corporation. The summary unaudited historical consolidated financial data as of and for the six months ended June 30, 2013 have been derived from the unaudited consolidated financial statements of EPE Acquisition, LLC appearing elsewhere in this prospectus, which have been prepared on a basis consistent with the audited consolidated financial statements of EPE Acquisition, LLC. In the opinion of management, such unaudited financial data reflects all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for such period. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any future period.
The table below also includes EP Energy Corporation's (issuer) unaudited pro forma condensed consolidated statement of income data, giving pro forma effect to the pending and recently completed divestitures, certain debt repayments, a distribution, the Corporate Reorganization, certain other adjustments in connection with the Acquisition and this offering, all as if they had occurred on January 1, 2012. The unaudited pro forma condensed consolidated balance sheet has been prepared as if these transactions had occurred on June 30, 2013. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The summary unaudited pro forma condensed consolidated financial data are based upon available information and certain assumptions that management believes are factually supportable and that are reasonable under the circumstance. The pro forma financial data is provided for informational purposes only and do not purport to represent what our results of operations or financial position actually would have been if these transactions had occurred at any other date, and such data does not purport to project our results of operations for any future period.
The following summary historical and pro forma financial data should be read in conjunction with the information included under the headings "Recent Divestitures," "Corporate History and Structure," "The Offering," "Selected Historical Consolidated Financial Data," "Use of Proceeds," "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of
13
Operations" and the historical and pro forma consolidated financial statements and related notes included elsewhere in this prospectus.
14
|
Pro Forma | Historical | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
EP Energy
Corporation |
EPE Acquisition, LLC |
Historical EP
Energy Corporation |
||||||||||||||||||
|
|
|
As of
June 30, (Successor) |
As of
December 31, (Successor) |
|
As of
December 31, (Predecessor) |
As of
December 31, (Predecessor) |
||||||||||||||
|
|
|
|
||||||||||||||||||
|
As of
June 30, 2013 |
As of
December 31, 2012 |
|
||||||||||||||||||
|
2013 | 2012 | 2011 | 2010 | |||||||||||||||||
|
(in millions)
|
||||||||||||||||||||
Balance sheet data |
|||||||||||||||||||||
Cash and cash equivalents |
$ | $ | 283 | $ | 69 | $ | 25 | $ | 74 | ||||||||||||
Total assets |
9,181 | 8,306 | 5,099 | 4,942 | |||||||||||||||||
Total debt |
5,392 | 4,695 | 851 | 301 | |||||||||||||||||
Members'/stockholders' equity |
2,842 | 2,748 | 3,100 | 3,067 |
15
The following table provides an unaudited reconciliation of income (loss) from continuing operations to Adjusted EBITDAX and Pro Forma Adjusted EBITDAX:
|
EP Energy
Corporation Pro Forma |
EPE Acquisition, LLC
Historical |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Six months
ended June 30, (Successor) |
February 14
(inception) to December 31, (Successor) |
|
|
|
|
||||||||||||||||
|
Six
months ended June 30, 2013 |
|
|
January 1 to
May 24, (Predecessor) |
Years ended
December 31, (Predecessor) |
|||||||||||||||||||
|
|
|
||||||||||||||||||||||
|
Year ended
December 31, 2012 |
|||||||||||||||||||||||
|
2013 | 2012 |
|
2012 | 2011 | 2010 | ||||||||||||||||||
|
(in millions)
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Income (loss) from continuing operations |
$ | $ | 43 | $ | (286 | ) | $ | 178 | $ | 262 | $ | 443 | ||||||||||||
Income tax expense |
2 | 2 | 136 | 220 | 263 | |||||||||||||||||||
Interest expense, net of capitalized interest |
178 | 219 | 14 | 12 | 21 | |||||||||||||||||||
Depreciation, depletion and amortization |
277 | 217 | 319 | 612 | 477 | |||||||||||||||||||
Exploration expense |
27 | 50 | | | | |||||||||||||||||||
EBITDAX |
527 | 202 | 647 | 1,106 | 1,204 | |||||||||||||||||||
Net impact of financial derivatives(a) |
(12 | ) | 285 | (200 | ) | 47 | (99 | ) | ||||||||||||||||
Impairments and ceiling test charges |
10 | 1 | 62 | 158 | 25 | |||||||||||||||||||
Transition and restructuring costs(b) |
8 | 215 | 5 | 6 | | |||||||||||||||||||
Dividends from unconsolidated affiliate(c) |
17 | 13 | 8 | 46 | 50 | |||||||||||||||||||
(Income) loss from unconsolidated affiliate(d) |
(6 | ) | 1 | 5 | 7 | 7 | ||||||||||||||||||
Non-cash compensation expense(e) |
14 | 35 | 6 | 21 | 18 | |||||||||||||||||||
Management fee(f) |
13 | 16 | | | | |||||||||||||||||||
Loss on extinguishment of debt(g) |
3 | 14 | | | | |||||||||||||||||||
Adjusted EBITDAX |
574 | 782 | 533 | 1,391 | 1,205 | |||||||||||||||||||
Less: Adjusted EBITDAXdivested assets(h) |
11 | 31 | 75 | 559 | 700 | |||||||||||||||||||
Pro Forma Adjusted EBITDAX |
$ | $ | $ | 563 | $ | 751 | $ | 458 | $ | 832 | $ | 505 | ||||||||||||
16
Summary Pro Forma Operating and Reserve Information
Proved Reserves
The following table summarizes our estimated net proved reserves and related PV-10 as of June 30, 2013, after giving effect to our pending and recently completed divestitures described in "Recent Divestitures." The proved reserves as of June 30, 2013 are based on our internal reserve report. The reserve data represents only estimates, which are often different from the quantities of oil and natural gas that are ultimately recovered. The risks and uncertainties associated with estimating proved oil and natural gas reserves are discussed further in "Risk Factors." Net proved reserves exclude royalties and interests owned by others and reflect contractual arrangements and royalty obligations in effect at June 30, 2013. You should refer to "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" in evaluating the material presented below. The information in the following table does not give any effect to or reflect our commodity hedges.
Ryder Scott conducted an audit of the estimates of the proved reserves that we prepared as of June 30, 2013 and concluded that the overall procedures and methodologies we utilized in preparing these estimates complied with current SEC regulations and the overall proved reserves for the reviewed properties as estimated by us are, in aggregate, reasonable within the established audit tolerance guidelines of 10% as set forth in the Society of Petroleum Engineers ("SPE") auditing standards.
|
Pro Forma
as of June 30, 2013 |
|||
---|---|---|---|---|
Proved reserves(1): |
||||
Natural gas (MMcf) |
1,024,768 | |||
Oil/Condensate (MBbls) |
287,194 | |||
NGLs (MBbls) |
42,972 | |||
Total estimated net proved reserves (MBoe) |
500,960 | |||
Proved developed producing (MBoe) |
167,425 | |||
Proved developed non-producing (MBoe) |
18,752 | |||
Proved undeveloped (MBoe) |
314,784 | |||
Percent proved developed reserves (%) |
37% | |||
PV-10 (in millions)(2) |
$ | 7,386 |
17
The following table provides a reconciliation of PV-10 to the standardized measure of discounted future net cash flows (in millions):
|
Pro Forma
as of June 30, 2013 |
|||
---|---|---|---|---|
PV-10 |
$ | 7,386 | ||
Income taxes, discounted at 10% |
(99 | ) | ||
Standardized measure of discounted future net cash flows |
$ | 7,287 | ||
Production, Revenues and Price History
The following table sets forth information regarding net production and certain price and cost information for each of the periods indicated.
|
Six months
ended June 30, 2013 |
Year ended
December 31, 2012 |
Year ended
December 31, 2011 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Production data(1): |
||||||||||
Oil/Condensate (MBbls) |
6,015 | 8,986 | 4,760 | |||||||
Natural gas (MMcf) |
57,179 | 150,409 | 136,750 | |||||||
NGLs (MBbls) |
1,327 | 1,779 | 794 | |||||||
Combined production (MBoe) |
16,873 | 35,833 | 28,345 | |||||||
Average combined daily production (MBoe/d) |
93.2 | 97.9 | 77.7 | |||||||
Average realized prices on physical sales(2): |
||||||||||
Oil (Bbl) |
$ | 94.81 | $ | 92.02 | $ | 88.36 | ||||
Natural gas (Mcf) |
3.42 | 2.57 | 3.82 | |||||||
NGLs (Bbl) |
28.68 | 36.93 | 52.39 | |||||||
Average realized prices, including financial derivative settlements(2)(3): |
||||||||||
Oil (Bbl) |
$ | 101.39 | $ | 97.61 | $ | 86.78 | ||||
Natural gas (Mcf) |
3.12 | 5.08 | 6.64 | |||||||
NGLs (Bbl) |
28.68 | 36.93 | 52.39 | |||||||
Average cash operating cost per Boe(4): |
||||||||||
Lease operating expenses |
$ | 5.11 | $ | 3.49 | $ | 3.29 | ||||
Production taxes(5) |
3.01 | 2.04 | 1.38 | |||||||
General and administrative expenses |
7.36 | 13.04 | 6.29 | |||||||
Taxes other than production and income taxes |
(0.56 | ) | (0.10 | ) | 0.20 | |||||
Total |
$ | 14.92 | $ | 18.47 | $ | 11.16 | ||||
Depreciation, depletion and amortization |
$ | 17.73 | $ | 12.25 | $ | 12.93 |
18
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, as well as other information contained in this prospectus, before investing in our common stock. If any of the following risks actually occur, our business, financial condition, operating results or cash flow could be materially and adversely affected. Additional risks and uncertainties not presently known to us or not believed by us to be material may also negatively impact us.
Risks Related to Our Business and Industry
The supply and demand for oil, natural gas and NGLs could be negatively impacted by many factors outside of our control, which could have a material adverse effect on our business, results of operations and financial condition .
Our success depends on the domestic and worldwide supply and demand for oil, natural gas and NGLs which will depend on many other factors outside of our control, including:
19
The prices for oil, natural gas and NGLs are highly volatile and could be negatively impacted by many factors outside of our control, which could have a material adverse effect on our business, results of operations, cash flows and financial condition .
Our success depends upon the prices we receive for our oil, natural gas and NGLs. These commodity prices historically have been highly volatile and are likely to continue to be volatile in the future, especially given current global geopolitical and economic conditions. There is a risk that commodity prices could become depressed for sustained periods, especially natural gas prices. Except to the extent of our risk mitigation and hedging strategies, we can be impacted by short-term changes in commodity prices. We would also be negatively impacted in the long-term by any sustained depression in prices for oil, natural gas or NGLs, including reductions in our drilling opportunities. The prices for oil, natural gas and NGLs are subject to a variety of additional factors that are outside of our control, which include, among others:
In addition to negatively impacting our cash flows, prolonged or substantial declines in commodity prices could negatively impact our proved oil and natural gas reserves and impact the amount of oil and natural gas production that we can produce economically in the future. A decrease in production could result in a shortfall in our expected cash flows and require us to reduce our capital spending or borrow funds to cover any such shortfall. Prices also affect our cash flow available for capital expenditures and our ability to access funds under the RBL Facility and through the capital markets. The amount available for borrowing under the RBL Facility is subject to a borrowing base, which is determined by our lenders taking into account our proved reserves, and is subject to periodic redeterminations based on pricing models determined by the lenders at such time. Declines in oil, natural gas and NGLs prices may adversely impact the value of our proved reserves and, in turn, the bank pricing used by our lenders to determine our borrowing base. Any of these factors could
20
negatively impact our liquidity, our ability to replace our production and our future rate of growth. On the other hand, increases in these commodity prices may be offset by increases in drilling costs, production taxes and lease operating costs that typically result from any increase in such commodity prices. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.
The success of our business depends upon our ability to find and replace reserves that we produce.
Similar to our competitors, we have a reserve base that is depleted as it is produced. Unless we successfully replace the reserves that we produce, our reserves will decline, which will eventually result in a decrease in oil and natural gas production and lower revenues and cash flows from operations. We historically have replaced reserves through both drilling and acquisitions. The business of exploring for, developing or acquiring reserves requires substantial capital expenditures. If we do not continue to make significant capital expenditures (for any reason, including our access to capital resources becoming limited) or if our exploration, development and acquisition activities are unsuccessful, we may not be able to replace the reserves that we produce, which would negatively impact us. As a result, our future oil and natural gas reserves and production, and therefore our cash flow and results of operations, are highly dependent upon our success in efficiently developing and exploiting our current properties and economically finding or acquiring additional recoverable reserves. We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs or at all. If we are unable to replace our current and future production, the value of our reserves will decrease, and our business, results of operations and financial condition would be materially adversely affected.
In addition, we have certain areas in which we have incurred material costs to explore for and develop reserves. These unproved property costs include non-producing leasehold, geological and geophysical costs associated with unevaluated leasehold or drilling interests, and exploration drilling costs in investments in unproved properties and major development projects in which we own a direct interest. If costs are determined to be impaired, we record in our income statement the amount of any impairment.
Our oil and natural gas drilling and producing operations involve many risks, and our production forecasts may differ from actual results.
Our success will depend on our drilling results. Our drilling operations are subject to the risk that (i) we may not encounter commercially productive reservoirs or (ii) if we encounter commercially productive reservoirs, we either may not fully recover our investments or our rates of return will be less than expected. Our past performance should not be considered indicative of future drilling performance. For example, we have acquired acreage positions in domestic oil and natural gas shale areas for which we plan to incur substantial capital expenditures over the next several years. It remains uncertain whether we will be successful in developing the reserves in these regions. Our success in such areas will depend in part on our ability to successfully transfer our experiences from existing areas into these new shale plays. As a result, there remains uncertainty on the results of our drilling programs, including our ability to realize proved reserves or to earn acceptable rates of return on our drilling programs. From time to time, we provide forecasts of expected quantities of future production. These forecasts are based on a number of estimates, including expectations of production from existing wells and the outcome of future drilling activity. Our forecasts could be different from actual results and such differences could be material.
Our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often inconclusive or subject to varying interpretations. In addition, the results of our exploratory drilling in new or emerging areas are
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more uncertain than drilling results in areas that are developed and have established production. Our cost of drilling, completing, equipping and operating wells is often uncertain before drilling commences. Overruns in budgeted expenditures are common risks that can make a particular project uneconomical or less economic than forecasted. Further, many factors may increase the cost of, or curtail, delay or cancel drilling operations, including the following:
Additionally, the occurrence of certain of these events, particularly equipment failures or accidents, could impact third parties, including persons living in proximity to our operations, our employees and employees of our contractors, leading to possible injuries or death or significant property damage. As a result, we face the possibility of liabilities from these events that could materially adversely affect our business, results of operations and financial condition.
In addition, uncertainties associated with enhanced recovery methods may not allow for the extraction of oil and natural gas in a manner or to the extent that we anticipate and we may be unable to realize an acceptable return on our investments in certain of our projects. The additional production and reserves, if any, attributable to the use of enhanced recovery methods are inherently difficult to predict.
Our use of derivative financial instruments could result in financial losses or could reduce our income.
We use fixed price financial options and swaps to mitigate our commodity price, basis and interest rate exposures. However, we do not typically hedge all of these exposures, and typically do not hedge any of these exposures beyond several years. As a result, we have substantial commodity price and basis exposure since our business has multi-year drilling programs for our proved reserves and unproved resources.
The derivative contracts we enter into to mitigate commodity price risk are not designated as accounting hedges and are therefore marked to market. As a result, we still experience volatility in our revenues and net income due to changes in commodity prices, counterparty non-performance risks, correlation factors and changes in the liquidity of the market. Furthermore, the valuation of these financial instruments involves estimates that are based on assumptions that could prove to be incorrect and result in financial losses. Although we have internal controls in place that impose restrictions on the use of derivative instruments, there is a risk that such controls will not be complied with or will not
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be effective, and we could incur substantial losses on our derivative transactions. The use of derivatives, to the extent they require collateral posting with our counterparties, could impact our working capital and liquidity when commodity prices or interest rates change.
To the extent we enter into derivative contracts to manage our commodity price, basis and interest rate exposures, we may forego the benefits we could otherwise experience if such prices and rates were to change favorably and we could experience losses to the extent that these prices and rates were to increase above the fixed price. In addition, these hedging arrangements also expose us to the risk of financial loss in the following circumstances, among others:
Our derivative counterparties are typically large financial institutions. The risk that a counterparty may default on its obligations has been heightened by the recent financial sector crisis and losses incurred by many banks and other financial institutions, including our counterparties or their affiliates. These losses may affect the ability of the counterparties to meet their obligations to us on hedge transactions, which would reduce our revenue from hedges at a time when we are also receiving a lower price for our oil and natural gas sales. As a result, our business, results of operations and financial condition could be materially adversely affected.
In addition, our commodity derivative activities could have the effect of reducing our revenue and net income. As of June 30, 2013, the net unrealized asset represented by our commodity hedging contracts was $186 million. We may continue to incur significant unrealized gains or losses in the future from our commodity derivative activities to the extent market prices increase or decrease and our hedging arrangements remain in place.
The derivatives reform legislation adopted by the U.S. Congress could have a negative impact on our ability to hedge risks associated with our business.
In 2010, Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which, among other matters, provides for federal oversight of the over-the-counter derivatives market and entities that participate in that market. The Dodd-Frank Act mandates that the Commodity Futures Trading Commission ("CFTC"), adopt rules and regulations implementing the Dodd-Frank Act and further defining certain terms used in the Dodd-Frank Act. The Dodd-Frank Act also requires the CFTC and the prudential banking regulators to establish margin requirements for uncleared swaps. Although there is an exception from swap clearing and trade execution requirements for commercial end-users that meet certain conditions (the "End-User Exception"), certain market participants, including most if not all of our counterparties, will also be required to clear many of their swap transactions with entities that do not satisfy the End-User Exception and will have to transact many of their swaps on swap execution facilities or designated contract markets, rather than over-the-counter on a bilateral basis. These requirements may increase the cost to our counterparties of hedging the swap positions they enter into with us, and thus may increase the cost to us of entering into our hedges. The changes in the regulation of swaps may result in certain market participants deciding to curtail or cease their derivatives activities. While many regulations have been promulgated and are already in effect, the rulemaking and implementation process is still ongoing, and we cannot yet predict the ultimate effect of the rules and regulations on our business.
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We currently qualify as a "non-financial entity" for purposes of the End-User Exception and expect to satisfy the other requirements of the End-User Exception. As a result, our hedging activity will not be subject to mandatory clearing, we do not expect to clear our swaps and our swap transactions will not be subject to the margin requirements imposed by derivatives clearing organizations. Because the margin regulations for uncleared swaps have not been adopted, we do not yet know whether our counterparties will be required to collect liquid margin from us for those swaps.
A rule adopted under the Dodd-Frank Act imposing position limits in respect of transactions involving certain commodities, including oil and natural gas was vacated and remanded to the CFTC for further proceedings by order of the United States District Court for the District of Columbia, U.S. District Judge Robert L. Wilkins on September 28, 2012. Although the CFTC is appealing that decision and, if unsuccessful, is likely to adopt a new rule, we cannot predict whether or when such a rule will be adopted or the effect of such a rule on our business. The Dodd-Frank Act and the rules promulgated thereunder could significantly increase the cost of derivative contracts (including through requirements to post collateral), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. Finally, the Dodd-Frank Act was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity contracts related to oil and natural gas. Our revenues could therefore be adversely affected if a consequence of the Dodd-Frank Act and regulations is to lower commodity prices. Any of these consequences could have a material and adverse effect on our business, financial condition and results of operations.
We require substantial capital expenditures to conduct our operations, engage in acquisition activities and replace our production, and we may be unable to obtain needed financing on satisfactory terms necessary to execute our operating strategy .
We require substantial capital expenditures to conduct our exploration, development and production operations, engage in acquisition activities and increase our proved reserves and production. We have established a capital budget for 2013 of approximately $1.9 billion and we intend to rely on cash flow from operating activities, available cash and borrowings under the RBL Facility as our primary sources of liquidity. We also may engage in asset sale transactions such as the pending and recently completed divestitures to, among other things, fund capital expenditures when market conditions permit us to complete transactions on terms we find acceptable. There can be no assurance that such sources will be sufficient to fund our exploration, development and acquisition activities. If our revenues and cash flows decrease in the future as a result of a decline in commodity prices or a reduction in production levels, however, and we are unable to obtain additional equity or debt financing in the capital markets or access alternative sources of funds, we may be required to reduce the level of our capital expenditures and may lack the capital necessary to increase or even maintain our reserves and production levels.
Our future revenues, cash flows and spending levels are subject to a number of factors, including commodity prices, the level of production from existing wells and our success in developing and producing new wells. Further, our ability to access funds under the RBL Facility is based on a borrowing base, which is subject to periodic redeterminations based on our proved reserves and prices that will be determined by our lenders using the bank pricing prevailing at such time. If the prices for oil and natural gas decline, if we have a downward revision in estimates of our proved reserves, or if we sell additional oil and natural gas reserves, our borrowing base may be reduced.
Our ability to access the equity and debt markets and complete future asset monetization transactions is also dependent upon oil, natural gas and NGLs prices, in addition to a number of other
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factors, some of which are outside our control. These factors include, among others, domestic and global economic conditions and conditions in the domestic and global financial markets.
Due to these factors, we cannot be certain that funding, if needed, will be available to the extent required, or on acceptable terms. If we are unable to access funding when needed on acceptable terms, we may not be able to fully implement our business plans, take advantage of business opportunities, respond to competitive pressures or refinance our debt obligations as they come due, any of which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Estimating our reserves involves uncertainty, our actual reserves will likely vary from our estimates, and negative revisions to our reserve estimates in the future could result in decreased earnings and/or losses and impairments.
All estimates of proved reserves are determined according to the rules prescribed by the SEC. Our reserve information is prepared internally and is audited by an independent petroleum engineering consultant. There are numerous uncertainties involved in estimating proved reserves, which may result in our estimates varying considerably from actual results. Estimating quantities of proved reserves is complex and involves significant interpretation and assumptions with respect to available geological, geophysical and engineering data, including data from nearby producing areas. It also requires us to estimate future economic factors, such as commodity prices, production costs, plugging and abandonment costs, severance, ad valorem and excise taxes, capital expenditures, workover and remedial costs, and the assumed effect of governmental regulation. Due to a lack of substantial production data, there are greater uncertainties in estimating proved undeveloped reserves and proved developed non-producing reserves. There is also greater uncertainty of estimating proved developed reserves that are early in their production life. As a result, our reserve estimates are inherently imprecise. Furthermore, estimates are subject to revision based upon a number of factors, including many factors beyond our control such as reservoir performance, prices (including commodity prices and the cost of oilfield services), economic conditions and government restrictions and regulations. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of that estimate. Therefore, our reserve information represents an estimate and is often different from the quantities of oil and natural gas that are ultimately recovered or proven recoverable.
The SEC rules require the use of a 10% discount factor for estimating the value of our future net cash flows from reserves and the use of a 12-month average price. This discount factor may not necessarily represent the most appropriate discount factor, given our costs of capital, actual interest rates and risks faced by our exploration and production business, and the average price will not generally represent the market prices for oil and natural gas over time. Any significant change in commodity prices could cause the estimated quantities and net present value of our reserves to differ and these differences could be material. You should not assume that the present values referred to in this prospectus represent the current market value of our estimated oil and natural gas reserves. Finally, the timing of the production and the expenses related to the development and production of oil and natural gas properties will affect both the timing of actual future net cash flows from our proved reserves and their present value.
We account for our activities under the successful efforts method of accounting. Changes in the present value of these reserves could result in a write-down in the carrying value of our oil and natural gas properties, which could be substantial and could have a material adverse effect on our net income and stockholder's equity. Changes in the present value of these reserves could also result in increasing our depreciation, depletion and amortization rates, which could decrease earnings.
A portion of our proved reserves are undeveloped. Recovery of undeveloped reserves requires significant capital expenditures and successful drilling operations. In addition, because our proved
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reserve base consists primarily of unconventional resources, the costs of finding, developing and producing those reserves may require capital expenditures that are greater than more conventional resource plays. Our estimates of proved reserves assume that we can and will make these expenditures and conduct these operations successfully. However, future events, including commodity price changes and our ability to access capital markets, may cause these assumptions to change.
Our business is subject to competition from third parties, which could negatively impact our ability to succeed.
The oil, natural gas and NGLs businesses are highly competitive. We compete with third parties in the search for and acquisition of leases, properties and reserves, as well as the equipment, materials and services required to explore for and produce our reserves. There has been intense competition for the acquisition of leasehold positions, particularly in many of the oil and natural gas shale plays. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing oil properties. Similarly, we compete with many third parties in the sale of oil, natural gas and NGLs to customers, some of which have substantially larger market positions, marketing staff and financial resources than us. Our competitors include major and independent oil and natural gas companies, as well as financial services companies and investors, many of which have financial and other resources that are substantially greater than those available to us. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices.
Furthermore, there is significant competition between the oil and natural gas industry and other industries producing energy and fuel, which may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the U.S. government. It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such laws and regulations may substantially increase the costs of exploring for, developing or producing oil and natural gas and may prevent or delay the commencement or continuation of a given operation. Our larger competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws and regulations more easily than we can, which could negatively impact our competitive position.
Our industry is cyclical, and historically there have been shortages of drilling rigs, equipment, supplies or qualified personnel. During these periods, the cost of rigs, equipment, supplies and personnel are substantially greater and their availability may be limited. These services may not be available on commercially reasonable terms or at all. We cannot predict whether these conditions will exist in the future and, if so, what their timing and duration will be. The high cost or unavailability of drilling rigs, equipment, supplies, personnel and other oil field services could significantly decrease our profit margins, cash flows and operating results and could restrict our ability to drill the wells and conduct the operations that we currently have planned and budgeted or that we may plan in the future. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.
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Our business is subject to operational hazards and uninsured risks that could have a material adverse effect on our business, results of operations and financial condition.
Our oil and natural gas exploration and production activities are subject to all of the inherent risks associated with drilling for and producing natural gas and oil, including the possibility of:
Each of these risks could result in (i) damage to and destruction of our facilities, (ii) damage to and destruction of property, natural resources and equipment; (iii) injury or loss of life; (iv) business interruptions while damaged energy infrastructure is repaired or replaced; (v) pollution and other environmental damage; (vi) regulatory investigations and penalties; and (vii) repair and remediation costs. Any of these results could cause us to suffer substantial losses. Our offshore operations in Brazil which are in the process of being divested may encounter additional marine perils, including adverse weather conditions, damage from collisions with vessels, and governmental regulations (including interruption or termination of drilling rights by governmental authorities based on environmental, safety and other considerations).
While we maintain insurance against some of these risks in amounts that we believe are reasonable, our insurance coverages have material deductibles, self-insurance levels and limits on our maximum recovery and do not cover all risks. For example, from time to time, we may not carry, or may be unable to obtain, on terms that we find acceptable and/or reasonable, insurance coverage for certain exposures, including, but not limited to certain environmental exposures (including potential environmental fines and penalties), business interruption and, named windstorm/hurricane exposures and, in limited circumstances, certain political risk exposures. The premiums and deductibles we pay for certain insurance policies are also subject to the risk of substantial increases over time that could negatively impact our financial results. In addition, we may not be able to renew existing insurance policies or procure desirable insurance on commercially reasonable terms. There is also a risk that our insurers may default on their insurance coverage obligations or that amounts for which we are insured, or that the proceeds of such insurance, will not compensate us fully for our losses. Any of these
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outcomes could have a material adverse effect on our business, results of operations and financial condition.
Some of our operations are subject to joint ventures or operations by third parties, which could negatively impact our control over these operations and have a material adverse effect on our business, results of operations, financial condition and prospects.
Some of our operations and interests are subject to joint ventures or are operated by other companies, including our approximate 49% equity interest in Four Star. Although we operate the substantial majority of the properties in our business, certain of our properties are operated by joint venture partners or other third-party working interest owners. In certain cases, (i) we have limited ability to influence or control the day-to-day operation of such properties, including compliance with environmental, safety and other regulations, (ii) we cannot control the amount of capital expenditures that we are required to fund with respect to properties, (iii) we are dependent on third parties to fund their required share of capital expenditures and (iv) we may have restrictions or limitations on our ability to sell our interests in these jointly owned assets.
The failure of an operator of our properties to adequately perform operations or an operator's breach of applicable agreements could reduce our production and revenue. As a result, the success and timing of our drilling and development activities on properties operated by others depends upon a number of factors outside of our control, including the operator's timing and amount of capital expenditures, expertise and financial resources, inclusion of other participants in drilling wells and use of technology.
We currently sell most of our oil production to a limited number of significant purchasers. The loss of one or more of these purchasers, if not replaced, could reduce our revenues and have a material adverse effect on our financial condition or results of operations.
For the six months ended June 30, 2013, three purchasers accounted for more than 74% of our oil revenues. We depend upon a limited number of significant purchasers for the sale of most of our production. The loss of any of these customers should we be unable to replace them could adversely affect our revenues and have a material adverse effect on our financial condition and results of operations. We cannot assure you that any of our customers will continue to do business with us or that we will continue to have access to suitably liquid markets for our future production.
We are subject to a complex set of laws and regulations that regulate the energy industry for which we have to incur substantial compliance and remediation costs.
Our operations, and the energy industry in general, are subject to a complex set of federal, state and local laws and regulations over the following activities, among others:
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Generally, over time the regulations have become more stringent and have imposed more limitations on our operations and, as a result, have caused us to incur more costs to comply. Many required approvals are subject to considerable discretion by the regulatory agencies with respect to the timing and scope of approvals and permits issued. If permits are not issued, or if unfavorable restrictions or conditions are imposed on our drilling activities, we may not be able to conduct our operations as planned or at all. Delays in obtaining regulatory approvals or permits, the failure to obtain a drilling permit for a well, or the receipt of a permit with excessive conditions or costs could have a material negative impact on our operations and financial results. We may also incur substantial costs in order to maintain compliance with these existing laws and regulations, including costs to comply with new and more extensive reporting and disclosure requirements. Failure to comply with such requirements may result in the suspension or termination of operations and may subject us to criminal as well as civil and administrative penalties. We are exposed to fines and penalties to the extent that we fail to comply with the applicable laws and regulations, as well as the potential for limitations to be imposed on our operations. In addition, our costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to our operations. Such costs could have a material adverse effect on our business, financial condition and results of operations.
Also, some of our assets are located and operate on federal, state, local or tribal lands and are typically regulated by one or more federal, state or local agencies. For example, we have drilling and production operations that are located on federal lands, which are regulated by the U.S. Department of the Interior ("DOI"), particularly by the Bureau of Land Management. We also have operations on Native American tribal lands, which are regulated by the DOI, particularly by the Bureau of Indian Affairs ("BIA"), as well as local tribal authorities. Operations on these properties are often subject to additional regulations and compliance obligations, which can delay our access to such lands and impose additional compliance costs. There are also various laws and regulations that regulate various market practices in the industry, including antitrust laws and laws that prohibit fraud and manipulation in the markets in which we operate. The authority of the Federal Trade Commission and the CFTC to impose penalties for violations of laws or regulations has generally increased over the last few years.
We are exposed to the credit risk of our counterparties, contractors and suppliers.
We have significant credit exposure related to our sales of physical commodities, payments to contractors and suppliers and hedging activities. If our counterparties fail to make payments/or perform within the time required under our contracts, our results of operations and financial condition could be materially adversely affected. Although we maintain strict credit policies and procedures, they may not be adequate to fully eliminate the credit risk associated with our counterparties, contractors and suppliers.
We are exposed to the performance risk of our key contractors and suppliers.
As an owner of drilling and production facilities with significant capital expenditures in our business, we rely on contractors for certain construction, drilling and completion operations and we rely on suppliers for key materials, supplies and services, including steel mills, pipe and tubular manufacturers and oil field service providers. We also rely upon the services of other third parties to
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explore or analyze our prospects to determine a method in which the prospects may be developed in a cost-effective manner. There is a risk that such contractors and suppliers may experience credit and performance issues that could adversely impact their ability to perform their contractual obligations with us, including their performance and warranty obligations. This could result in delays or defaults in performing such contractual obligations and increased costs to seek replacement contractors, each of which could negatively impact us.
The loss of the services of key personnel could have a material adverse effect on our business.
The leadership of our executive officers and other members of our senior management has been a critical element of our success. These individuals have substantial experience and expertise in our business and have made significant contributions to our growth and success. We do not have key man or similar life insurance covering our executive officers and other members of senior management. We have entered into employment agreements with each of our executive officers, including Brent J. Smolik, our President and Chief Executive Officer, and Dane E. Whitehead, our Executive Vice President and Chief Financial Officer, but these agreements do not guarantee that these executives will remain with us. The unexpected loss of services of one or more of our executive officers or members of senior management could have a material adverse effect on our business.
Our business requires the retention and recruitment of a skilled workforce and the loss of employees and skilled labor shortages could result in the inability to implement our business plans and could negatively impact our profitability.
Our business requires the retention and recruitment of a skilled workforce including engineers, technical personnel, geoscientists, project managers, land personnel and other professionals. We compete with other companies in the energy industry for this skilled workforce. We have developed company-wide compensation and benefit programs that are designed to be competitive among our industry peers and that reflect market-based metrics as well as incentives to create alignment with the Sponsors and other investors, but there is a risk that these programs and those in the future will not be successful in retaining and recruiting these professionals or that we could experience increased costs. If we are unable to (i) retain our current employees, (ii) successfully complete our knowledge transfer and/or (iii) recruit new employees of comparable knowledge and experience, our business, results of operations and financial condition could be negatively impacted. In addition, we could experience increased costs to retain and recruit these professionals.
We may be affected by skilled labor shortages, which we have from time-to-time experienced, especially in North American regions where there are large unconventional shale resource plays. These shortages could negatively impact the productivity and profitability of certain projects. Our inability to bid on new and attractive projects, or maintain productivity and profitability on existing projects, due to the limited supply of skilled workers and/or increased labor costs could have a material adverse effect on our business, results of operation and financial condition.
Part of our strategy involves drilling in existing or emerging shale plays using some of the latest available horizontal drilling and completion techniques, the results of which are subject to drilling and completion technique risks, and drilling results may not meet our expectations for reserves or production.
Many of our operations involve utilizing the latest horizontal drilling and completion techniques in order to maximize cumulative recoveries and therefore optimize our returns. Drilling risks that we face include, but are not limited to, landing our well bore in the desired drilling zone, staying in the desired drilling zone while drilling horizontally through the formation, running our casing the entire length of the well bore and being able to run tools and other equipment consistently through the horizontal well bore. Risks that we face while completing our wells include, but are not limited to, being able to fracture stimulate the planned number of stages, being able to run tools the entire length of the well
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bore during completion operations and successfully cleaning out the well bore after completion of the final fracture stimulation stage.
Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently longer period. If our drilling results are less than anticipated, the return on our investment for a particular project may not be as attractive as we anticipated and we could incur material write-downs of unevaluated properties and the value of our undeveloped acreage could decline in the future.
Drilling locations that we decide to drill may not yield oil, natural gas or NGLs in commercially viable quantities.
We describe potential drilling locations and our plans to explore those potential drilling locations in this prospectus. These potential drilling locations are in various stages of evaluation, ranging from a location which is ready to drill to a location that will require substantial additional interpretation. There is no way to predict in advance of drilling and testing whether any particular location will yield oil, natural gas or NGLs in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of technologies and the study of producing fields in the same area will not enable us to know conclusively, prior to drilling, whether oil, natural gas or NGLs will be present or, if present, whether oil, natural gas or NGLs will be present in sufficient quantities to be economically viable. Even if sufficient amounts of oil, natural gas or NGLs exist, we may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production from the well or abandonment of the well. We cannot assure you that the analogies we draw from available data from other wells, more fully explored locations or producing fields will be applicable to our other identified drilling locations. Further, initial production rates reported by us or other operators may not be indicative of future or long-term production rates. The cost of drilling, completing and operating any well is often uncertain, and new wells may not be productive.
Our drilling locations are scheduled to be drilled over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.
Our management has identified and scheduled potential drilling locations as an estimate of our future multi-year drilling activities on our existing acreage. All of our potential drilling locations, particularly our potential drilling locations for oil, represent a significant part of our growth strategy. Our ability to drill and develop these locations is subject to a number of uncertainties, including the availability of capital, seasonal conditions, regulatory approvals, oil, natural gas and NGLs prices, costs and drilling results. Because of these uncertainties, we do not know if the drilling locations we have identified will ever be drilled or if we will be able to produce oil, natural gas or NGLs from these or any other potential drilling locations. Pursuant to existing SEC rules and guidance, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled to be drilled within five years of the date of booking. These rules and guidance may limit our potential to book additional proved undeveloped reserves as we pursue our drilling program.
New technologies may cause our current exploration and drilling methods to become obsolete.
The oil and natural gas industry is subject to rapid and significant advancements in technology, including the introduction of products and services using new technologies. As competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. In addition, competitors may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. One or more of the technologies that we currently use or that we may implement in the future may become obsolete. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. If we are unable to maintain technological advancements consistent with industry standards, our business, results of operations and financial condition may be materially adversely affected.
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Our business depends on access to oil, natural gas and NGLs processing, gathering and transportation systems and facilities.
The marketability of our oil, natural gas and NGLs production depends in large part on the operation, availability, proximity, capacity and expansion of processing, gathering and transportation facilities owned by third parties. We can provide no assurance that sufficient processing, gathering and/or transportation capacity will exist or that we will be able to obtain sufficient processing, gathering and/or transportation capacity on economic terms. A lack of available capacity on processing, gathering and transportation facilities or delays in their planned expansions could result in the shut-in of producing wells or the delay or discontinuance of drilling plans for properties. A lack of availability of these facilities for an extended period of time could negatively impact our revenues. In addition, we have entered into contracts for firm transportation and any failure to renew those contracts on the same or better commercial terms could increase our costs and our exposure to the risks described above.
Our operations are substantially dependent on the availability of water. Restrictions on our ability to obtain water may have an adverse effect on our financial condition, results of operations and cash flows.
Water currently is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing processes. Historically, we have been able to purchase water from local land owners for use in our operations. According to the Lower Colorado River Authority, during 2011, Texas experienced the lowest inflows of water of any year in recorded history. As a result of this severe drought, some local water districts have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply. If we are unable to obtain water to use in our operations from local sources, we may be unable to economically produce our reserves, which could have an adverse effect on our financial condition, results of operations and cash flows.
We may face unanticipated water and other waste disposal costs.
We may be subject to regulation that restricts our ability to discharge water produced as part of our operations. Productive zones frequently contain water that must be removed in order for the oil and natural gas to produce, and our ability to remove and dispose of sufficient quantities of water from the various zones will determine whether we can produce oil and natural gas in commercial quantities. The produced water must be transported from the lease and injected into disposal wells. The availability of disposal wells with sufficient capacity to receive all of the water produced from our wells may affect our ability to produce our wells. Also, the cost to transport and dispose of that water, including the cost of complying with regulations concerning water disposal, may reduce our profitability.
Where water produced from our projects fails to meet the quality requirements of applicable regulatory agencies, our wells produce water in excess of the applicable volumetric permit limits, the disposal wells fail to meet the requirements of all applicable regulatory agencies, or we are unable to secure access to disposal wells with sufficient capacity to accept all of the produced water, we may have to shut in wells, reduce drilling activities, or upgrade facilities for water handling or treatment. The costs to dispose of this produced water may increase if any of the following occur:
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Our acquisition attempts may not be successful or may result in completed acquisitions that do not perform as anticipated.
We have made and may continue to make acquisitions of businesses and properties. However, suitable acquisition candidates may not continue to be available on terms and conditions we find acceptable or at all. Any acquisition, including any completed or future acquisition, involves potential risks, including, among others:
Any of the above risks could significantly impair our ability to manage our business and have a material adverse effect on our business, results of operations and financial condition.
Certain of our undeveloped leasehold acreage is subject to leases that will expire in several years unless production is established on units containing the acreage.
Although most of our reserves are located on leases that are held-by-production or held by continuous development, we do have provisions in many of our leases that provide for the lease to expire unless certain conditions are met, such as drilling having commenced on the lease or production in paying quantities having been obtained within a defined time period. If commodity prices remain low or we are unable to fund our anticipated capital program there is a risk that some of our existing
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proved reserves and some of our unproved inventory could be subject to lease expiration or a requirement to incur additional leasehold costs to extend the lease. This could result in a reduction in our reserves and our growth opportunities (or the incurrence of significant costs) and therefore could have a material adverse effect on our financial results.
If oil and/or natural gas prices decrease, we may be required to take write-downs of the carrying values of our properties, which could result in a material adverse effect on our results of operations and financial condition.
Accounting rules require that we review periodically the carrying value of our oil and natural gas properties for impairment. Under the successful efforts method of accounting, we review our oil and natural gas properties periodically (at least annually) to determine if impairment of such properties is necessary. Significant undeveloped leasehold costs are assessed for impairment at a lease level or resource play level based on our current exploration plans, while leasehold acquisition costs associated with prospective areas that have limited or no previous exploratory drilling are generally assessed for impairment by major prospect area. Proved oil and natural gas property values are reviewed when circumstances suggest the need for such a review and may occur if actual discoveries in a field are lower than anticipated reserves, reservoirs produce below original estimates or if commodity prices fall to a level that significantly affects anticipated future cash flows on the property. If required, the proved properties are written down to their estimated fair market value based on proved reserves and other market factors.
We may incur impairment charges in the future depending on the value of our proved reserves, which are subject to change as a result of factors such as prices, costs and well performance. These impairment charges could have a material adverse effect on our results of operations and financial condition for the periods in which such charges are taken.
Our operations are subject to governmental laws and regulations relating to environmental matters, which may expose us to significant costs and liabilities and could exceed current expectations. In addition, regulations relating to climate change and energy conservation may negatively impact our operations.
Our business is subject to laws and regulations that govern environmental matters. These regulations include compliance obligations for air emissions, water quality, wastewater discharge and solid and hazardous waste disposal, spill prevention, control and countermeasures, as well as regulations designed for the protection of threatened or endangered species. In some cases, our operations are subject to federal requirements for performing or preparing environmental assessments, environmental impact studies and/or plans of development before commencing exploration and production activities. In addition, our activities are subject to state regulations relating to conservation practices and protection of correlative rights. These regulations may negatively impact our operations and limit the quantity of natural gas and oil we produce and sell. We must take into account the cost of complying with such requirements in planning, designing, constructing, drilling, operating and abandoning wells and related surface facilities, including gathering, transportation, storage and waste disposal facilities. The regulatory frameworks govern, and often require permits for, the handling of drilling and production materials, water withdrawal, disposal of produced water, drilling and production wastes, operation of air emissions sources, and drilling activities, including those conducted on lands lying within wilderness, wetlands, Federal and Indian lands and other protected areas. Various governmental authorities, including the U.S. Environmental Protection Agency ("EPA"), the Department of the Interior ("DOI"), the Bureau of Indian Affairs ("BIA") and analogous state agencies and tribal governments, have the power to enforce compliance with these laws and regulations and the permits issued under them, often requiring difficult and costly actions, such as installing and maintaining pollution controls and maintaining measures to address personnel and process safety and protection of the environment and animal habitat near our operations. Failure to comply with these laws, regulations and permits may result in the assessment of administrative, civil and criminal
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penalties, the imposition of remedial obligations, the imposition of stricter conditions on or revocation of permits, the issuance of injunctions limiting or preventing some or all of our operations, delays in granting permits and cancellation of leases. Our exploration and production operations in Brazil (which we expect to be sold by the end of the first quarter of 2014) are subject to various types of regulations similar to those described above, which are imposed by the Brazilian government, and which may affect our operations and costs within that country. Liabilities, penalties, suspensions, terminations and increased costs resulting from any failure to comply with regulations and requirements of the type described above, or from the enactment of additional similar regulations or requirements in the future or a change in the interpretation or the enforcement of existing regulations or requirements of this type, could have a material adverse effect on our business, results of operations and financial condition.
On December 15, 2009, the EPA published its findings that emissions of carbon dioxide, methane, and other GHGs, present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth's atmosphere and other climate changes. These findings served as a statutory prerequisite for EPA to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the Clean Air Act. The EPA has adopted two sets of related rules, one of which regulates emissions of GHGs from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources of emissions such as power plants or industrial facilities. The EPA finalized the motor vehicle rule in April 2010 and it became effective January 2011. The EPA adopted the stationary source rule, also known as the "Tailoring Rule," in May 2010, and it also became effective January 2011. Additionally, in September 2009, the EPA issued a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the U.S., including NGLs fractionators and local natural gas/distribution companies, beginning in 2011 for emissions occurring in 2010. In November 2010, the EPA expanded its existing GHG reporting rule to include onshore and offshore oil and natural gas production and onshore processing, transmission, storage and distribution facilities, which may include certain of our facilities, beginning in 2012 for emissions occurring in 2011. In addition, the EPA has continued to adopt GHG regulations of other industries, such as the March 2012 proposed GHG rule restricting future development of coal-fired power plants. As a result of this continued regulatory focus, future GHG regulations of the oil and natural gas industry remain a possibility.
In addition, the U.S. Congress has from time to time considered adopting legislation to reduce emissions of GHGs and almost one-half of the states have already taken legal measures to reduce emissions of GHGs primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Although the U.S. Congress has not adopted such legislation at this time, it may do so in the future and many states continue to pursue regulations to reduce greenhouse gas emissions. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants or major producers of fuels, such as refineries and natural gas processing plants, to acquire and surrender emission allowances that correspond to their annual emissions of GHGs. The number of allowances available for purchase is reduced each year until the overall GHG emission reduction goal is achieved. As the number of GHG emission allowances declines each year, the cost or value of such allowances is expected to escalate significantly.
Regulation of GHG emissions could also result in reduced demand for our products, as oil and natural gas consumers seek to reduce their own GHG emissions. Any regulation of GHG emissions, including through a cap-and-trade system, technology mandate, emissions tax, reporting requirement or other program, could have a material adverse effect on our business, results of operations and financial condition. In addition, to the extent climate change results in more severe weather and significant physical effects, such as increased frequency and severity of storms, floods, droughts and other climatic effects, our own, our counterparties' or our customers' operations may be disrupted, which could result in a decrease in our available products or reduce our customers' demand for our products.
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Further, there have been various legislative and regulatory proposals at the federal and state levels to provide incentives and subsidies to (i) shift more power generation to renewable energy sources and (ii) support technological advances to drive less energy consumption. These incentives and subsidies could have a negative impact on oil, natural gas and NGLs consumption.
Any of the above risks could impair our ability to manage our business and have a material adverse effect on our operations, cash flows and financial position.
Our operations may be exposed to significant delays, costs and liabilities as a result of environmental and health and safety laws and regulations applicable to our business and new legislation or regulation on safety procedures in exploration and production operations could require us to adopt expensive measures and adversely impact our results of operation.
There is inherent risk in our operations of incurring significant environmental costs and liabilities due to our generation and handling of petroleum hydrocarbons and wastes, because of our air emissions and wastewater discharges, and as a result of historical industry operations and waste disposal practices. Some of our owned and leased properties have been used for oil and natural gas exploration and production activities for a number of years, often by third parties not under our control. During that time, we and/or other owners and operators of these facilities may have generated or disposed of wastes that polluted the soil, surface water or groundwater at our facilities and adjacent properties. For our non-operated properties, we are dependent on the operator for operational and regulatory compliance. We could be subject to claims for personal injury and/or natural resource and property damage (including site clean-up and restoration costs) related to the environmental, health or safety impacts of our oil and natural gas production activities, and we have been from time to time, and currently are, named as a defendant in litigation related to such matters. Under certain laws, we also could be subject to joint and several and/or strict liability for the removal or remediation of contamination regardless of whether such contamination was the result of our activities, even if the operations were in compliance with all applicable laws at the time the contamination occurred and even if we no longer own and/or operate on the properties. Private parties, including the owners of properties upon which our wells are drilled and facilities where our petroleum hydrocarbons or wastes are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance, as well as to seek damages for non-compliance, with environmental laws and regulations or for personal injury or property damage. We have been and continue to be responsible for remediating contamination, including at some of our current and former facilities or areas where we produce hydrocarbons. While to date none of these obligations or claims have involved costs that have materially adversely affected our business, we cannot predict with certainty whether future costs of newly discovered or new contamination might result in a materially adverse impact on our business or operations.
Partially as a result of an explosion on an offshore platform of a third party in 2010 and subsequent release of oil into the Gulf of Mexico, there have been various regulations proposed and implemented that could materially impact the costs of exploration and production operations, as well as cause substantial delays in the receipt of regulatory approvals from both an environmental and safety perspective in the Gulf of Mexico. Although we have sold our Gulf of Mexico assets, it is also possible that similar, more stringent, regulations might be enacted or delays in receiving permits may occur in other areas, such as in offshore regions of other countries (such as Brazil) and in other onshore regions of the United States (including drilling operations on other federal or state lands).
Our operations could result in an equipment malfunction or oil spill that could expose us to significant liability.
Despite the existence of various procedures and plans, there is a risk that we could experience well control problems in our operations. As a result, we could be exposed to regulatory fines and penalties,
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as well as landowner lawsuits resulting from any spills or leaks that might occur. While we maintain insurance against some of these risks in amounts that we believe are reasonable, our insurance coverages have material deductibles, self-insurance levels and limits on our maximum recovery and do not cover all risks. For example, from time to time we may not carry, or may be unable to obtain on terms that we find acceptable and/or reasonable, insurance coverage for certain exposures including, but not limited to, certain environmental exposures (including potential environmental fines and penalties), business interruption and named windstorm/hurricane exposures and, in limited circumstances, certain political risk exposures. The premiums and deductibles we pay for certain insurance policies are also subject to the risk of substantial increases over time that could negatively impact our financial results. In addition, we may not be able to renew existing insurance policies or procure desirable insurance on commercially reasonable terms. There is also a risk that our insurers may default on their insurance coverage obligations or that amounts for which we are insured, or that the proceeds of such insurance, will not compensate us fully for our losses. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.
Although we might also have remedies against our contractors or vendors or our joint working interest owners with regard to any losses associated with unintended spills or leaks the ability to recover from such parties will depend on the indemnity provisions in our contracts as well as the facts and circumstances associated with the causes of such spills or leaks. As a result, our ability to recover associated costs from insurance coverages or other third parties is uncertain.
Legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
We use hydraulic fracturing extensively in our operations. The hydraulic fracturing process is typically regulated by state oil and natural gas commissions. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The Safe Drinking Water Act (the "SDWA") regulates the underground injection of substances through the Underground Injection Control ("UIC") program. While hydraulic fracturing generally is exempt from regulation under the UIC program, the EPA has taken the position that hydraulic fracturing with fluids containing diesel fuel is subject to regulation under the UIC program as "Class II" UIC wells. On October 21, 2011, the EPA announced its intention to propose federal Clean Water Act regulations by 2014 governing wastewater discharges from hydraulic fracturing and certain other natural gas operations. In addition, the DOI published a revised proposed rule on May 16, 2013 that would update existing regulation of hydraulic fracturing activities on federal lands, including requirements for disclosure, well bore integrity and handling of flowback water. The revised proposed rule is presently subject to an extended 90-day public comment period, which ended on August 23, 2013.
The EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, and a committee of the U.S. House of Representatives is also conducting an investigation of hydraulic fracturing practices. The EPA issued a Progress Report in December 2012 and a final draft is anticipated by 2014 for peer review and public comment. As part of these studies, both the EPA and the House committee have requested that certain companies provide them with information concerning the chemicals used in the hydraulic fracturing process. These studies, depending on their results, could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise. Congress has in recent legislative sessions considered legislation to amend the SDWA, including legislation that would repeal the exemption for hydraulic fracturing from the definition of "underground injection" and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, were proposed in recent sessions of Congress. The U.S. Congress may consider similar SDWA legislation in the future.
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On August 16, 2012, the EPA published final regulations under the Clean Air Act ("CAA") that establish new air emission controls for oil and natural gas production and natural gas processing operations. Specifically, EPA promulgated New Source Performance Standards establishing emission limits for sulfur dioxide (SO2) and volatile organic compounds (VOCs). The final rule requires a 95% reduction in VOCs emitted by mandating the use of reduced emission completions or "green completions" on all hydraulically-fractured gas wells constructed or refractured after January 1, 2015. Until this date, emissions from fractured and refractured gas wells must be reduced through reduced emission completions or combustion devices. The rules also establish new requirements regarding emissions from compressors, controllers, dehydrators, storage tanks and other production equipment. In response to numerous requests for reconsideration of these rules from both industry and the environmental community and court challenges to the final rules, EPA announced its intention to issue revised rules in 2013. The EPA revised portions of these rules on August 2, 2013 (awaiting Federal Register publication) for VOCs emissions for production oil and gas storage tanks, in part phasing in emissions controls on storage tanks past October 15, 2013. The final revised rules could require modifications to our operations or increase our capital and operating costs without being offset by increased product capture. At this point, we cannot predict the final regulatory requirements or the cost to comply with such requirements with any certainty.
Several states have adopted, or are considering adopting, regulations that could restrict or prohibit hydraulic fracturing in certain circumstances and/or require the disclosure of the composition of hydraulic fracturing fluids. For example, Texas enacted a law requiring oil and natural gas operators to publicly disclose the chemicals used in the hydraulic fracturing process, effective as of September 1, 2011. The Texas Railroad Commission adopted rules and regulations applicable to all wells for which the Texas Railroad Commission issues an initial drilling permit on or after February 1, 2012. The new regulations require that well operators disclose the list of chemical ingredients subject to the requirements of the OSHA for disclosure on an internet website and also file the list of chemicals with the Texas Railroad Commission with the well completion report. The total volume of water used to hydraulically fracture a well must also be disclosed to the public and filed with the Texas Railroad Commission. Furthermore, on May 23, 2013, the Texas Railroad Commission issued an updated "well integrity rule," addressing requirements for drilling, casing and cementing wells. The rule also includes new testing and reporting requirements, such as (i) clarifying the due date for cementing reports after well completion or after cessation of drilling, whichever is earlier, and (ii) the imposition of additional testing on "minimum separation wells" less than 1,000 feet below usable groundwater, which are not found in the Eagle Ford Shale or Permian Basin. The "well integrity rule" takes effect in January 2014. Similarly, Utah's Division of Oil, Gas and Mining passed a rule on October 24, 2012 requiring all oil and gas operators to disclose the amount and type of chemicals used in hydraulic fracturing operations using the national registry FracFocus.org. Finally, the federal Bureau of Land Management ("BLM") has proposed rules requiring similar disclosure of hydraulic fracturing fluid used on BLM lands to FracFocus.org and optionally directly to the BLM.
A number of lawsuits and enforcement actions have been initiated across the country alleging that hydraulic fracturing practices have adversely impacted drinking water supplies, use of surface water, and the environment generally. If new laws or regulations that significantly restrict hydraulic fracturing, such as amendments to the SDWA, are adopted, such laws could make it more difficult or costly for us to perform fracturing to stimulate production from tight formations as well as make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, if hydraulic fracturing is further regulated at the federal or state level, our fracturing activities could become subject to additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and recordkeeping obligations, plugging and abandonment requirements and also to attendant permitting delays and potential increases in costs. Such legislative changes could cause us to incur substantial compliance costs, and compliance or the
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consequences of any failure to comply by us could have a material adverse effect on our financial condition and results of operations. Until such regulations are finalized and implemented, it is not possible to estimate their impact on our business. At this time, no adopted regulations have imposed a material impact on our hydraulic fracturing operations.
Any of the above risks could impair our ability to manage our business and have a material adverse effect on our operations, cash flows and financial position.
Tax laws and regulations may change over time, including the elimination of federal income tax deductions currently available with respect to oil and gas exploration and development.
Tax laws and regulations are highly complex and subject to interpretation, and the tax laws and regulations to which we are subject may change over time. Our tax filings are based upon our interpretation of the tax laws in effect in various jurisdictions at the time that the filings were made. If these laws or regulations change, or if the taxing authorities do not agree with our interpretation of the effects of such laws and regulations, it could have a material adverse effect on our business and financial condition. Legislation has been proposed that would eliminate certain U.S. federal income tax provisions currently available to oil and gas exploration and production companies. Such changes include, but are not limited to:
It is unclear whether any such changes will be enacted or how soon such changes could be effective. The elimination of such U.S. federal tax deductions, as well as any other changes to or the imposition of new federal, state, local or non-U.S. taxes (including the imposition of, or increases in production, severance or similar taxes) could have a material adverse effect on our business, results of operations and financial condition.
Our Brazilian operations involve special risks.
In July 2013, we entered into a Quota Purchase Agreement relating to the sale of our Brazil operations, which is expected to close by the end of the first quarter of 2014. Pending the closing of that divestiture, we will continue activities in Brazil, which are subject to the risks inherent in foreign operations and other additional risks not associated with assets located in the United States, which include:
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We have certain contingent liabilities that could exceed our estimates.
We have certain contingent liabilities associated with litigation, regulatory, environmental and tax matters, described in Note 8 to our condensed consolidated financial statements included elsewhere in this prospectus. In addition, the positions taken in our federal, state, local and non-U.S. tax returns require significant judgments, use of estimates and interpretation of complex tax laws. Although we believe that we have established appropriate reserves for our litigation, regulatory, environmental and tax matters, we could be required to accrue additional amounts in the future and/or incur more actual cash expenditures than accrued for and these amounts could be material.
We have significant capital programs in our business that may require us to access capital markets, and any inability to obtain access to the capital markets in the future at competitive rates, or any negative developments in the capital markets, could have a material adverse effect on our business.
We have significant capital programs in our business, which may require us to access the capital markets. Since we are rated below investment grade, our ability to access the capital markets or the cost of capital could be negatively impacted in the future, which could require us to forego capital opportunities or could make us less competitive in our pursuit of growth opportunities, especially in relation to many of our competitors that are larger than us or have investment grade ratings.
In addition, the credit markets and the financial services industry in recent years have experienced a period of unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States government. These circumstances and events led to reduced credit availability, tighter lending standards and higher interest rates on loans. While we cannot predict the future condition of the credit markets, future turmoil in the credit markets could have a material adverse effect on our business, liquidity, financial condition and cash flows, particularly if our ability to borrow money from lenders or access the capital markets to finance our operations were to be impaired.
Although we believe that the banks participating in the RBL Facility have adequate capital and resources, we can provide no assurance that all of those banks will continue to operate as going concerns in the future. If any of the banks in our lending group were to fail, it is possible that the borrowing capacity under the RBL Facility would be reduced. In the event of such reduction, we could be required to obtain capital from alternate sources in order to finance our capital needs. Our options for addressing such capital constraints would include, but not be limited to, obtaining commitments from the remaining banks in the lending group or from new banks to fund increased amounts under the terms of the RBL Facility, and accessing the public and private capital markets. In addition, we may delay certain capital expenditures to ensure that we maintain appropriate levels of liquidity. If it became necessary to access additional capital, any such alternatives could have terms less favorable than the terms under the RBL Facility, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
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Retained liabilities associated with businesses or assets that we have sold could exceed our estimates and we could experience difficulties in managing these liabilities.
We have sold and have agreed to sell various assets and either retained certain liabilities or indemnified certain purchasers against future liabilities relating to businesses and assets sold or to be sold, including breaches of warranties, environmental expenditures, asset retirements and other representations that we have provided. We may also be subject to retained liabilities with respect to certain divested assets by operation of law. Although we believe that we have established appropriate reserves for any such liabilities, we could be required to accrue additional amounts in the future and these amounts could be material.
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.
We are a highly leveraged company. As of June 30, 2013, after giving effect to our pending and recently completed divestitures and repayment of certain debt obligations, we had approximately $4.1 billion of outstanding indebtedness, and for the six months ended June 30, 2013, after giving effect to our pending and recently completed divestitures and repayment of certain debt obligations, we had total debt service payment obligations of $154 million.
Our substantial indebtedness could have important consequences for you. For example, it could:
In addition, the agreements governing our indebtedness contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of substantially all of our indebtedness.
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Despite our substantial indebtedness, we may still be able to incur significantly more debt, which could intensify the risks described above.
We and our subsidiaries may be able to incur substantial indebtedness in the future. Although the terms of the agreements governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. After completion of this offering, we will have $2.5 billion available for borrowing under the RBL Facility, all of which would be secured. In addition, the covenants under any other existing or future debt instruments could allow us to incur a significant amount of additional indebtedness. The more leveraged we become, the more we, and in turn our investors, will be exposed to certain risks described above under "Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments."
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.
Our ability to pay principal and interest on our debt obligations will depend upon, among other things:
We cannot assure you that our business will generate cash flow from operations, or that we will be able to draw under the RBL Facility or otherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and interest on our debt obligations.
If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements may restrict us from adopting some of these alternatives. If we are required to dispose of material assets or operations to meet our debt service and other obligations, we may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. The Sponsors and their affiliates have no continuing obligation to provide us with debt or equity financing. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could result in a material adverse effect on our business, results of operations and financial condition and could negatively impact our ability to satisfy our obligations under our indebtedness, which in turn could negatively impact your investment in our common stock.
If we cannot make scheduled payments on our indebtedness, we will be in default and lenders could declare all outstanding principal and interest to be due and payable, terminate their commitments to loan money, foreclose against the assets securing their indebtedness and we could be
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forced into bankruptcy or liquidation. All of these events could cause you to lose all or part of your investment in our common stock.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Our existing debt agreements contain, and any other existing or future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our and our subsidiaries ability to, among other things:
In addition, the RBL Facility requires us to comply with certain financial covenants. See "Description of Certain IndebtednessThe RBL Facility."
As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.
A failure to comply with the covenants under the RBL Facility or any of our other indebtedness could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In the event of any such default, the lenders thereunder:
Such actions by the lenders could cause cross defaults under our other indebtedness. If we were unable to repay those amounts, the lenders or holders under the RBL Facility and our other secured indebtedness could proceed against the collateral granted to them to secure that indebtedness. We pledged a significant portion of our assets as collateral under the RBL Facility, our senior secured term loan and our senior secured notes.
If any of our outstanding indebtedness under the RBL Facility or our other indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full. See "Description of Certain Indebtedness."
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Risks Related to This Offering and Our Common Stock
There is no existing market for our common stock, and we do not know if an active trading market will develop, which could impede your ability to sell your shares and may depress the market price of our common stock.
There has not been a public market for our common stock prior to this offering. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the common stock will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. See "Underwriting." Consequently, you may be unable to sell our common stock at prices equal to or greater than the price you pay in this offering.
The interests of our Sponsors may conflict with or differ from your interests as a stockholder.
After the consummation of this offering, our Sponsors, as a group, will collectively own approximately % of our common stock, assuming the underwriters do not exercise their option to purchase additional shares, or % if the underwriters exercise their option in full. As a result, subject to the rights of the other Legacy Class A Stockholders contained in the Stockholders Agreement described in this prospectus, our Sponsors will continue to control all matters affecting us, including decisions regarding extraordinary business transactions, fundamental corporate transactions, appointment of members to our management, election of directors and our corporate and management policies. This concentration of ownership makes it unlikely that any other holder or group of holders of our common stock will be able to affect the way we are managed or the direction of our business. The interests of our Sponsors with respect to matters potentially or actually involving or affecting us, such as future acquisitions, financings and other corporate opportunities and attempts to acquire us, could conflict with your interests as a holder of our common stock. For example, the concentration of ownership held by our Sponsors could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination that you as a stockholder may otherwise view favorably. Further, a sale of a substantial number of shares of stock in the future by our Sponsors could cause our stock price to decline.
In addition, the Stockholders Agreement that we have entered into with the Sponsors and the other Legacy Class A Stockholders provides that, except as otherwise required by applicable law, the Sponsors will have certain rights with respect to the designation of directors to serve on our Board. See "Certain Relationships and Related Party TransactionsStockholders AgreementComposition of the Board." In addition, the Stockholders Agreement provides that for so long as each Sponsor has the right to designate a director or an observer to the Board, we will cause any committee of our Board to include in its membership such number of members that are consistent with, and reflects, the right of each Sponsor to designate a director or observer to the Board, except to the extent that such membership would violate applicable securities laws or stock exchange or stock market rules. See "Certain Relationships and Related Party Transactions."
Furthermore, the Sponsors and their respective affiliates either operate businesses, or may from time to time acquire businesses, that compete directly or indirectly with us, as well as businesses that represent major customers of our business, or are in the business of making investments, or managing funds that make investments, in companies and one or more of them may from time to time acquire and hold interests, or manage funds that acquire and hold interests, in businesses that compete directly or indirectly with us, as well as businesses that represent major customers of our business. The Sponsors and their affiliates, including funds managed by certain of the Sponsors and their respective affiliates, may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.
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Our Second Amended and Restated Certificate of Incorporation to be effective upon the completion of this offering (the "Second Amended and Restated Certificate of Incorporation") provides that we expressly renounce any interest or expectancy in any business opportunity in which any Legacy Class A Stockholder or any of our directors who is also, without limitation, an employee, partner, officer or director of a Legacy Class A Stockholder or any of their affiliates (each, a "Covered Person") participates or desires or seeks to participate in. See "Certain Relationships and Related Party TransactionsStockholders Agreement" and "Description of Capital StockCorporate Opportunity."
We will be a "controlled company" within the meaning of the NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.
Upon the closing of this offering, our Sponsors and the other Legacy Class A Stockholders, as a group, will continue to control a majority of our voting common stock. As a result, we will be a "controlled company" within the meaning of applicable corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:
Following this offering, we intend to utilize the foregoing exemptions from the applicable corporate governance requirements. As a result, we will not have a majority of independent directors. In addition, our compensation committee will not consist entirely of independent directors and we will not be required to have an annual performance evaluation of the compensation committee. See "Management." Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE's corporate governance requirements.
The price of our common stock may fluctuate significantly and you could lose all or part of your investment.
Volatility in the market price of our common stock may prevent you from being able to sell your common stock at or above the price you paid for your common stock. The market price for our common stock could fluctuate significantly for various reasons, including:
In addition, the stock market has experienced significant price and volume fluctuations in recent years. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry, and the changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce our share price.
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We currently have no plans to pay regular dividends on our common stock, so you may not receive funds without selling your common stock.
We currently have no plans to pay regular dividends on our common stock. Any payment of future dividends will be at the discretion of our Board and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions applying to the payment of dividends, and other considerations that our Board deems relevant. The terms of the agreements governing our indebtedness include limitations on our ability to pay dividends and/or the ability of our subsidiaries to pay dividends to us. Accordingly, you may have to sell some or all of your common stock in order to generate cash flow from your investment.
We are a holding company and rely on dividends and other payments, advances and transfers of funds from our subsidiaries to meet our dividend and other obligations.
We are a holding company and have no direct operations and no material assets other than our direct or indirect ownership of 100% of the equity interests of EPE Acquisition, our wholly owned holding company that holds our operating subsidiaries indirectly through its subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations and to pay any dividends on our common stock and have no other means of generating revenue. Legal and contractual restrictions in the RBL Facility, our other existing debt agreements and other agreements that may govern future indebtedness of our subsidiaries, may limit our ability to obtain cash from our subsidiaries. The earnings from, or other available assets of, our subsidiaries may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock or other obligations. To the extent we need funds and EPE Acquisition or any of our other subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of their financing arrangements, or they are otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.
Future sales or the possibility of future sales of a substantial amount of our common stock may depress the price of shares of our common stock.
We may sell additional shares of common stock in subsequent public offerings or otherwise, including to finance acquisitions. Our Second Amended and Restated Certificate of Incorporation authorizes us to issue shares of common stock, of which shares will be outstanding upon completion of this offering ( if the underwriters' option to purchase additional shares is exercised in full). The outstanding share number includes shares that we are selling in this offering, which may be resold immediately in the public market. The remaining outstanding shares are restricted from immediate resale under the lock-up agreements with the underwriters described in "Underwriting," but may be sold into the market in the near future. Following the expiration of the applicable lock-up period, which is days after the date of this prospectus, shares of our common stock will be freely transferable without restriction or further registration under the Securities Act, except for any such shares which are held or may be acquired by any of our "affiliates" as that term is defined in Rule 144 under the Securities Act, which will be subject to the resale limitations of Rule 144. See "Shares Eligible for Future Sale" for a discussion of the shares of our common stock that may be sold into the public market in the future.
Pursuant to the Registration Rights Agreement, the Legacy Class A Stockholders have certain rights to demand underwritten registered offerings in respect of the approximately shares of common stock that they will own immediately following this offering, and we have granted the Sponsors and the other Legacy Class A Stockholders incidental registration rights, in respect of shares of common stock. Upon the effectiveness of a registration statement, all shares covered by the registration statement would be freely transferable without restriction or further registration under the Securities Act, except for any such shares which are held or may be acquired by any of our "affiliates" as that
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term is defined in Rule 144 under the Securities Act, which will be subject to the resale limitations of Rule 144. See "Certain Relationships and Related Party TransactionsRegistration Rights Agreement."
Pursuant to our Second Amended and Restated Certificate of Incorporation, in connection with certain sales of common stock by Apollo and/or Riverstone (the "Specified Stockholders"), holders of Class B common stock will have their Class B shares exchanged for shares of newly issued common stock. In connection with the exchanges of Class B common stock, we intend to file one or more shelf registration statements under the Securities Act covering the newly issued shares of common stock. Accordingly, these registered shares may become available for sale in the open market upon the completion of such exchanges, subject to Rule 144 limitations applicable to our affiliates. See "Description of Capital StockClass B common stock" and "Description of Capital StockClass B Exchange." As soon as practicable after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of our common stock reserved for issuance under the Omnibus Incentive Plan described elsewhere in this prospectus. Accordingly, shares of our common stock registered under such registration statement may become available for sale in the open market upon grants under the Omnibus Incentive Plan, subject to vesting restrictions, Rule 144 limitations applicable to our affiliates and contractual lock-up provisions.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including any shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.
Our organizational documents and the Stockholders Agreement may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.
Provisions of our Second Amended and Restated Certificate of Incorporation, our amended and restated bylaws to be effective upon the completion of this offering (our "Amended and Restated Bylaws") and the Stockholders Agreement may make it more difficult for, or prevent a third party from, acquiring control of us without Special Board Approval (as defined below). These provisions include:
In addition, for so long as the Negative Control Condition is satisfied, our Board may, by Special Board Approval, issue preferred stock in one or more series, designate the number of shares constituting any series, and fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of preferred stock may have the effect of delaying,
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deferring or preventing a change in control without further action by the stockholders, even where stockholders are offered a premium for their shares. Under our Stockholders Agreement, (i) "Negative Control Condition" means that the Legacy Class A Stockholders hold at least 25% of our outstanding common stock and either Apollo or Riverstone is entitled to designate at least one director pursuant to the Stockholders Agreement and (ii) "Special Board Approval" means the approval by a majority of our Board, which majority includes (a) at least one director designated to our Board by Apollo and (b) at least one director designated to our Board by one of the other Sponsors or one replacement director designated to our Board by a vote of the Legacy Class A Stockholders holding a majority-in-interest of our outstanding common stock then held by the Legacy Class A Stockholders in the event a Sponsor has lost its right to designate its applicable director and the Legacy Class A Stockholders hold at least 50% of our outstanding common stock.
Together, our organizational documents and the Stockholders Agreement could make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock owned by the Sponsors following this offering and their individual rights to designate a specified number of directors in certain circumstances, could limit the price that investors might be willing to pay in the future for our common stock. Our organizational documents and the Stockholders Agreement could also deter potential acquirers of us, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition. See "Description of Capital StockCertain Anti-Takeover, Limited Liability and Indemnification Provisions" and See "Certain Relationships and Related Party Transactions Stockholders AgreementConsent Rights."
The corporate opportunity provisions in our Second Amended and Restated Certificate of Incorporation could enable the Sponsors to benefit from corporate opportunities that might otherwise be available to us.
Subject to the limitations of applicable law, our Second Amended and Restated Certificate of Incorporation provides, among other things, that:
As a result, the Legacy Class A Stockholders and their affiliates may become aware, from time to time, of certain business opportunities, such as acquisition opportunities, and may direct such opportunities to other businesses in which they have invested, in which case we may not become aware of or otherwise have the ability to pursue such opportunity. Further, such businesses may choose to compete with us for these opportunities. As a result, our renouncing our interest and expectancy in any business opportunity that may be presented to the Legacy Class A Stockholders and their affiliates could adversely impact our business or prospects if attractive business opportunities are procured by such parties for their own benefit rather than for ours. Please read "Description of Capital StockCorporate Opportunities."
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We have engaged in transactions with our affiliates and expect to do so in the future. The terms of such transactions and the resolution of any conflicts that may arise may not always be in our or our stockholders' best interests.
We have engaged in transactions and expect to continue to engage in transactions with affiliated companies, as described under the caption "Certain Relationships and Related Party Transactions." The resolution of any conflicts that may arise in connection with any related party transactions that we have entered into with the Sponsors, the other Legacy Class A Stockholders or their affiliates, including pricing, duration or other terms of service, may not always be in our or our stockholders' best interests because the Sponsors and the other Legacy Class A Stockholders may have the ability to influence the outcome of these conflicts. For a discussion of potential conflicts, please read "The interests of our Sponsors may conflict with or differ from your interests as a stockholder."
You will experience an immediate and substantial dilution in the net tangible book value of the common stock you purchase.
After giving effect to this offering and the other adjustments described in "Dilution," we expect that our pro forma as adjusted net tangible book value as of June 30, 2013 would be $ per share. Based on an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, you will experience immediate and substantial dilution of approximately $ per share in net tangible book value of the common stock you purchase in this offering. See "Dilution," including the discussion of the effects on dilution from a change in the price of this offering.
We may issue preferred stock with terms that could adversely affect the voting power or value of our common stock.
Our Second Amended and Restated Certificate of Incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our Board may determine, subject to Special Board Approval for so long as the Negative Control Condition is satisfied. The terms of any class or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock. See "Description of Capital StockCertain Anti-Takeover, Limited Liability and Indemnification Provisions."
We have issued shares of Class B common stock to management with terms that may adversely affect the value of our common stock.
Certain of our employees and members of our management team indirectly hold 808,304 shares of our Class B common stock, par value $0.01 per share. In addition, we will issue an additional 70,000 shares of our Class B common stock to EPE Employee Holdings II, LLC, a vehicle through which we will grant to our current and future employees awards representing the right to receive the proceeds paid in respect of such shares of Class B common stock pursuant to the Second Amended and Restated Certificate of Incorporation. The terms, preferences and rights of the Class B common stock set forth in our Second Amended and Restated Certificate of Incorporation may under certain circumstances reduce the amount of dividends and liquidation proceeds otherwise distributable to holders of common stock and dilute existing holders of common stock as a result of an exchange of shares of Class B common stock for shares of common stock. Pursuant to our Second Amended and Restated Certificate of Incorporation and subject to certain limitations, holders of Class B common stock are entitled to participate in dividends and distributions of proceeds upon a liquidation of the
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company. In connection with certain sales of shares of common stock by Apollo and Riverstone, holders of shares of Class B common stock will have their shares exchanged for shares of newly issued common stock. The extent to which holders of Class B common stock participate in dividends and distributions of liquidation proceeds will depend on the return on invested capital in the Company and EPE Acquisition received by our Sponsors and the other Legacy Class A Stockholders, but will in any event be limited to 8.5% of the amount of such returns in excess of such invested capital by the Sponsors and the other Legacy Class A Stockholders. The number of shares of common stock issued in an exchange will depend on the return on invested capital in the Company and EPE Acquisition received by Apollo and Riverstone subject to an adjustment multiple (with respect to exchanges of Class B common stock). See "Description of Capital StockClass B common stock," "Description of Capital StockDistributions Upon a Liquidation" and "Description of Capital StockClass B Exchange."
The additional requirements of having a class of publicly traded equity securities may strain our resources and distract management.
Even though EP Energy LLC currently files reports with the SEC, after the consummation of this offering, we will be subject to additional reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and the Dodd-Frank Act. The Dodd-Frank Act effects comprehensive changes to public company governance and disclosures in the United States and will subject us to additional federal regulation. We cannot predict with any certainty the requirements of the regulations ultimately adopted or how the Dodd-Frank Act and such regulations will impact the cost of compliance for a company with publicly traded common stock. We are currently evaluating and monitoring developments with respect to the Dodd-Frank Act and other new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs. All laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. We also expect that being a company with publicly traded common stock subject to these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board, particularly to serve on our audit committee, and qualified executive officers.
The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. These requirements may place a strain on our systems and resources. Under Section 404 of the Sarbanes-Oxley Act, we will be required to include a report of management on our internal control over financial reporting in our Annual Reports on Form 10-K beginning with the Form 10-K for the year ending December 31, 2014. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. This may divert management's attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. If we are unable to conclude that our disclosure controls and procedures and internal control over financial reporting are effective, investors may lose confidence in our financial reports and our stock price may decline.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties, many of which are beyond our control. These forward-looking statements are based on assumptions or beliefs that we believe to be reasonable; however, assumed facts almost always vary from the actual results and such variances can be material. Where we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur. The words "believe," "expect," "estimate," "anticipate," "intend" and "should" and similar expressions will generally identify forward-looking statements. All of our forward-looking statements are expressly qualified by these and the other cautionary statements in this prospectus, including those set forth in "Risk Factors." Important factors that could cause our actual results to differ materially from the expectations reflected in our forward-looking statements include, among others:
In light of these risks, uncertainties and assumptions, the events anticipated by these forward-looking statements may not occur, and, if any of such events do occur, we may not have anticipated the timing of their occurrence or the extent of their impact on our actual results. Accordingly, you should not place any undue reliance on any of these forward-looking statements. These forward-looking statements speak only as of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise our forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.
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Assuming an initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from this offering of approximately $ million, after deducting underwriting discounts and commissions and other estimated expenses of $ million payable by us.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us, by approximately $ million, assuming the initial public offering price per share remains the same.
We intend to use the net proceeds from this offering (i) to redeem all of the outstanding 8.125%/8.875% Senior PIK Toggle Notes due 2017 issued by our subsidiaries, EPE Holdings LLC and EP Energy Bondco Inc., and pay the redemption premium and the accrued and unpaid interest on the notes, (ii) to repay outstanding borrowings under the RBL Facility, (iii) to pay an approximately $ million fee under the transaction fee agreement with certain affiliates of our Sponsors and (iv) for general corporate purposes. We will also reimburse the Legacy Stockholders for expenses incurred in connection with the Corporate Reorganization and this offering.
The PIK notes were issued on December 21, 2012 and mature on December 15, 2017. The issuers may elect to pay interest on the PIK notes (i) in cash, (ii) by increasing the principal amount of the outstanding notes or issuing new notes ("PIK interest") or (iii) in cash on 50% of the outstanding principal amount of the notes and in PIK interest on the remaining 50% of the outstanding principal amount of the notes. The PIK notes accrue cash interest at a rate of 8.125% per annum and PIK interest at a rate of 8.875% per annum. The PIK notes may be redeemed with the net cash proceeds of this offering at a redemption price equal to 102% of the principal amount plus accrued and unpaid interest to the redemption date. See "Description of Certain IndebtednessSenior PIK Toggle Notes." As of August 31, 2013, we had $372 million of outstanding aggregate principal amount of PIK notes.
As of August 31, 2013, we had $175 million of outstanding borrowings under the RBL Facility. The RBL Facility matures on May 24, 2017 and bears interest at LIBOR plus 1.50%. The borrowings to be repaid were incurred primarily to fund capital expenditures and other general corporate expenditures. See "Description of Certain IndebtednessRBL Facility."
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We currently intend to retain all future earnings, if any, for use in the operation of our business and to fund future growth. The decision whether to pay dividends in the future will be made by our Board in light of conditions then existing, including factors such as our financial condition, earnings, available cash, business opportunities, legal requirements, restrictions in our debt agreements and other contracts, including requirements under our Second Amended and Restated Certificate of Incorporation and the Stockholders Agreement described elsewhere in this prospectus, and other factors our Board deems relevant. See "Certain Relationships and Related Party TransactionsStockholders Agreement."
We are a holding company and have no direct operations. We will only be able to pay dividends from our available cash on hand and funds received from our subsidiaries, whose ability to make any payments to us will depend upon many factors, including their operating results and cash flows. In addition, the RBL Facility and the indentures governing our subsidiaries' existing notes limit the ability of our subsidiary, EP Energy LLC, to pay distributions on its equity interests. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources," "Contractual Obligations," "Commitments and Contingencies" and "Description of Certain Indebtedness."
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The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2013:
(1) on a historical basis,
(2) on a pro forma as adjusted basis to give effect to (i) our pending and completed divestitures and the use of proceeds therefrom as described in "SummaryRecent Divestitures," (ii) the repayment of $500 million under our senior secured term loans in August 2013, and (iii) the $200 million distribution EPE Acquisition made to its members in August 2013, and
(3) on a pro forma as further adjusted basis to give effect to (i) the Corporate Reorganization and (ii) our sale of shares of common stock in this offering at an assumed offering price of $ , which is the midpoint of the range listed on the cover page of this prospectus, and our use of the estimated net proceeds from this offering as described under "Use of Proceeds."
You should read this table in conjunction with "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and the related notes appearing elsewhere in this prospectus, as well as the sections "SummarySummary Historical and Pro Forma Consolidated Financial Data," "Use of Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial Data" included in this prospectus.
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June 30, 2013 | |||||||||
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EPE Acquisition,
LLC Historical(1) |
EP Energy
Corporation Pro Forma as Adjusted |
EP Energy
Corporation Pro Forma as Further Adjusted(2) |
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(in millions)
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Cash and cash equivalents |
$ | 283 | $ | 66 | $ | |||||
Debt: |
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RBL Facility(3) |
$ | 785 | $ | | $ | |||||
Senior secured term loans |
1,142 | 642 | ||||||||
Senior secured notes due 2019 |
750 | 750 | ||||||||
9.375% senior notes due 2020 |
2,000 | 2,000 | ||||||||
7.750% senior notes due 2022 |
350 | 350 | ||||||||
8.125% / 8.875% PIK notes due 2017 |
365 | 365 | ||||||||
Total debt |
$ | 5,392 | $ | 4,107 | $ | |||||
Total equity |
2,842 | 2,817 | ||||||||
Total capitalization |
$ | 8,234 | $ | 6,924 | $ | |||||
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Dilution is the amount by which the offering price paid by the purchasers of the common stock to be sold in this offering exceeds the net tangible book value per share of common stock after the offering. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date. There will be shares of our common stock reserved for future awards under the Omnibus Incentive Plan as of the consummation of this offering.
Our net tangible book value (tangible assets less total liabilities) as of June 30, 2013, after giving pro forma effect to the transactions described in "Summary Historical and Pro Forma Consolidated Financial Data" was approximately $2.8 billion, or $ per share of common stock. Pro forma net tangible book value per share is determined by dividing our pro forma net tangible book value by our shares of common stock that will be outstanding immediately prior to the closing of this offering, including giving effect to the transactions described above. After giving effect to the receipt of approximately $ million of estimated net proceeds from our sale of shares of common stock in this offering at an assumed offering price of $ per share, the midpoint of the range set forth on the front cover of this prospectus, our pro forma net tangible book value as of June 30, 2013 would have been approximately $ million, or $ per share. This represents an immediate decrease in our pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to new investors purchasing shares of common stock in the offering. The following table illustrates this substantial and immediate per share dilution to new investors:
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Per Share | |||
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Assumed initial public offering price per share |
$ | |||
Pro forma net tangible book value prior to the offering |
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Increase per share attributable to investors in the offering |
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Pro forma net tangible book value after the offering |
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Dilution per share to new investors |
$ |
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would decrease (increase) our pro forma net tangible book value by $ million, or $ per share, and increase (decrease) the dilution per share to new investors in this offering by $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
The following table summarizes on an as adjusted basis as of June 30, 2013, giving effect to:
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A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus) would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and the average price per share by $ million, $ million and $ million, respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
The tables and calculations above also assume no exercise of the underwriters' option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full, then new investors would purchase shares, or approximately % of shares outstanding, the total consideration paid by new investors would increase to $ million, or % of the total consideration paid (based on the midpoint of the range set forth on the cover page of this prospectus), and the additional dilution per share to new investors would be $ .
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We have derived the selected historical consolidated balance sheet data as of December 31, 2012 (successor) and December 31, 2011 (predecessor), and the statements of income data and statements of cash flow data for the period from February 14 (inception) to December 31, 2012 (successor), the period from January 1, 2012 through May 24, 2012 (predecessor) and each of the two years in the period ended December 31, 2011 (predecessor), from the audited consolidated financial statements of EPE Acquisition, LLC, which are included elsewhere in this prospectus. EPE Acquisition, LLC, was the ultimate holding company prior to our Corporate Reorganization. Historical financial results of EPE Acquisition, LLC in this prospectus for the period before the Acquisition on May 24, 2012, are referred to as the predecessor and after the Acquisition are referred to as the successor in accordance with the required GAAP presentation.
We have derived the selected historical consolidated balance sheet data as of December 31, 2010, 2009, and 2008, and the statements of income data and statements of cash flow data for the years ended December 31, 2009 and 2008 from the audited consolidated financial statements of EP Energy Corporation, the predecessor of EPE Acquisition, LLC and referred to herein as Historical EP Energy Corporation, which are not included in this prospectus. The selected unaudited historical consolidated financial data as of and for the six months ended June 30, 2013 (successor) and for the period from February 14, 2012 through June 30, 2012 (successor), have been derived from the unaudited consolidated financial statements of EPE Acquisition, LLC appearing elsewhere in this prospectus, which have been prepared on a basis consistent with the audited consolidated financial statements of EPE Acquisition, LLC. In the opinion of management, such unaudited financial data reflects all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for such period. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any future period.
The following selected historical consolidated financial data should be read in conjunction with the information included under the headings "SummaryCorporate History and Structure" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and related notes included elsewhere in this prospectus.
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EPE Acquisition, LLC |
Historical EP
Energy Corporation |
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Six
months ended June 30, (Successor) |
February 14
(inception) to June 30, (Successor) |
February 14
(inception) to December 31, (Successor) |
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January 1
to May 24, (Predecessor) |
Years ended
December 31, (Predecessor) |
Years ended
December 31, |
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2013 | 2012 | 2012 |
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2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||
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(in millions)
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Statement of income data |
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Operating revenues: |
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Oil and condensate |
$ | 568 | $ | 74 | $ | 555 | $ | 322 | $ | 552 | $ | 346 | $ | 214 | $ | 436 | |||||||||||
Natural gas |
215 | 46 | 278 | 262 | 973 | 974 | 830 | 1,960 | |||||||||||||||||||
NGL |
32 | 4 | 32 | 29 | 57 | 60 | 53 | 105 | |||||||||||||||||||
Physical sales |
815 | 124 | 865 | 613 | 1,582 | 1,380 | 1,097 | 2,501 | |||||||||||||||||||
Financial derivatives(1) |
35 | 57 | (62 | ) | 365 | 284 | 390 | 687 | 196 | ||||||||||||||||||
Other |
| | | | 1 | 19 | 44 | 65 | |||||||||||||||||||
Total operating revenues |
850 | 181 | 803 | 978 | 1,867 | 1,789 | 1,828 | 2,762 | |||||||||||||||||||
Operating expenses: |
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Natural gas purchases |
10 | 4 | 19 | | | | | | |||||||||||||||||||
Transportation costs |
46 | 9 | 51 | 45 | 85 | 73 | 66 | 79 | |||||||||||||||||||
Lease operating expenses |
98 | 15 | 96 | 96 | 217 | 193 | 197 | 244 | |||||||||||||||||||
General and administrative expenses |
118 | 208 | 371 | 75 | 201 | 190 | 195 | 160 | |||||||||||||||||||
Depreciation, depletion and amortization |
277 | 26 | 217 | 319 | 612 | 477 | 440 | 818 | |||||||||||||||||||
Impairments/Ceiling test charges |
10 | 1 | 1 | 62 | 158 | 25 | 2,148 | 2,824 | |||||||||||||||||||
Exploration expense |
27 | 6 | 50 | | | | | | |||||||||||||||||||
Taxes, other than income taxes |
43 | 10 | 51 | 45 | 91 | 85 | 68 | 132 | |||||||||||||||||||
Other |
| | | | | 15 | 31 | 38 | |||||||||||||||||||
Total operating expenses |
629 | 279 | 856 | 642 | 1,364 | 1,058 | 3,145 | 4,295 | |||||||||||||||||||
Operating income (loss) |
221 | (98 | ) | (53 | ) | 336 | 503 | 731 | (1,317 | ) | (1,533 | ) | |||||||||||||||
Income (loss) from unconsolidated affiliates |
6 | (1 | ) | (1 | ) | (5 | ) | (7 | ) | (7 | ) | (30 | ) | (93 | ) | ||||||||||||
Other income (expense) |
(1 | ) | 1 | 3 | (3 | ) | (2 | ) | 3 | (1 | ) | 7 | |||||||||||||||
Loss on extinguishment of debt |
(3 | ) | | (14 | ) | | | | | | |||||||||||||||||
Interest expense, net of capitalized interest |
(178 | ) | (53 | ) | (219 | ) | (14 | ) | (12 | ) | (21 | ) | (25 | ) | (57 | ) | |||||||||||
Income (loss) from continuing operations before income taxes |
45 | (151 | ) | (284 | ) | 314 | 482 | 706 | (1,373 | ) | (1,676 | ) | |||||||||||||||
Income tax expense (benefit) |
2 | | 2 | 136 | 220 | 263 | (462 | ) | (413 | ) | |||||||||||||||||
Income (loss) from continuing operations |
$ | 43 | $ | (151 | ) | $ | (286 | ) | $ | 178 | $ | 262 | $ | 443 | $ | (911 | ) | $ | (1,263 | ) | |||||||
58
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
EPE Acquisition, LLC |
Historical EP Energy
Corporation |
|||||||||||||||||||||||||
|
Six
Months ended June 30, (Successor) |
February 14
(inception), to June 30, (Successor) |
February 14
(inception), to December 31, (Successor) |
|
January 1,
to May 24, (Predecessor) |
Years ended
December 31, (Predecessor) |
Years ended
December 31, |
||||||||||||||||||||
|
2013 | 2012 | 2012 |
|
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||
|
(in millions)
|
|
|||||||||||||||||||||||||
Statement of cash flows data |
|||||||||||||||||||||||||||
Net cash provided by |
|||||||||||||||||||||||||||
(used in): |
|||||||||||||||||||||||||||
Operating activities |
$ | 450 | $ | (92 | ) | $ | 449 | $ | 580 | $ | 1,426 | $ | 1,067 | $ | 1,573 | $ | 2,218 | ||||||||||
Investing activities |
(906 | ) | (7,254 | ) | (7,893 | ) | (628 | ) | (1,237 | ) | (1,130 | ) | (1,156 | ) | (993 | ) | |||||||||||
Financing activities |
670 | 7,401 | 7,513 | 110 | (238 | ) | (46 | ) | (336 | ) | (1,237 | ) |
|
EPE Acquisition, LLC | Historical EP Energy Corporation | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
As of
June 30, (Successor) |
As of
December 31, (Successor) |
|
As of
December 31, (Predecessor) |
As of December 31, | ||||||||||||||||
|
2013 | 2012 |
|
2011 | 2010 | 2009 | 2008 | ||||||||||||||
|
(in millions)
|
|
|||||||||||||||||||
Balance sheet data |
|||||||||||||||||||||
Cash and cash equivalents |
$ | 283 | $ | 69 | $ | 25 | $ | 74 | $ | 183 | $ | 102 | |||||||||
Total assets |
9,181 | 8,306 | 5,099 | 4,942 | 4,457 | 6,384 | |||||||||||||||
Total debt |
5,392 | 4,695 | 851 | 301 | 835 | 915 | |||||||||||||||
Members'/ Stockholder's equity |
2,842 | 2,748 | 3,100 | 3,067 | 2,529 | 3,697 |
59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the financial statements and the accompanying notes included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in "Risk Factors." Actual results may differ materially from those contained in any forward-looking statements. Additionally, the financial results for the successor periods include the application of the acquisition method of accounting and the application of the successful efforts method of accounting for oil and natural gas properties. The successor periods also present certain of our natural gas assets sold, including the CBM, South Texas and the majority of our Arklatex assets, as discontinued operations. Predecessor periods do not present these sales as discontinued operations due to the application of the full cost method of accounting prior to the Acquisition. As a result of these differences in presentation, trends and results in future periods may be different than those that existed prior to the Acquisition. Unless otherwise indicated or the context otherwise requires, references in this MD&A section to "we," "our," "us" and "the Company" refer to EPE Acquisition, LLC (subsequently reorganized as a directly and indirectly owned subsidiary of EP Energy Corporation (the issuer) in the third quarter of 2013) and its predecessor entities and each of its consolidated subsidiaries.
Overview. We are an independent exploration and production company engaged in the acquisition and development of unconventional onshore oil and natural gas properties in the United States. We are focused on creating shareholder value through the development of our low-risk drilling inventory located in our four core areas: the Eagle Ford Shale (South Texas), the Wolfcamp Shale (Permian Basin in West Texas), the Uinta Basin (Utah) and the Haynesville Shale (North Louisiana).
During the third quarter of 2013, we sold certain of our natural gas properties, including our CBM properties located in the Raton, Black Warrior and Arkoma basins, the majority of our Arklatex natural gas properties and our natural gas properties in South Texas. As of June 30, 2013, these assets represented 1,014 Bcfe of proved reserves (96% natural gas). The total consideration from these transactions was approximately $1.3 billion. In addition, in July 2013, certain of our subsidiaries entered into a Quota Purchase Agreement relating to the sale of all of our Brazil operations. This transaction represents the sale of all of our remaining international assets and is expected to close by the end of the first quarter of 2014, subject to Brazilian regulatory approval and certain other customary closing conditions.
Factors Influencing Our Profitability. The profitability of our operations is dependent on the prices we receive for our oil and natural gas, the costs to explore, develop, and produce oil and natural gas, and the volumes we are able to produce, among other factors. Our long-term profitability will be influenced primarily by:
In addition to these factors, our future profitability and performance will be affected by our ability to execute our strategy, volatility in the financial and commodity markets, changes in the cost of drilling and oilfield services, operating and capital costs and our debt level and related interest costs.
60
Additionally, we may be impacted by weather events, or domestic or international regulatory issues or other third party actions outside of our control (e.g., oil spills).
To the extent possible, we attempt to mitigate certain of these risks through actions such as entering into longer term contractual arrangements to control costs and entering into derivative contracts to stabilize cash flows and reduce the financial impact of downward commodity price movements on commodity sales. In addition, because we apply mark-to-market accounting, our reported results of operations, financial position and cash flows can be impacted significantly by commodity price movements from period to period. Adjustments to our strategy and the decision to enter into new positions or to alter existing positions are made based on the goals of the overall company.
Derivative Instruments. During the six months ended June 30, 2013, approximately 95% of our liquids production and 90% of our natural gas production were hedged and settled at average floor prices of $99.93 per barrel and $3.57 per MMBtu, respectively. In conjunction with the sale of certain of our non-core natural gas assets, we entered into offsetting positions on natural gas derivatives of 36 TBtu on anticipated 2013 production and 42 TBtu on anticipated 2014 production. The following table reflects the contracted volumes and the prices we will receive under derivative contracts we held as of June 30, 2013.
|
2013 | 2014 | 2015 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Volumes(1) |
Average
Price(1) |
Volumes(1) |
Average
Price(1) |
Volumes(1) |
Average
Price(1) |
|||||||||||||
Oil |
|||||||||||||||||||
Fixed Price Swaps(2) |
8,684 | $ | 100.09 | 12,117 | $ | 97.70 | 6,231 | $ | 94.57 | ||||||||||
Ceilings |
1,042 | $ | 98.24 | 1,095 | $ | 100.00 | 1,095 | $ | 100.00 | ||||||||||
Three Way Collars Ceiling |
| $ | | 2,920 | $ | 103.76 | | $ | | ||||||||||
Three Way Collars Floors(3) |
| $ | | 2,920 | $ | 95.00 | | $ | | ||||||||||
Basis Swaps |
2,645 | Various | 4,380 | Various | 3,650 | Various | |||||||||||||
Natural Gas |
|||||||||||||||||||
Fixed Price Swaps |
49 | $ | 3.37 | 67 | $ | 4.02 | 44 | $ | 4.28 | ||||||||||
Ceilings |
1 | $ | 3.75 | 13 | $ | 4.02 | | $ | |
Between July 1 and August 29, 2013, we added fixed price oil derivatives covering volumes of 4 MMBbl, 12 MMBbl and 2 MMBbl to our 2014, 2015 and 2016 anticipated production, respectively. These derivatives are not reflected in the table above.
Summary of Liquidity and Capital Resources. As of June 30, 2013, we had available liquidity, including existing cash, of approximately $2.0 billion. We believe we have sufficient liquidity for the foreseeable future from our cash flows from operations, combined with the availability under our RBL Facility and available cash, to fund our capital spending plan, debt obligations, and projected working capital requirements. Additionally, the earliest maturity date of our debt obligations is in 2017. See "Liquidity and Capital Resources" for more information.
61
Capital Expenditures. Our capital expenditures for the six months ended June 30, 2013 and rig count as of June 30, 2013 were:
62
Production Volumes and Drilling Summary
Production Volumes. Below is an analysis of our production volumes by area and commodity for the following periods:
|
Six months
ended June 30, |
Year ended
December 31, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2012 | 2011 | 2010 | |||||||||||
United States (MBoe/d) |
||||||||||||||||
Eagle Ford Shale |
33 | 15 | 20 | 6 | 1 | |||||||||||
Wolfcamp Shale |
3 | 2 | 2 | | | |||||||||||
Uinta Basin |
11 | 10 | 11 | 9 | 8 | |||||||||||
Haynesville Shale |
32 | 53 | 48 | 45 | 25 | |||||||||||
Other domestic |
5 | 9 | 7 | 7 | 7 | |||||||||||
Divested assets(1) |
| 39 | 20 | 57 | 74 | |||||||||||
Brazil (MBoe/d) |
5 | 6 | 6 | 6 | 5 | |||||||||||
Total Consolidated |
89 | 134 | 114 | 130 | 120 | |||||||||||
Unconsolidated affiliate (MBoe/d) |
9 | 9 | 9 | 10 | 10 | |||||||||||
Total Combined (MBoe/d) |
98 | 143 | 123 | 140 | 130 | |||||||||||
Oil and condensate (MBbls/d) |
||||||||||||||||
Consolidated volumes |
33 | 21 | 25 | 13 | 8 | |||||||||||
Divested assets(1) |
| 1 | | 3 | 5 | |||||||||||
Unconsolidated affiliate volumes |
1 | 1 | 1 | 1 | 1 | |||||||||||
Total Combined |
34 | 23 | 26 | 17 | 14 | |||||||||||
Natural Gas (MMcf/d) |
||||||||||||||||
Consolidated volumes |
300 | 425 | 391 | 355 | 226 | |||||||||||
Divested assets(1) |
| 214 | 114 | 306 | 392 | |||||||||||
Unconsolidated affiliate volumes |
40 | 43 | 42 | 46 | 47 | |||||||||||
Total Combined |
340 | 682 | 547 | 707 | 665 | |||||||||||
NGLs (MBbls/d) |
||||||||||||||||
Consolidated volumes |
6 | 3 | 3 | 1 | | |||||||||||
Divested assets(1) |
| 2 | 2 | 2 | 4 | |||||||||||
Unconsolidated affiliate volumes |
1 | 1 | 1 | 1 | 2 | |||||||||||
Total Combined (MBbls/d) |
7 | 6 | 6 | 4 | 6 | |||||||||||
63
64
Reserve Replacement Ratio/Reserve Replacement Costs
We calculate two primary non-GAAP metrics associated with reserves performance: (i) a reserve replacement ratio and (ii) reserve replacement costs, to measure our ability to establish a long-term trend of adding reserves at a reasonable cost in our drilling programs. The reserve replacement ratio is an indicator of our ability to replenish annual production volumes and grow our reserves. It is important for us to economically find and develop new reserves that will more than offset produced volumes and provide for future production given the inherent decline of hydrocarbon reserves. In addition, we calculate reserve replacement costs to assess the cost of adding reserves, which is ultimately included in depreciation, depletion and amortization expense. We believe the ability to develop a competitive advantage over other oil and natural gas companies is dependent on adding reserves at lower costs than our competition. We calculate these metrics as follows:
Reserve replacement ratio | Sum of reserve additions(1) | |
Actual production for the corresponding period | ||
Reserve replacement costs/Boe |
|
Total oil and natural gas capital costs(2) |
Sum of reserve additions(1) |
The reserve replacement ratio and reserve replacement costs per unit are statistical indicators that have limitations, including their predictive and comparative value. As an annual measure, the reserve replacement ratio is limited because it typically varies widely based on the extent and timing of new discoveries, project sanctioning and property acquisitions. In addition, since the reserve replacement ratio does not consider the cost or timing of developing future production of new reserves, it cannot be used as a measure of value creation.
The exploration for and the acquisition and development of oil and natural gas reserves is inherently uncertain as further discussed in "Risk FactorsRisks Related to Our Business and Industry." One of these risks and uncertainties is our ability to spend sufficient capital to increase our reserves. While we currently expect to spend such amounts in the future, there are no assurances as to the timing and magnitude of these expenditures or the classification of the proved reserves as developed or undeveloped. At June 30, 2013, proved developed reserves represented approximately 35% of our total consolidated proved reserves. Proved developed reserves will generally begin producing within the year they are added, whereas proved undeveloped reserves generally require additional future expenditures.
65
The table below shows our reserve replacement ratio and reserve replacement costs, including and excluding the effect of price revisions on reserves for the six months ended June 30, 2013 and for each of the years ended December 31 2012, 2011 and 2010:
|
Including Price Revisions | Excluding Price Revisions | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Six
months ended June 30, |
Year ended December 31, |
Six
months ended June 30, |
Year ended December 31, | |||||||||||||||||||||
|
2013 | 2012 | 2011 | 2010 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||
Reserve Replacement Ratios |
357% | 47% | 416% | 370% | 343% | 298% | 418% | 306% | |||||||||||||||||
Reserve Replacement Costs(1)($/Boe) |
$ |
16.96 |
$ |
67.56 |
$ |
8.52 |
$ |
7.74 |
$ |
17.67 |
$ |
10.74 |
$ |
8.46 |
$ |
9.36 |
We typically cite reserve replacement costs in the context of a multi-year trend, in recognition of its limitation as a single year measure, and also to demonstrate consistency and stability, which are essential to our business model. The table below shows our reserve replacement costs for the three years ended December 31, 2012.
|
Including Price
Revisions |
Excluding Price
Revisions |
|||||
---|---|---|---|---|---|---|---|
|
Three years ended
December 31, 2012 |
||||||
|
($/Boe)
|
||||||
Reserve Replacement Costs |
$ | 11.88 | $ | 9.42 |
66
The information below reflects financial results for EPE Acquisition, LLC (the ultimate holding company prior to the Corporate Reorganization) for the six months ended June 30, 2013 (successor), for the periods from February 14 (inception) to June 30, 2012 (successor) and December 31, 2012 (successor), for the period from January 1 to May 24, 2012 (predecessor) and for the predecessor years ended December 31, 2011 and 2010. Beginning with the Acquisition in May 2012, our successor period financial results reflect the application of the acquisition method of accounting, the application of the successful efforts method of accounting for oil and natural gas properties, and the presentation of our domestic natural gas assets divested in 2013 as discontinued operations. For periods prior to the Acquisition, we have not reflected the domestic natural gas assets divested in 2013 as discontinued operations since they did not qualify as such for accounting purposes under the full cost accounting method applied by the predecessor during those periods. As a result, trends and results in future periods are different than those prior to the Acquisition.
The successor, EPE Acquisition, LLC, had no independent oil and gas operations prior to the Acquisition in 2012 and accordingly there were no operational exploration and production activities that changed as a result of the acquisition of the predecessor, Historical EP Energy Corporation. Consequently, in certain period-to-period explanations that follow we have provided supplemental information that compares (i) results for the six months ended June 30, 2013 with results for the successor period from February 14 (inception) to June 30, 2012 and for the predecessor period from January 1 to May 24, 2012 on a combined basis and excluding divested assets (such combined period is referred to as the "combined six months ended June 30, 2012") and (ii) results from the successor period from February 14 (inception) to December 31, 2012 and for the predecessor period from January 1 to May 24, 2012 on a combined basis and excluding divested assets (such combined period referred to as the "combined year ended December 31, 2012") with results for the year ended December 31, 2011 excluding divested assets. We have provided this additional analysis for comparability of results and to aid in the analysis and understanding of our operating performance period over period. Any non-GAAP analysis is provided as supplemental financial information to our GAAP results and is not intended to be a substitute for our reported successor and predecessor period GAAP results.
67
Year-to-Date Period Ended June 30, 2013 to Year-To-Date Period Ended June 30, 2012
|
|
|
|
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Year-to-Date Periods | |||||||||||
|
2013 | 2012 | ||||||||||
|
Successor | Successor |
|
Predecessor | ||||||||
|
Six months
ended June 30 |
February 14
(inception) to June 30 |
|
January 1 to
May 24 |
||||||||
Operating revenues: |
||||||||||||
Oil and condensate |
$ | 568 | $ | 74 | $ | 322 | ||||||
Natural gas |
215 | 46 | 262 | |||||||||
NGLs |
32 | 4 | 29 | |||||||||
Total physical sales |
815 | 124 | 613 | |||||||||
Financial derivatives |
35 | 57 | 365 | |||||||||
Total operating revenues |
850 | 181 | 978 | |||||||||
Operating expenses: |
||||||||||||
Natural gas purchases |
10 | 4 | | |||||||||
Transportation costs |
46 | 9 | 45 | |||||||||
Lease operating expense |
98 | 15 | 96 | |||||||||
General and administrative |
118 | 208 | 75 | |||||||||
Depreciation, depletion and amortization |
277 | 26 | 319 | |||||||||
Impairments/Ceiling test charges |
10 | 1 | 62 | |||||||||
Exploration expense |
27 | 6 | | |||||||||
Taxes, other than income taxes |
43 | 10 | 45 | |||||||||
Total operating expenses |
629 | 279 | 642 | |||||||||
Operating income (loss) |
221 | (98 | ) | 336 | ||||||||
Earnings (loss) from unconsolidated affiliates |
6 | (1 | ) | (5 | ) | |||||||
Other (expense) income |
(1 | ) | 1 | (3 | ) | |||||||
Loss on extinguishment of debt |
(3 | ) | | | ||||||||
Interest expense |
(178 | ) | (53 | ) | (14 | ) | ||||||
Income (loss) from continuing operations before income tax |
45 | (151 | ) | 314 | ||||||||
Income tax expense |
2 | | 136 | |||||||||
Income (loss) from continuing operations |
43 | (151 | ) | 178 | ||||||||
Income from discontinued operations |
44 | 1 | | |||||||||
Net income (loss) |
$ | 87 | $ | (150 | ) | $ | 178 | |||||
68
Operating Revenues
The table below provides our operating revenues, volumes and prices per unit for the six-month period ended June 30, 2013 and for each of the successor and predecessor periods in 2012. We present (i) average realized prices based on physical sales of oil and condensate, natural gas and NGLs as well as (ii) average realized prices inclusive of the impacts of financial derivative settlements and premiums which reflect cash received or paid during the respective period.
|
|
|
|
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Year-to-Date Periods | |||||||||||
|
2013 | 2012 | ||||||||||
|
Successor | Successor |
|
Predecessor | ||||||||
|
Six months
ended June 30 |
February 14
(inception) to June 30 |
|
January 1 to
May 24 |
||||||||
Operating revenues(1): |
||||||||||||
Oil and condensate |
$ | 568 | $ | 74 | $ | 322 | ||||||
Natural gas |
215 | 46 | 262 | |||||||||
NGLs |
32 | 4 | 29 | |||||||||
Total physical sales |
815 | 124 | 613 | |||||||||
Financial derivatives |
35 | 57 | 365 | |||||||||
Total operating revenues |
$ | 850 | $ | 181 | $ | 978 | ||||||
Volumes(1): |
||||||||||||
Oil and condensate |
||||||||||||
Consolidated volumes (MBbls) |
5,976 | 905 | 3,209 | |||||||||
Unconsolidated affiliate volumes (MBbls) |
136 | 28 | 115 | |||||||||
Natural gas |
||||||||||||
Consolidated volumes (MMcf) |
54,351 | 17,182 | 99,158 | |||||||||
Unconsolidated affiliate volumes (MMcf) |
7,317 | 1,538 | 6,310 | |||||||||
NGLs |
||||||||||||
Consolidated volumes (MBbls) |
1,098 | 147 | 673 | |||||||||
Unconsolidated affiliate volumes (MBbls) |
229 | 47 | 190 | |||||||||
Equivalent volumes |
||||||||||||
Consolidated MBoe |
16,133 | 3,915 | 20,408 | |||||||||
Unconsolidated affiliate MBoe |
1,585 | 331 | 1,357 | |||||||||
Total combined MBoe |
17,718 | 4,246 | 21,765 | |||||||||
Consolidated MBoe/d |
89 | |||||||||||
Unconsolidated affiliate MBoe/d |
9 | |||||||||||
Total Combined MBoe/d |
98 | |||||||||||
Consolidated prices per unit(2): |
||||||||||||
Oil and condensate |
||||||||||||
Average realized price on physical sales ($/Bbl) |
$ | 94.97 | $ | 82.08 | $ | 100.44 | ||||||
Average realized price, including financial derivatives ($/Bbl)(3) |
$ | 101.44 | $ | 93.80 | $ | 99.18 | ||||||
Natural gas |
||||||||||||
Average realized price on physical sales ($/Mcf) |
$ | 3.77 | $ | 2.42 | $ | 2.64 | ||||||
Average realized price, including financial derivatives ($/Mcf)(3) |
$ | 3.49 | $ | 4.48 | $ | 4.31 | ||||||
NGLs |
||||||||||||
Average realized price on physical sales ($/Bbl) |
$ | 28.68 | $ | 28.87 | $ | 42.94 |
69
Physical sales. Physical sales represent accrual-based commodity sales transactions with customers. For the year to date period in 2013, increases in oil sales were due primarily to oil volume growth from our Eagle Ford drilling program and increases in natural gas prices which more than offset a reduction in natural gas volumes.
Oil and condensate sales for the six months ended June 30, 2013 compared to the combined six months ended June 30, 2012 increased by $172 million (43%), due primarily to oil and volume growth from our Eagle Ford drilling program. In 2013, Eagle Ford production increased by 11 MBbls (or 106%) compared with the year-to-date period ended June 30, 2012.
Natural gas sales for the six months ended June 30, 2013 and successor period from February 14 (inception) to June 30, 2012 were $215 million and $46 million, respectively, and for the predecessor period from January 1 to May 24, 2012 were $262 million (including approximately $88 million of natural gas sales related to divested assets). Natural gas sales (excluding amounts related to divested assets) remained relatively flat for the six months ended June 30, 2013 compared with the combined six months ended June 30, 2012, primarily due to an increase in average realized natural gas prices which offset the decrease in volumes due to natural production declines in the Haynesville Shale. During the first quarter of 2012, we suspended our drilling program in the Haynesville Shale due to low natural gas prices.
NGLs sales remained relatively flat for the six months ended June 30, 2013 compared with the combined six months ended June 30, 2012. Average realized prices for the six months ended June 30, 2013 decreased compared to 2012, offset by an increase in NGLs volumes primarily attributable to our Eagle Ford drilling program. Eagle Ford NGLs volumes increased by 3 MBbls/d (or approximately 176%) compared with the year-to-date period ended June 30, 2012.
As of June 30, 2013, the NYMEX spot price of a barrel of oil was $96.56 versus the NYMEX spot price of natural gas of $3.57, a ratio of 27 to 1. We will continue to target increases in our oil volumes in 2013 due to the value of oil in relation to the value of natural gas, but we also expect volumes of natural gas to decline with less capital focus in this area. Growth in our revenue will largely be impacted by our ability to grow our oil volumes with sustained current prices of oil.
Realized and unrealized gains or losses on financial derivatives. We record realized and unrealized gains or losses due to changes in the fair value of our derivative contracts based on forward commodity prices relative to the prices in the underlying contracts. During the six months ended June 30, 2013, we recorded $35 million of derivative losses compared to derivative gains of $422 million during the combined six months ended June 30, 2012.
Operating Expenses
Transportation costs. Transportation costs for the six months ended June 30, 2013 and successor period from February 14 (inception) to June 30, 2012 were $46 million and $9 million, respectively, and for the predecessor period from January 1 to May 24, 2012 were $45 million (including $18 million of transportation costs related to divested assets). Total transportation costs (excluding amounts related to divested assets) for the six months ended June 30, 2013 compared to same period in 2012 increased for the six months ended June 30, 2013 due to oil transportation costs associated with our Eagle Ford area as a result of our production growth in that area.
70
Lease Operating Expense. Lease operating expense for the six months ended June 30, 2013 and successor period from February 14 (inception) to June 30, 2012 were $98 million and $15 million, respectively, and for the predecessor period from January 1 to May 24, 2012 were $96 million (including approximately $31 million related to divested assets). Lease operating expenses for the combined six months ended June 30, 2013 increased over 2012 due to increased equipment and chemical costs in our Eagle Ford area and higher maintenance, repair and power costs.
General and administrative expenses. General and administrative expenses for the six months ended June 30, 2013 decreased $165 million compared to the combined six months ended June 30, 2012. The decrease was primarily due to transition and restructuring costs of $183 million recorded in 2012 as a result of the Acquisition offset by an increase of $10 million in 2013 in management consulting and advisory service charges compared to 2012. Prior to the Acquisition, we were allocated general and administrative costs based on the estimated level of resources devoted to our operations and the relative size of our earnings before interest and taxes, gross property and payroll.
Depreciation, depletion and amortization expense. Our depreciation, depletion and amortization costs increased in 2013 compared with 2012 due to the ongoing development of higher cost oil programs (e.g. Eagle Ford and Wolfcamp). Our average depreciation, depletion and amortization costs per unit for the year-to-date ended June 30 were:
|
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Year-to-Date Periods | |||||||||||
|
|
2012 | ||||||||||
|
2013 | |||||||||||
|
|
|
|
|||||||||
|
Successor | Successor |
|
Predecessor | ||||||||
|
|
|||||||||||
|
Six months
ended June 30 |
February 14
(inception) to June 30 |
|
January 1 to May 24 | ||||||||
Depreciation, depletion and amortization ($/Boe)(1) |
$ | 17.15 | $ | 6.74 | $ | 15.62 |
Impairments/Ceiling test charges. We apply the successful efforts method of accounting and evaluate capitalized costs related to proved properties at least annually or upon a triggering event to determine if impairment of such properties is necessary. During the six months ended June 30, 2013, we recorded an impairment of approximately $10 million to our oil and natural gas properties in Brazil based on our entry into a Quota Purchase Agreement for these assets in July 2013. Forward commodity prices can play a significant role in determining impairments. Considering the significant amount of fair value allocated to our oil and natural gas properties in conjunction with the Acquisition, sustained lower oil and natural gas prices from present levels could result in an impairment of the carrying value of our proved properties in the future.
The predecessor used the full cost method of accounting. Under this method of accounting, the predecessor conducted quarterly ceiling tests of capitalized costs in each of the full cost pools. During the predecessor period from January 1, 2012 to May 24, 2012, we recorded non-cash charges of approximately $62 million as a result of our decision to end exploration activities in Egypt. In June 2012, we sold all our interests in Egypt.
Exploration expense. For the six months ended June 30, 2013, we recorded $27 million of exploration expense compared to $6 million for the successor period from February 14 (inception) to June 30, 2012 as a result of applying the successful efforts method of accounting following the Acquisition. Prior to the Acquisition, exploration costs were capitalized under full cost accounting.
71
Included in exploration expense for the six months ended June 30, 2013 is $23 million of amortization of unproved property costs.
Taxes, other than income taxes. Taxes, other than income taxes, for the six months ended June 30, 2013 and the successor period from February 14 (inception) to June 30, 2012 were $43 million and $10 million, respectively, and for the predecessor period from January 1 to May 24, 2012 were $45 million (including approximately $9 million of taxes, other than income taxes related to the divested assets). Taxes, other than income taxes, were lower in 2013 compared with 2012 due primarily to recording a reduction in sales and use taxes of $13 million in the second quarter of 2013 associated with settling the remaining Texas sales and use tax audit for $3 million, including penalties and fees.
Cash Operating Costs and Adjusted Cash Operating Costs. We monitor cash operating costs required to produce our oil and natural gas. Cash operating costs is a non-GAAP measure calculated on a per Boe basis and includes total operating expenses less depreciation, depletion and amortization expense, transportation costs, exploration expense, natural gas purchases, impairments and ceiling test charges and other expenses. Adjusted cash operating costs is a non-GAAP measure and is defined as cash operating costs less transition and restructuring costs, management fees paid to the Sponsors and non-cash compensation expense. We believe cash operating costs and adjusted cash operating costs per unit are valuable measures of operating performance and efficiency; however, these measures may not be comparable to similarly titled measures used by other companies. The table below represents a reconciliation of our cash operating costs and adjusted cash operating costs to operating expenses for the year-to-date periods below:
|
Year-to-Date Periods | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||||||||||||||||
|
Successor | Successor |
|
Predecessor | |||||||||||||||||
|
Six months ended
June 30 |
February 14 (inception)
to June 30 |
|
January 1 to May 24 | |||||||||||||||||
|
Total | Per Unit(1) | Total | Per Unit(1) |
|
Total | Per Unit(1) | ||||||||||||||
|
(in millions, except per unit costs)
|
||||||||||||||||||||
Total continuing operating expenses |
$ | 629 | $ | 38.96 | $ | 279 | $ | 71.25 | $ | 642 | $ | 31.48 | |||||||||
Depreciation, depletion and amortization |
(277 | ) | (17.15 | ) | (26 | ) | (6.74 | ) | (319 | ) | (15.62 | ) | |||||||||
Transportation costs |
(46 | ) | (2.83 | ) | (9 | ) | (2.36 | ) | (45 | ) | (2.22 | ) | |||||||||
Exploration expense |
(27 | ) | (1.69 | ) | (6 | ) | (1.38 | ) | | | |||||||||||
Natural gas purchases |
(10 | ) | (0.63 | ) | (4 | ) | (1.03 | ) | | | |||||||||||
Impairments/Ceiling test charges |
(10 | ) | (0.61 | ) | (1 | ) | (0.26 | ) | (62 | ) | (3.02 | ) | |||||||||
Total continuing cash operating costs |
259 | 16.05 | 233 | 59.48 | 216 | 10.62 | |||||||||||||||
Transition/restructuring costs and non-cash compensation expense(2) |
(35 | ) | (2.19 | ) | (192 | ) | (48.99 | ) | (11 | ) | (0.56 | ) | |||||||||
Total adjusted cash operating costs and adjusted per-unit cash costs(2) |
$ | 224 | $ | 13.86 | $ | 41 | $ | 10.49 | $ | 205 | $ | 10.06 | |||||||||
Total equivalent volumes (MBoe)(3) |
16,133 | 3,915 | 20,408 | ||||||||||||||||||
72
The table below displays the average cash operating costs and adjusted cash operating costs per equivalent unit:
|
Year-to-Date Periods | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | ||||||||||
|
Successor | Successor |
|
Predecessor | ||||||||
|
|
|||||||||||
|
Six months
ended June 30 |
February 14
(inception) to June 30 |
|
January 1 to
May 24 |
||||||||
Average cash operating costs ($/Boe) |
||||||||||||
Lease operating expenses |
$ | 6.07 | $ | 3.86 | $ | 4.70 | ||||||
Production taxes(1) |
3.17 | 2.11 | 1.97 | |||||||||
General and administrative expenses |
7.31 | 53.23 | 3.70 | |||||||||
Taxes, other than production and income taxes |
(0.50 | ) | 0.28 | 0.25 | ||||||||
Total cash operating costs |
$ | 16.05 | $ | 59.48 | $ | 10.62 | ||||||
Transition/restructuring costs and non-cash compensation expense |
$ | (2.19 | ) | $ | (48.99 | ) | $ | (0.56 | ) | |||
Total adjusted cash operating costs |
$ | 13.86 | $ | 10.49 | $ | 10.06 | ||||||
Other Income Statement Items
Interest expense. Interest expense for the six months ended June 30, 2013 increased $111 million compared to the combined six months ended June 30, 2012 primarily due to the issuance of approximately $4.25 billion of debt related to the Acquisition in May 2012. Prior to the Acquisition and related financing transactions, interest expense primarily related to borrowings under the predecessor's $1 billion credit facility in place at that time. In August 2013, we repaid $785 million of amounts outstanding under our RBL Facility using proceeds from recently completed asset divestitures and repaid approximately $500 million under our term loans. We will use a portion of the proceeds from this offering to repay our outstanding Senior PIK Toggle Notes.
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Year Ended December 31, 2012 to Year Ended December 31, 2011 and Year Ended December 31, 2011 to Year Ended December 31, 2010
|
|
|
Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Successor |
|
|||||||||||||
|
|
|
Years ended
December 31, |
||||||||||||
|
February 14
(inception), to December 31, 2012 |
|
|||||||||||||
|
January 1, to
May 24, 2012 |
||||||||||||||
|
|
2011 | 2010 | ||||||||||||
|
(In millions)
|
||||||||||||||
Operating revenues: |
|||||||||||||||
Oil and condensate |
$ | 555 | $ | 322 | $ | 552 | $ | 346 | |||||||
Natural gas |
278 | 262 | 973 | 974 | |||||||||||
NGLs |
32 | 29 | 57 | 60 | |||||||||||
Total physical sales |
865 | 613 | 1,582 | 1,380 | |||||||||||
Financial derivatives |
(62 | ) | 365 | 284 | 390 | ||||||||||
Other |
| | 1 | 19 | |||||||||||
Total operating revenues |
803 | 978 | 1,867 | 1,789 | |||||||||||
Operating expenses: |
|||||||||||||||
Natural gas purchases |
19 | | | | |||||||||||
Transportation costs |
51 | 45 | 85 | 73 | |||||||||||
Lease operating expense |
96 | 96 | 217 | 193 | |||||||||||
General and administrative |
371 | 75 | 201 | 190 | |||||||||||
Depreciation, depletion and amortization |
217 | 319 | 612 | 477 | |||||||||||
Impairments/Ceiling test charges |
1 | 62 | 158 | 25 | |||||||||||
Exploration expense |
50 | | | | |||||||||||
Taxes, other than income taxes |
51 | 45 | 91 | 85 | |||||||||||
Other |
| | | 15 | |||||||||||
Total operating expenses |
856 | 642 | 1,364 | 1,058 | |||||||||||
Operating (loss) income |
(53 |
) |
336 |
503 |
731 |
||||||||||
Loss from unconsolidated affiliates |
(1 | ) | (5 | ) | (7 | ) | (7 | ) | |||||||
Other income (expenses) |
3 | (3 | ) | (2 | ) | 3 | |||||||||
Loss on extinguishment of debt |
(14 | ) | | | | ||||||||||
Interest expense, net of capitalized interest |
(219 | ) | (14 | ) | (12 | ) | (21 | ) | |||||||
(Loss) income from continuing operations before income tax |
(284 | ) | 314 | 482 | 706 | ||||||||||
Income tax expense |
2 | 136 | 220 | 263 | |||||||||||
(Loss) income from continuing operations |
(286 | ) | 178 | 262 | 443 | ||||||||||
Income from discontinued operations |
30 | | | | |||||||||||
Net (loss) income |
$ | (256 | ) | $ | 178 | $ | 262 | $ | 443 | ||||||
Operating Revenues
The table below provides our operating revenues, volumes and prices per unit. We present (i) average realized prices based on physical sales of oil and condensate, natural gas and NGLs as well
74
as (ii) average realized prices inclusive of the impacts of financial derivative settlements and premiums which reflect cash received and/or paid during the respective period.
|
Year-to-Date Periods | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Predecessor | ||||||||||||
|
Successor |
|
|||||||||||||
|
|
Years ended
December 31, |
|||||||||||||
|
February 14
(inception), to December 31, 2012 |
|
|||||||||||||
|
January 1, to
May 24, 2012 |
||||||||||||||
|
|
2011 | 2010 | ||||||||||||
|
($ in millions)
|
||||||||||||||
Operating revenues(1) |
|||||||||||||||
Oil and condensate |
$ | 555 | $ | 322 | $ | 552 | $ | 346 | |||||||
Natural gas |
278 | 262 | 973 | 974 | |||||||||||
NGLs |
32 | 29 | 57 | 60 | |||||||||||
Total physical sales |
865 | 613 | 1,582 | 1,380 | |||||||||||
Financial derivatives |
(62 | ) | 365 | 284 | 390 | ||||||||||
Other |
| | 1 | 19 | |||||||||||
Total operating revenues |
$ | 803 | $ | 978 | $ | 1,867 | $ | 1,789 | |||||||
Volumes(1): |
|||||||||||||||
Oil and condensate |
|||||||||||||||
Consolidated volumes (MBbls) |
6,198 | 3,209 | 6,034 | 4,747 | |||||||||||
Unconsolidated affiliate volumes (MBbls) |
167 | 115 | 306 | 364 | |||||||||||
Natural gas |
|||||||||||||||
Consolidated volumes (MMcf) |
85,347 | 99,158 | 241,083 | 225,611 | |||||||||||
Unconsolidated affiliate volumes (MMcf) |
9,242 | 6,310 | 16,881 | 17,165 | |||||||||||
NGLs |
|||||||||||||||
Consolidated volumes (MBbls) |
940 | 673 | 1,068 | 1,423 | |||||||||||
Unconsolidated affiliate volumes (MBbls) |
288 | 190 | 556 | 573 | |||||||||||
Equivalent volumes |
|||||||||||||||
Consolidated MBoe |
21,363 | 20,408 | 47,283 | 43,772 | |||||||||||
Unconsolidated affiliate MBoe |
1,995 | 1,357 | 3,675 | 3,798 | |||||||||||
Total Combined MBoe |
23,358 | 21,765 | 50,958 | 47,570 | |||||||||||
Consolidated MBoe/d |
130 | 120 | |||||||||||||
Unconsolidated affiliate MBoe/d |
10 | 10 | |||||||||||||
Total Combined MBoe/d |
140 | 130 | |||||||||||||
Consolidated prices per unit: |
|||||||||||||||
Oil and condensate |
|||||||||||||||
Average realized price on physical sales ($/Bbl) |
$ | 89.58 | $ | 100.44 | $ | 91.40 | $ | 72.83 | |||||||
Average realized price, including financial derivatives($/Bbl)(2)(3) |
$ | 97.50 | $ | 99.18 | $ | 90.23 | $ | 71.13 | |||||||
Natural gas |
|||||||||||||||
Average realized price on physical sales ($/Mcf) |
$ | 3.04 | $ | 2.64 | $ | 4.04 | $ | 4.32 | |||||||
Average realized price, including financial derivatives($/Mcf)(2)(3) |
$ | 5.08 | $ | 4.31 | $ | 5.34 | $ | 4.97 | |||||||
NGLs |
|||||||||||||||
Average realized price on physical sales ($/Bbl) |
$ | 33.83 | $ | 42.94 | $ | 53.50 | $ | 42.38 |
75
Physical sales. Oil and condensate sales for the combined year ended December 31, 2012 increased over 2011 due primarily to oil volume growth from our Eagle Ford, Wolfcamp and Uinta core areas which were up 11 MBbls/d compared with 2011. In 2011, oil revenues increased over 2010 due to both higher oil prices of $112 million and a 27% increase in consolidated oil production volumes of $94 million. For the years ended December 31, 2012 and 2011 our oil and condensate sales increased 59% and 60%, respectively, from the prior year's physical sales.
Natural gas sales were $278 million for the successor period from February 14 (inception) to December 31, 2012 and $262 million for the predecessor period from January 1, 2012 to May 24, 2012 (including $88 million related to divested assets). Natural gas sales for the predecessor periods in 2011 and 2010 were $973 million and $974 million, respectively, including $397 million and $528 million, respectively, related to divested assets. Natural gas sales (excluding amounts related to divested assets) decreased in 2012 compared with 2011 primarily due to lower natural gas prices. Natural gas sales (excluding amounts related to divested assets) were largely flat comparing 2011 to 2010 as increases in production volumes were offset with lower natural gas prices.
Realized and unrealized gains on financial derivatives. Realized and unrealized gains for the combined year ended December 31, 2012, increased by $19 million compared to 2011 and for the year ended December 31, 2011 decreased by $106 million compared to 2010. We record realized and unrealized gains or losses due to changes in the fair value of our derivative contracts based on forward commodity prices relative to the prices in the underlying contracts.
Operating Expenses
Transportation costs. Transportation costs were $51 million for the successor period from February 14 (inception) to December 31, 2012 and $45 million for the predecessor period from January 1, 2012 to May 24, 2012 (including $18 million related to divested assets). Transportation costs for the predecessor periods in 2011 and 2010 were $85 million and $73 million, respectively, including $40 million and $44 million, respectively, related to divested assets. Total transportation costs (excluding amounts related to divested assets) in 2012 compared to 2011 increased mainly due to new transportation contracts entered into in 2012 primarily related to our Eagle Ford area in response to growth in that area. Transportation costs (excluding amounts related to divested assets) for the year ended December 31, 2011 increased compared to 2010 primarily due to increased production from the Haynesville area as we expanded that program.
Lease operating expense. Lease operating expense was $96 million for the successor period from February 14 (inception) to December 31, 2012, and $96 million for the predecessor period from January 1, 2012 to May 24, 2012 (including $31 million related to divested assets). Lease operating expense for the predecessor periods in 2011 and 2010 was $217 million and $193 million, including $88 million and $94 million related to divested assets. Lease operating expense (excluding amounts related to divested assets) increased $32 million compared to 2011 due to increased water disposal, equipment and chemical costs in our Eagle Ford area as activity ramped up in that area. Lease operating expenses (excluding amounts related to divested assets) for the year ended December 31, 2011 increased compared to 2010 due to higher maintenance, repair and power costs in our Uinta Basin area, higher costs in our Eagle Ford area due to early well testing and higher expenses in our International area.
General and administrative expenses. General and administrative expenses for the combined year ended December 31, 2012 increased $245 million compared to 2011 primarily due to transition and restructuring costs of $221 million incurred in 2012. The costs include acquisition related costs of $173 million and transition and severance costs of $48 million. General and administrative expenses for the year ended December 31, 2011 increased $11 million compared to 2010 due to severance costs related to an office closure and higher employee benefit costs.
76
Depreciation, depletion and amortization expense. Depreciation, depletion and amortization expense for the year ended December 31, 2012 decreased compared to 2011 due to an average lower depletion rate following the application of the successful efforts method of accounting for oil and natural gas properties, partially offset by higher production volumes. For the year ended December 31, 2011 depreciation, depletion and amortization increased compared to 2010 as a result of higher depletion rates (due to focusing on our capital on oil programs) under the full cost method of accounting and higher production volumes compared to 2010. Our average depreciation, depletion and amortization costs per unit for the periods ended December 31, 2012, 2011 and 2010 were:
Exploration expense. During the period from February 14 (inception) to December 31, 2012 we recorded $50 million of exploration expense as a result of applying the successful efforts method of accounting following the Acquisition. Prior to the Acquisition, exploration expense was capitalized under full cost accounting. Included in exploration expense was $23 million of amortization of unproved property costs.
Impairments/Ceiling test charges. During 2012 we recorded a non-cash charge of approximately $62 million as a result of our decision to end exploration activities in Egypt. In June of 2012, we sold all our interests in Egypt. During the year ended December 31, 2011 we recorded a non-cash charge of approximately $152 million related to our Brazil oil and natural gas operations and a $6 million impairment of certain oil field related equipment and supplies.
Taxes, other than income taxes. Taxes, other than income taxes, were $51 million for the successor period from February 14 (inception) to December 31, 2012, and $45 million for the predecessor period from January 1, 2012 to May 24, 2012 (including $9 million related to divested assets). Taxes, other than income taxes for the predecessor periods in 2011 and 2010 include $36 million in both periods related to divested assets. For the year ended December 31, 2012, taxes, other than income taxes (excluding amounts related to divested assets), increased $32 million compared to 2011 primarily due to higher severance and ad valorem taxes associated with higher oil production volumes and property values from activity in our oil producing areas. Production taxes for the year ended December 31, 2011 compared to 2010 also increased due to higher oil production volumes.
77
Cash Operating Costs and Adjusted Cash Operating Costs. The table below represents a reconciliation of our cash operating costs and adjusted cash operating costs to operating expenses:
|
Successor |
|
Predecessor | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
February 14
(inception) to December 31, 2012 |
|
January 1 to
May 24, 2012 |
Year ended
December 31, 2011 |
Year ended
December 31, 2010 |
||||||||||||||||||||||
|
(In millions, except per unit costs)
|
||||||||||||||||||||||||||
|
Total | Per Unit |
|
Total | Per Unit(1) | Total | Per Unit(1) | Total | Per Unit(1) | ||||||||||||||||||
Total operating expenses |
$ | 856 | $ | 40.07 | $ | 642 | $ | 31.48 | $ | 1,364 | $ | 28.85 | $ | 1,058 | $ | 24.17 | |||||||||||
Depreciation, depletion and amortization |
(217 | ) | (10.16 | ) | (319 | ) | (15.62 | ) | (612 | ) | (12.94 | ) | (477 | ) | (10.90 | ) | |||||||||||
Transportation costs |
(51 | ) | (2.40 | ) | (45 | ) | (2.22 | ) | (85 | ) | (1.79 | ) | (73 | ) | (1.67 | ) | |||||||||||
Exploration expense |
(50 | ) | (2.33 | ) | | | | | | | |||||||||||||||||
Natural gas purchases |
(19 | ) | (0.91 | ) | | | | | | | |||||||||||||||||
Impairments/Ceiling test charges |
(1 | ) | (0.05 | ) | (62 | ) | (3.02 | ) | (158 | ) | (3.36 | ) | (25 | ) | (0.58 | ) | |||||||||||
Other |
| | | | | | (15 | ) | (0.34 | ) | |||||||||||||||||
Total cash operating costs and per-unit cash costs |
518 | 24.22 | 216 | 10.62 | 509 | 10.76 | 468 | 10.68 | |||||||||||||||||||
Transition/restructuring costs and non-cash compensation expense(2) |
(266 | ) | (12.44 | ) | (11 | ) | (0.56 | ) | (27 | ) | (0.56 | ) | (18 | ) | (0.40 | ) | |||||||||||
Total adjusted cash operating costs and adjusted per-unit cash costs |
$ | 252 | $ | 11.78 | $ | 205 | $ | 10.06 | $ | 482 | $ | 10.20 | $ | 450 | $ | 10.28 | |||||||||||
Total equivalent volumes (MBoe)(3) |
21,363 | 20,408 | 47,283 | 43,772 | |||||||||||||||||||||||
78
The table below displays the average cash operating costs and adjusted cash operating costs per equivalent unit:
Other Income Statement Items
Loss on extinguishment of debt. For the successor period ended December 31, 2012 we recorded a $14 million loss on the extinguishment of debt for the pro-rata portion of deferred financing costs written off, debt discount and call premiums paid related to the re-pricing of our existing $750 million term loan.
Interest expense. Interest expense for the combined year ended December 31, 2012 increased compared to 2011 primarily due to the issuance of approximately $4.25 billion of debt in 2012 related to the Acquisition.
Supplemental Non-GAAP Measures
We use the non-GAAP measures "EBITDAX", "Adjusted EBITDAX" and "Pro Forma Adjusted EBITDAX" as supplemental measures. We believe these supplemental measures provide meaningful information to our investors. We define EBITDAX as income (loss) from continuing operations plus interest and debt expense, income taxes, depreciation, depletion and amortization and exploration expense. Adjusted EBITDAX is defined as EBITDAX, adjusted as applicable in the relevant period for the net change in the fair value of derivatives (mark-to-market effects, net of cash settlements and premiums related to these derivatives), impairment and/or ceiling test charges, adjustments to reflect cash distributions of the earnings from our unconsolidated affiliates, non-cash compensation expense, non-recurring transition and restructuring costs, advisory fees paid to our sponsors, losses or gains on extinguishment of debt and losses or gains on sale of assets. Pro Forma Adjusted EBITDAX is defined as total Adjusted EBITDAX less Adjusted EBITDAX related to divested assets. We believe that the presentation of EBITDAX, Adjusted EBITDAX, and Pro Forma Adjusted EBITDAX is important to provide management and investors with (i) additional information to evaluate our ability to service debt adjusting for items required or permitted in calculating covenant compliance under our debt agreements, (ii) an important supplemental indicator of the operational performance of our business, (iii) an additional criterion for evaluating our performance relative to our peers, (iv) additional information to measure our liquidity (before cash capital requirements and working capital needs) and (v) supplemental information about certain material non-cash and/or other items that may not continue
79
at the same level in the future. EBITDAX, Adjusted EBITDAX, and Pro Forma Adjusted EBITDAX have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP or as an alternative to income (loss) from continuing operations, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.
Below is a reconciliation of our EBITDAX, Adjusted EBITDAX, and Pro Forma Adjusted EBITDAX to our consolidated income (loss) from continuing operations:
80
Liquidity and Capital Resources
Overview. Our primary sources of liquidity are cash generated by our operations and borrowings under the RBL Facility. Our primary uses of cash are capital expenditures, debt service requirements and working capital requirements. As of June 30, 2013, our available liquidity was approximately $2.0 billion, including approximately $1.7 billion of additional borrowing capacity available under the RBL Facility. In August 2013, we completed our semi-annual redetermination, maintaining the borrowing base of our RBL Facility at $2.5 billion.
During June 2013, we entered into three separate purchase and sale agreements for the sale of our CBM properties (Raton, Arkoma and Black Warrior basins), the majority of our Arklatex natural gas properties and our natural gas properties in South Texas. In July and August we completed these asset divestitures receiving total consideration of approximately $1.3 billion. We will experience lower cash flow from operations than originally planned as a result of these asset divestitures initially, but used the proceeds, among other items, to pay down debt and invest incremental capital in our core oil programs to generate higher oil production growth and expand our financial returns.
As of June 30, 2013, our total debt was approximately $5.4 billion, comprised of $3.1 billion in senior notes due in 2019, 2020 and 2022, $1.15 billion in senior secured term loans with maturity dates in 2018 and 2019, $785 million outstanding under the RBL Facility expiring in 2017 and $365 million in Senior PIK toggle notes due December 2017. While our debt and interest expense is significantly higher than in predecessor periods due to debt incurred with the Acquisition, we have repaid approximately $785 million of amounts outstanding under our RBL Facility with proceeds from our asset divestitures in July and August 2013. We also repaid approximately $500 million under our term loans. Additionally, we anticipate utilizing a portion of the proceeds from this offering (i) to redeem all of the outstanding 8.125%/8.875% Senior PIK Toggle Notes due 2017 issued by our subsidiaries, EPE Holdings LLC and EP Energy Bondco Inc., and pay the redemption premium and the accrued and unpaid interest on the notes, (ii) to repay outstanding borrowings under the RBL Facility, (iii) to pay an approximately $ million fee under the transaction fee agreement with certain affiliates of our Sponsors and (iv) for general corporate purposes. See "Use of Proceeds." Where favorable debt markets allow, we also evaluate opportunities to reduce our interest cost. In May 2013, we repriced our $750 million term loan due 2018 that reduced the specified margin over LIBOR from 4.00% to 2.75%, and reduced the minimum LIBOR floor from 1.00% to 0.75% over the remaining life of the term loan. In August 2013, we distributed $200 million to our Sponsors. For additional details on our debt, see "Capitalization" and Note 7 to our historical consolidated financial statements and related notes included elsewhere in this prospectus.
We believe we have sufficient liquidity from our cash flows from operations, combined with availability under the RBL Facility and available cash, to fund our capital program, current obligations, and projected working capital requirements for the foreseeable future. Our ability to (i) generate sufficient cash flows from operations or obtain future borrowings under the RBL Facility, (ii) repay or refinance any of our indebtedness on commercially reasonable terms or at all on the occurrence of certain events, such as a change of control, or (iii) obtain additional capital if required on acceptable terms or at all for any potential future acquisitions, joint ventures or other similar transactions, will depend on prevailing economic conditions many of which are beyond our control. We have attempted to mitigate certain of these risks (e.g. by entering into oil and natural gas derivative contracts to reduce the financial impact of downward commodity price movements on a substantial portion of our anticipated production), but we could be required to take additional future actions if necessary to address further changes in the financial or commodity markets.
81
Overview of Cash Flow Activities. Our cash flows from operations including continuing and discontinued activities are summarized as follows (in millions):
|
Successor |
|
Predecessor | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Six months
ended June 30, 2013 |
|
February 14
(inception) to December 31, 2012 |
|
|
December 31, | |||||||||||||||
|
February 14
(inception) to June 30, 2012 |
|
January 1 to
May 24, 2012 |
||||||||||||||||||
|
|
2011 | 2010 | ||||||||||||||||||
|
|
||||||||||||||||||||
Cash Flow from Operations |
|||||||||||||||||||||
Operating activities |
|||||||||||||||||||||
Net (loss) income |
$ | 87 | $ | (150 | ) | $ | (256 | ) | $ | 178 | $ | 262 | $ | 443 | |||||||
Impairments |
10 | 1 | 1 | | | | |||||||||||||||
Ceiling test charges |
| | | 62 | 158 | 25 | |||||||||||||||
Other income adjustments |
381 | 48 | 351 | 537 | 973 | 859 | |||||||||||||||
Change in other assets and liabilities |
(28 | ) | 9 | 353 | (197 | ) | 33 | (260 | ) | ||||||||||||
Total cash flow from operations |
$ | 450 | $ | (92 | ) | $ | 449 | $ | 580 | $ | 1,426 | $ | 1,067 | ||||||||
Other Cash Inflows |
|||||||||||||||||||||
Investing activities |
|||||||||||||||||||||
Net proceeds from the sale of assets |
$ | 10 | $ | 22 | $ | 110 | $ | 9 | $ | 612 | $ | 155 | |||||||||
Other |
| | | | | 4 | |||||||||||||||
|
10 | 22 | 110 | 9 | 612 | 159 | |||||||||||||||
Financing activities |
|||||||||||||||||||||
Proceeds from debt |
985 | 4,323 | 5,825 | 215 | 2,030 | 500 | |||||||||||||||
Contributions |
| 3,300 | 3,323 | 960 | | | |||||||||||||||
Net change in note payable with parent |
|
|
|
|
|
489 |
|||||||||||||||
|
985 | 7,623 | 9,148 | 1,175 | 2,030 | 989 | |||||||||||||||
Total cash inflows |
$ | 995 | $ | 7,645 | $ | 9,258 | $ | 1,184 | $ | 2,642 | $ | 1,148 | |||||||||
Cash Outflows |
|||||||||||||||||||||
Investing activities |
|||||||||||||||||||||
Capital expenditures |
$ | 914 | $ | 150 | $ | 877 | $ | 636 | $ | 1,591 | $ | 1,238 | |||||||||
Cash paid for acquisitions |
2 | 7,126 | 7,126 | 1 | 22 | 51 | |||||||||||||||
Increase in note receivable with parent |
|
|
|
|
236 |
|
|||||||||||||||
|
916 | 7,276 | 8,003 | 637 | 1,849 | 1,289 | |||||||||||||||
Financing activities |
|||||||||||||||||||||
Repayment of debt |
305 | 80 | 1,139 | 1,065 | 1,480 | 1,034 | |||||||||||||||
Net change in note payable with parent company and affiliates |
| | | | 781 | | |||||||||||||||
Member distribution |
5 | | 337 | | | | |||||||||||||||
Debt issuance costs |
5 | 142 | 159 | | 7 | 1 | |||||||||||||||
|
315 | 222 | 1,635 | 1,065 | 2,268 | 1,035 | |||||||||||||||
Total cash outflows |
$ | 1,231 | $ | 7,498 | $ | 9,638 | $ | 1,702 | $ | 4,117 | $ | 2,324 | |||||||||
Net change in cash and cash equivalents |
$ | 214 | $ | 55 | $ | 69 | $ | 62 | $ | (49 | ) | $ | (109 | ) |
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We are party to various contractual obligations. Some of these obligations are reflected in our financial statements, such as liabilities from commodity-based derivative contracts, while other obligations, such as operating leases and capital commitments, are not reflected on our balance sheet. The following table and discussion summarizes our contractual cash obligations as of June 30, 2013, for each of the periods presented:
|
2013 | 2014 - 2015 | 2016 - 2017 | Thereafter | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In millions)
|
|||||||||||||||
Long-term financing obligations: |
||||||||||||||||
Principal |
$ | | $ | | $ | 1,323 | $ | 4,250 | $ | 5,573 | ||||||
Interest |
166 | 666 | 652 | 667 | 2,151 | |||||||||||
Liabilities from derivatives |
5 | 2 | | | 7 | |||||||||||
Operating leases |
7 | 26 | 21 | | 54 | |||||||||||
Other contractual commitments and purchase obligations: |
||||||||||||||||
Volume and transportation commitments(1) |
54 | 180 | 169 | 284 | 687 | |||||||||||
Other obligations |
48 | 79 | 55 | 159 | 341 | |||||||||||
Total contractual obligations |
$ | 280 | $ | 953 | $ | 2,220 | $ | 5,360 | $ | 8,813 | ||||||
Long-term Financing Obligations (Principal and Interest). Debt obligations included in the table above represent stated maturities. Interest payments are shown through the stated maturity date of the related debt based on (i) the contractual interest rate for fixed rate debt and (ii) current market interest rates and the contractual credit spread for variable rate debt. In August 2013, we repaid $785 million outstanding under our RBL Facility and $500 million under our term loans. Additionally, we anticipate using a portion of the proceeds from this offering to repay our outstanding senior PIK toggle notes.
Liabilities from Derivatives. These amounts include the fair value of our commodity-based and interest rate derivative liabilities.
Operating Leases. We maintain leases related to our office space and various equipment.
Other Contractual Commitments and Purchase Obligations. Other contractual commitments and purchase obligations are legally enforceable agreements to purchase goods or services that have fixed or minimum quantities and fixed or minimum variable price provisions, and that detail approximate timing of the underlying obligations. Included are the following:
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For a further discussion of our commitments and contingencies, see Note 8 to our historical consolidated financial statements and related notes included elsewhere in this prospectus.
Off-Balance Sheet Arrangements
We have no investments in unconsolidated entities or persons that could materially affect our liquidity or the availability of capital resources. We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition or results of operations.
Our significant accounting policies are described in Note 1 to our historical consolidated financial statements and related notes included elsewhere in this prospectus. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expense and the disclosures of contingent assets and liabilities. We consider our critical accounting estimates to be those estimates that require complex or subjective judgment in the application of the accounting policy and that could significantly impact our financial results based on changes in those judgments. Changes in facts and circumstances may result in revised estimates and actual results may differ materially from those estimates. Our management has identified the following critical accounting estimates.
Accounting for Oil and Natural Gas Producing Activities. We apply the successful efforts method of accounting for our oil and natural gas properties. Under the successful efforts method, exploratory non-drilling costs and costs of carrying and retaining undeveloped properties are charged to expense as incurred while acquisition costs, development costs and the costs associated with drilling exploratory wells are capitalized pending the determination of proved oil and gas reserves. Therefore, at any point in time, we may have capitalized costs on our consolidated balance sheet associated with exploratory wells that could be charged to exploration expense in a future period. Costs of drilling exploratory wells that do not result in proved reserves are charged to expense. We capitalize salaries and benefits that we determine are directly attributable to our oil and natural gas activities. Depreciation, depletion, amortization and impairment of oil and natural gas properties are calculated on a depletable unit basis based significantly on estimates of quantities of proved oil and natural gas reserves. Revisions to these estimates could alter our depletion rates in the future and affect our future depletion expense.
Under the successful efforts method of accounting for oil and natural gas properties, we review our oil and natural gas properties periodically (at least annually) to determine if impairment of such properties is necessary. Significant proved undeveloped leasehold costs are assessed for impairment at a field level or resource play based on total future undiscounted net cash flows. Estimates of future undiscounted cash flows require significant judgment based on estimates of such items as estimates of oil and natural gas reserve quantities, future commodity prices, operating costs and future production among other factors. Leasehold acquisition costs associated with prospective areas that have limited or no previous exploratory drilling are generally assessed for impairment by major prospect area based on our current drilling plans which could change in the future and result in impairments of unproved property. Proved oil and natural gas property values are reviewed when circumstances suggest the need for such a review and may occur if a field discovers lower than anticipated reserves, reservoirs produce below original estimates or in a mix that is different than anticipated or if commodity prices fall below a level that significantly affects anticipated future cash flows on the property. If required, the proved properties are written down to their estimated fair market value based on proved reserves and other market factors. A majority of the Company's unproved property costs are associated with properties
84
acquired in the Eagle Ford and Wolfcamp shales. Generally, economic recovery of unproved reserves in such areas is not yet supported by actual production or conclusive formation tests, but may be confirmed by our continuing exploration and development programs. From the Acquisition (May 25, 2012) to December 31, 3012, we did not record any impairments of our oil and gas properties. For the six months ended June 30, 2013, we recorded a $10 million impairment based on comparing the fair market value of our Brazil operations to their underlying carrying value.
Prior to the Acquisition on May 24, 2012, our predecessor accounted for oil and natural gas producing activities in accordance with the full cost method. Under the full cost accounting method, substantially all of the costs incurred in connection with the acquisition, exploration and development of oil and natural gas reserves were capitalized in full cost pools by country, regardless of whether reserves were actually discovered. Under the full cost method our most critical accounting assessment was a quarterly ceiling test performed on capitalized costs for each full cost pool since many of the variables (reserves, costs and future capital) involved significant estimation. Prior to the Acquisition, our predecessor recorded ceiling test charges of $62 million, $152 million, $25 million and $2,123 million for the period from January 1, 2012 through May 24, 2012 and for the years ended 2011, 2010, and 2009, respectively.
Our estimates of proved reserves reflect quantities of oil, natural gas and NGLs which geological and engineering data demonstrate, with reasonable certainty, will be recoverable in future years from known reservoirs under existing economic conditions. These estimates of proved oil and natural gas reserves primarily impact our property, plant and equipment amounts on our balance sheets and the depreciation, depletion and amortization amounts, including any impairment test charges on our income statements, among other items. The process of estimating oil and natural gas reserves is complex and requires significant judgment to evaluate all available geological, geophysical engineering and economic data. Our proved reserves are estimated at a property level and compiled for reporting purposes by a centralized group of experienced reservoir engineers who work closely with the operating groups. These engineers interact with engineering and geoscience personnel in each of our operating areas and accounting and marketing personnel to obtain the necessary data for projecting future production, costs, net revenues and economic recoverable reserves. Reserves are reviewed internally with senior management quarterly and presented to the board of managers in summary form on an annual basis. Additionally, on an annual basis each property is reviewed in detail by our centralized and operating divisional engineers to ensure forecasts of operating expenses, netback prices, production trends and development timing are reasonable. Our proved reserves are reviewed by internal committees and the processes and controls used for estimating our proved reserves are reviewed by our internal auditors. In addition, a third-party reservoir engineering firm, which is appointed by and reports to the Audit Committee of the board of managers, conducts an audit of the estimates of a significant portion of our proved reserves.
As of June 30, 2013, 65% of our total consolidated proved reserves were undeveloped (61% including Four Star) and 5% were developed, but non-producing. The data for a given field may change substantially over time as a result of numerous factors, including additional development activity, evolving production history and a continual reassessment of the viability of production under changing economic conditions. As a result, material revisions to existing reserve estimates occur from time to time. In addition, the subjective decisions and variances in available data for various fields increase the likelihood of significant changes in these estimates.
Asset Retirement Obligations. The accounting guidance for future abandonment costs requires that a liability for the discounted fair value of an asset retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Future abandonment costs include costs to dismantle and relocate or dispose of our production platforms, gathering systems and related structures
85
and restoration costs of land and seabed. We develop estimates of these costs for each of our properties based upon their geographic location, type of production structure, water depth, reservoir depth and characteristics, market demand for equipment, currently available procedures and ongoing consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make judgments that are subject to future revisions based upon numerous factors, including changing technology and the political and regulatory environment. We review our assumptions and estimates of future development and abandonment costs on an annual basis, or more frequently if an event occurs or circumstances change that would affect our assumptions and estimates. Additionally, inherent in the present value calculations are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlements and changes in the legal, regulatory, environmental and political environments. As of June 30, 2013, our net asset retirement liability was approximately $86 million of which $37 million is related to our Brazil operations, which we expect to have sold by the end of the first quarter of 2014.
Derivatives. We record the derivative instruments used in our derivative activities at their fair values. We estimate the fair value of our derivative instruments using exchange prices, third-party pricing, interest rates, data and valuation techniques that incorporate specific contractual terms, derivative modeling techniques and present value concepts. One of the primary assumptions used to estimate the fair value of commodity-based derivative instruments is pricing. Our pricing assumptions are based upon price curves derived from actual prices observed in the market, pricing information supplied by a third-party valuation specialist and independent pricing sources and models that rely on this forward pricing information. The extent to which we rely on pricing information received from third parties in developing these assumptions is based, in part, on whether the information considers the availability of observable data in the marketplace. For example, in relatively illiquid markets we may make adjustments to the pricing information we receive from third parties based on our evaluation of whether third party market participants would use pricing assumptions consistent with these sources.
The table below presents the hypothetical sensitivity of our commodity-based derivatives to changes in fair values arising from immediate selected potential changes in oil and natural gas prices at June 30, 2013:
|
|
Change in Price | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
10 Percent Increase | 10 Percent Decrease | |||||||||||||
|
Fair Value | Fair Value | Change | Fair Value | Change | |||||||||||
|
(in millions)
|
|||||||||||||||
Commodity-based derivatives-net assets (liabilities) |
$ | 179 | $ | (158 | ) | $ | (337 | ) | $ | 504 | $ | 325 |
Other significant assumptions that we use in determining the fair value of our derivative instruments are those related to credit and non-performance risk. We adjust the fair value of our derivative assets based on our counterparty's creditworthiness and the risk of non-performance. These adjustments are based on applicable credit ratings, bond yields, changes in actively traded credit default swap prices (if available) and other information related to non-performance and credit standing.
Deferred Taxes and Uncertain Income Tax Positions. Subsequent to the Corporate Reorganization, we will record deferred income tax assets and liabilities reflecting tax consequences deferred to future periods based on differences between the financial statement carrying value of assets and liabilities and the tax basis of assets and liabilities. Additionally, our deferred tax assets and liabilities will reflect our assessment of tax positions taken, and the resulting tax basis, and reflect our conclusions about which positions are more likely than not to be sustained if they are audited by taxing authorities. Our most significant judgments on tax related matters will include, but are not limited to, the realization of our deferred tax assets, uncertain tax positions, and undistributed earnings of our unconsolidated subsidiary
86
which involve the exercise of significant judgment which could change and impact our financial condition or results of operations.
Qualitative and Quantitative Disclosures About Market Risk
We are exposed to market risks in our normal business activities. Market risk is the potential loss that may result from market changes associated with an existing or forecasted financial or commodity transaction. The types of market risks we are exposed to and examples of each are:
Commodity Price Risk
Interest Rate Risk
Where practical, we manage these risks by entering into contracts involving physical or financial settlement that attempt to limit exposure related to future market movements. The timing and extent of our risk management activities are based on a number of factors, including our market outlook, risk tolerance and liquidity. Our risk management activities typically involve the use of the following types of contracts:
Many of the contracts we use in our risk management activities qualify as derivative financial instruments. A discussion of our accounting policies for derivative instruments is included in Notes 1 and 5 to our consolidated financial statements included elsewhere in this prospectus.
Commodity Price Risk
Oil and Natural Gas Derivatives. We attempt to mitigate commodity price risk and stabilize cash flows associated with our forecasted sales of oil and natural gas production through the use of derivative oil and natural gas swaps, basis swaps and option contracts. These contracts impact our earnings as the fair value of these derivatives changes. Our derivatives do not mitigate all of the commodity price risks of our forecasted sales of oil and natural gas production and, as a result, we are subject to commodity price risks on our remaining forecasted production.
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Sensitivity Analysis. The table below presents the hypothetical sensitivity of our commodity-based price risk management activities to changes in fair values arising from immediate selected potential changes in oil and natural gas prices, discount rates and credit rates at June 30, 2013:
|
|
Oil and Natural Gas Derivative Instruments | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
10 Percent Increase | 10 Percent Decrease | |||||||||||||
|
Fair Value | Fair Value | Change | Fair Value | Change | |||||||||||
|
(in millions)
|
|||||||||||||||
Price impact(1) |
$ | 179 | $ | (158 | ) | $ | (337 | ) | $ | 504 | $ | 325 |
|
|
Oil and Natural Gas Derivative Instruments | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
1 Percent Increase | 1 Percent Decrease | |||||||||||||
|
Fair Value | Fair Value | Change | Fair Value | Change | |||||||||||
|
(in millions)
|
|||||||||||||||
Discount rate(2) |
$ | 179 | $ | 176 | $ | (3 | ) | $ | 182 | $ | 3 | |||||
Credit rate(3) |
$ | 179 | $ | 177 | $ | (2 | ) | $ | 180 | $ | 1 |
Interest Rate Risk
Certain of our debt agreements are sensitive to changes in interest rates. The table below shows the maturity of the carrying amounts and related weighted-average effective interest rates on our interest-bearing debt by expected maturity date as well as the total fair value of the debt. The fair value of our debt has been estimated primarily based on quoted market prices for the same or similar issues.
|
June 30, 2013 |
|
|
||||||||||||||||||||||||||||
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|
December 31,
2012 |
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|
Expected Fiscal Year of Maturity of Carrying
Amounts |
|
|
||||||||||||||||||||||||||||
|
|
Fair
Value |
Carrying
Amounts |
Fair
Value |
|||||||||||||||||||||||||||
|
2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | ||||||||||||||||||||||||
|
(in millions)
|
||||||||||||||||||||||||||||||
Fixed rate debt |
$ | | $ | | $ | | $ | | $ | 538 | $ | 3,100 | $ | 3,638 | $ | 3,805 | $ | 3,449 | $ | 3,779 | |||||||||||
Average interest rate |
8.6 | % | 8.6 | % | 8.6 | % | 8.6 | % | 8.6 | % | 8.4 | % | |||||||||||||||||||
Variable rate debt |
$ | | $ | | $ | | $ | | $ | 785 | $ | 1,141 | $ | 1,926 | $ | 1,925 | $ | 1,246 | $ | 1,260 | |||||||||||
Average interest rate |
3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.6 | % | 4.5 | % |
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Overview
We are an independent exploration and production company engaged in the acquisition and development of unconventional onshore oil and natural gas properties in the United States. We are focused on creating shareholder value through the development of our low-risk drilling inventory located in four core areas: the Eagle Ford Shale (South Texas), the Wolfcamp Shale (Permian Basin in West Texas), the Uinta Basin (Utah) and the Haynesville Shale (North Louisiana). In our core areas, we have identified in excess of 5,200 drilling locations, of which approximately 96% are oil wells. At current activity levels, this represents approximately 24 years of drilling inventory. As of June 30, 2013, we had domestic proved reserves of 501 MMBoe (57% oil and 66% liquids) and for the three months ended June 30, 2013, we had average net daily domestic production of 93,674 Boe/d (37% oil and 46% liquids).
Our management team has a proven track record of identifying, acquiring and developing unconventional oil and natural gas assets. The majority of our senior management team has worked together for over a decade and the team has significant experience at prominent oil and gas companies that have included El Paso Corporation, ConocoPhillips and Burlington Resources. We believe our management's experience in both acquiring resource-rich leasehold positions and efficiently developing those properties will enable us to generate attractive rates of return from our capital programs.
Each of our core areas is characterized by a favorable operating environment, long-lived reserve base and high drilling success rates. We have established significant contiguous leasehold positions in each area, representing approximately 450,000 net (620,000 gross) acres in total. Beginning in 2012, our capital programs have focused predominantly on the Eagle Ford Shale, the Wolfcamp Shale and the Uinta Basin, three of the premier unconventional oil plays in the United States, resulting in oil reserve and production growth of 47% and 88%, respectively, from December 31, 2011 to December 31, 2012. In July and August 2013, we divested non-core natural gas assets for a total consideration of approximately $1.3 billion. Additionally, in July 2013, we entered into a Quota Purchase Agreement relating to the sale of our Brazil operations, which is expected to close by the end of the first quarter of 2014. As a result of this strategic repositioning, we are a higher-growth, 100% onshore U.S., oil-weighted company with a large inventory of high-return, low-risk drilling locations. We intend to continue developing our oil-weighted assets, which offer the best rates of return in our portfolio in the current commodity price environment. In addition, our Haynesville Shale position is 100% held-by-production, which gives us the flexibility to allocate capital in the future to this natural gas-weighted asset.
The following table provides a summary of oil, natural gas and NGLs reserve and production information for each of our areas of operation as of June 30, 2013. Our estimated proved reserves have
89
been prepared by our internal reserve engineers and audited by Ryder Scott Company, L.P., our independent petroleum engineering consultants since 2004.
|
Estimated Proved Reserves |
|
|
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|
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|
PV-10(1) |
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|
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|
|
|
|
|
|
Average
Net Daily Production(2) (MBoe/d) |
|
|||||||||||||||||||||||
|
Oil
(MMBbls) |
NGL
(MMBbls) |
Natural Gas
(Bcf) |
Total
(MMBoe) |
Liquids
(%) |
Proved
Developed (%) |
Value
($MM) |
% of Total
(%) |
R/P
(Years)(3) |
||||||||||||||||||||||
Core Areas |
|||||||||||||||||||||||||||||||
Eagle Ford Shale |
167.7 | 27.3 | 217.4 | 231.2 | 84 | % | 22 | % | 4,084 | 55 | % | 34.9 | 18.1 | ||||||||||||||||||
Wolfcamp Shale |
43.4 | 8.6 | 58.3 | 61.7 | 84 | % | 22 | % | 711 | 10 | % | 4.4 | 38.6 | ||||||||||||||||||
Uinta Basin |
71.9 | | 148.4 | 96.6 | 74 | % | 35 | % | 1,765 | 24 | % | 11.4 | 23.2 | ||||||||||||||||||
Haynesville Shale |
| | 373.1 | 62.2 | 0 | % | 69 | % | 430 | 6 | % | 29.0 | 5.9 | ||||||||||||||||||
Total Core Areas |
283.1 | 35.8 | 797.2 | 451.7 | 71 | % | 31 | % | 6,991 | 95 | % | 79.7 | 15.5 | ||||||||||||||||||
Other(4) |
2.0 | 1.0 | 71.7 | 14.9 | 20 | % | 83 | % | 135 | 2 | % | 5.3 | 7.7 | ||||||||||||||||||
Total Consolidated |
285.0 | 36.8 | 868.9 | 466.7 | 69 | % | 33 | % | 7,126 | 97 | % | 85.0 | 15.0 | ||||||||||||||||||
Four Star |
2.1 | 6.2 | 155.9 | 34.3 | 24 | % | 93 | % | 260 | 3 | % | 8.7 | 10.8 | ||||||||||||||||||
Total Combined |
287.2 | 43.0 | 1,024.8 | 501.0 | 66 | % | 37 | % | 7,386 | 100 | % | 93.7 | 14.7 | ||||||||||||||||||
Approximately 186 MMBoe, or 37%, of our total combined proved reserves are proved developed assets, which for the three months ended June 30, 2013 generated average production of 93,674 Boed from approximately 1,275 wells. As of June 30, 2013, we had 287 MMBbls of proved oil reserves, 43 MMBbls of proved NGLs reserves and 1,025 Bcf of proved natural gas reserves in the United States, representing 57%, 9% and 34%, respectively, of our total proved reserves. For the six months ended June 30, 2013, 73% of our revenues (excluding realized and unrealized gains on financial derivatives) were related to oil and NGLs versus 58% during the same period in 2012, and over that same period and on that same basis, our oil production has grown by approximately 60%. As a result of our development program and recently completed divestitures, the oil-weighting of our reserves is 57% as of June 30, 2013 as compared to 42% as of December 31, 2012 without giving effect to the recently completed divestitures. In 2013, we anticipate that approximately 95% of our capital expenditures will be allocated to our core oil programs.
We operate over 83% of our producing wells and have operational control over approximately 95% of our core area drilling inventory as of June 30, 2013. This control provides us with flexibility around the amount and timing of capital spending and has allowed us to continually improve our capital and operating efficiencies. We also employ a centralized operational structure to accelerate our internal knowledge transfer around the execution of our drilling and completion programs and to continually enhance our field operations and base production performance. In the first six months of 2013, we drilled 105 wells with a success rate of 99%, adding approximately 65 MMBoe of proved reserves as compared to December 31, 2012. The reserve replacement cost was $17.67 per Boe, excluding price revisions, 79% of which was oil. Please see "Management's Discussion and Analysis of Financial Condition and Results of OperationsReserve Replacement Ratio/Reserve Replacement Costs."
Eagle Ford Shale. The Eagle Ford Shale, located in South Texas, is one of the premier unconventional oil plays in the United States, having produced over 750 MMBoe since 2008, including approximately 348 MMBoe in 2012. We were an early entrant into this play in late 2008, and since that
90
time have acquired a leasehold position in the core of the oil window, primarily in La Salle and Atascosa counties. The Eagle Ford formation in La Salle county has up to 125 feet of net thickness (165 feet gross), which results in some of the most prolific acreage in the area. Due to its high carbonate content, the formation is also very brittle, and exhibits high productivity when fractured, with initial 30-day oil equivalent production rates up to 1,100 Boe/d. We currently have 97,689 net (105,416 gross) acres in the Eagle Ford, in which we have identified 983 drilling locations.
For the three months ended June 30, 2013, our average net daily production was 34,944 Boe/d, representing growth of 115% over the same period in 2012. As of June 30, 2013, we had five rigs running and plan to drill 126 wells in 2013 (of which 67 have been drilled through June 30, 2013), representing 58% of our total wells planned in 2013. For the six months ended June 30, 2013 our average cost per well was $7.5 million, representing an 11% decline from our average cost per well for the same period in 2012. We expect our average cost per well to continue to decline.
Wolfcamp Shale. The Wolfcamp Shale is located in the Permian Basin, which has produced more than 29 billion barrels of oil and 75 Tcf of gas over the past 90 years and is estimated by industry experts to contain recoverable oil and natural gas reserves exceeding what has already been produced. With oil production of over 880 MBbls/d from over 80,000 wells during the six months ended June 30, 2013, the Permian Basin represented 51% of the crude oil produced in the State of Texas and approximately 17% of the crude oil and condensate produced onshore in the lower 48 United States. The basin is characterized by numerous, stacked oil reservoirs that provide excellent targets for horizontal drilling. We are currently targeting the Wolfcamp Shale in the Southern Midland Basin, where industry horizontal drilling has added over 50 MBoe/d to the basin's production since 2010.
In 2009 and 2010, we leased 138,130 net (138,468 gross) acres on the University of Texas Land System in the Wolfcamp Shale, located primarily in Reagan, Crockett, Upton and Irion counties. Our large, contiguous acreage positions are characterized by stacked pay zones, including the Wolfcamp A, B, and C, which combine for over 750 feet of net (approximately 1,000 feet of gross) thickness. The Wolfcamp has high organic content and is composed of interbedded shale, silt, and fine-grained carbonate that respond favorably to fracture stimulation. Following our drilling results in 2012, we moved forward to full development of the Wolfcamp B, and began delineation of the Wolfcamp C. Our initial 30-day oil equivalent production rates are up to 600 Boe/d for the Wolfcamp B. As of June 30, 2013, we have identified 2,938 drilling locations in the Wolfcamp A, the Wolfcamp B and the Wolfcamp C across our acreage. In early 2013, we piloted a five-well development program in the Wolfcamp B and Wolfcamp C using alternating laterals. Initial results of the pilot program suggest that the combined development of the two zones may yield greater oil recovery from each interval. We plan to continue to test this development approach.
The acreage is also prospective for the Cline Shale, which has approximately 100 feet of net (approximately 200 feet of gross) thickness, and potential vertical drilling locations in the Spraberry and other stacked formations.
For the three months ended June 30, 2013, our average net daily production was 4,382 Boe/d, representing growth of 152% over the same period in 2012. As of June 30, 2013, we had three rigs running and plan to drill 65 wells in 2013 (of which 25 have been drilled through June 30, 2013), representing 30% of our total wells planned in 2013. For the six months ended June 30, 2013 our average cost per well was $5.9 million, representing a 24% decline from our average cost per well for the same period in 2012. Similar to the Eagle Ford Shale, we expect our average costs per well to continue to decline.
Uinta Basin. The Uinta Basin, located in northeastern Utah, has produced 577 MMbbls since its discovery in 1949 and is characterized by naturally fractured, tight oil sands with multiple zones. Our operations are primarily focused on developing the Altamont Field (including the Bluebell and Cedar Rim fields), which is the largest field in the basin. We own 172,293 net (318,568 gross) acres in
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Duchesne and Uinta Counties, making us the largest lease owner in the Altamont Field. Since their discovery, the Altamont, Bluebell and Cedar Rim fields have produced a combined total of over 300 MMBbls from the oil-rich Wasatch and Green River sandstones. With gross thicknesses over 4,300 feet across multiple sandstone and carbonate intervals, the Wasatch and Green River formations are ideal targets for low-risk, infill, vertical drilling and modern fracture stimulation techniques. The commingled production from over 1,500 feet of net stimulated rock results in initial 30-day oil production rates of up to 900 Boe/d. Our current activity is mainly focused on the development of our vertical inventory on 160-acre spacing. We have identified an inventory of 1,104 drilling locations (758 vertical and 346 horizontal). The industry is currently piloting 80-acre vertical downspacing programs in the Wasatch and Green River formations and horizontal development programs in the multiple shale and tight sand intervals. Due to the largely held-by-production nature of our acreage position, if these programs are successful, it will result in additional vertical and horizontal drilling opportunities that could be added to our inventory of drilling locations.
For the three months ended June 30, 2013, our average net daily production was 11,433 Boe/d, representing growth of 14% over the same period in 2012. As of June 30, 2013, we had two rigs running and plan to drill 26 wells in 2013 (of which 13 have been drilled as of June 30, 2013), representing 12% of our total wells planned in 2013. For the six months ended June 30, 2013 our average cost per well was $5.2 million, representing a 13% decline from our average cost per well for the same period in 2012.
Haynesville Shale. In addition to our key oil programs, we hold significant natural gas assets in the Haynesville Shale, located in East Texas and Northern Louisiana. Our operations are concentrated primarily in Desoto Parish, Louisiana in the Holly Field. This area is within the core of the Haynesville Shale with net thickness of 114 feet (210 feet gross), resulting in initial 30-day gas equivalent production rates up to 18 MMcfe/d. We currently have 40,029 net (59,210 gross) acres in this area. As of June 30, 2013, we have identified 190 drilling locations.
For the three months ended June 30, 2013, our average net daily production was 174 MMcfe/d. As of June 30, 2013, we had 191 producing wells, which provide cash flow to fund the development of our core oil programs. We do not plan to drill any new wells in the Haynesville in 2013. Although we believe our wells generate attractive returns in the current natural gas price environment, we have chosen to allocate capital to our higher-return, oil-weighted areas. Our acreage in the Haynesville Shale is 100% held-by-production, giving us the flexibility to allocate capital in the future to this natural gas-weighted asset.
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The following table provides a summary of acreage and inventory data for our core areas, as of June 30, 2013:
|
Core Acreage and Inventory Summary as of June 30, 2013 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Acres |
|
2013
Drilling Locations(2) (#) |
|
|
|
||||||||||||||||
|
Drilling
Locations(1) (#) |
Inventory
(Years)(3) |
Working
Interest (%) |
Net Revenue
Interest (%) |
||||||||||||||||||
|
Gross | Net | ||||||||||||||||||||
Core Areas |
||||||||||||||||||||||
Eagle Ford Shale |
105,416 | 97,689 | 983 | 126 | 7.8 | 90 | % | 67 | % | |||||||||||||
Wolfcamp Shale |
138,468 |
138,130 |
2,938 |
65 |
45.2 |
96 |
% |
72 |
% |
|||||||||||||
Wolfcamp A |
1,001 | 96 | % | 72 | % | |||||||||||||||||
Wolfcamp B |
939 | 96 | % | 72 | % | |||||||||||||||||
Wolfcamp C |
998 | 96 | % | 72 | % | |||||||||||||||||
Uinta Basin |
318,568 |
172,293 |
1,104 |
26 |
42.5 |
72 |
% |
60 |
% |
|||||||||||||
Vertical |
758 | 72 | % | 61 | % | |||||||||||||||||
Horizontal |
346 | 69 | % | 58 | % | |||||||||||||||||
Haynesville Shale |
59,210 |
40,029 |
190 |
|
NA |
78 |
% |
62 |
% |
|||||||||||||
Holly |
97 | 81 | % | 67 | % | |||||||||||||||||
Non-Holly |
93 | 74 | % | 57 | % | |||||||||||||||||
Total Core Areas |
621,662 | 448,141 | 5,215 | 217 | 24.0 | 89 | % | 68 | % | |||||||||||||
Our 5,215 low-risk drilling locations across our core areas, of which 96% are oil wells, provide us with over 24 years of drilling inventory. We have used the data from our development programs to identify and prioritize our inventory. These drilling locations are only included in our inventory after they have been evaluated technically.
Other Oil and Natural Gas Properties and Assets
We have other producing assets that contribute cash flow toward the development of our oil-focused core areas. During the first six months of 2013, we invested an aggregate of $6 million in capital expenditures in the following areas:
South Louisiana Wilcox. In our South Louisiana Wilcox area we control 67,706 total net (74,344 gross) acres located primarily in Beauregard Parish, Louisiana. We focus on development of the conventional vertical Wilcox area which produces oil, natural gas and NGLs from a series of completed sands. We are also evaluating horizontal drilling in certain sand intervals. We have over 1,000 square miles of 3-D seismic data across this play. The oil and NGLs from South Louisiana Wilcox have access to Louisiana Light Sweet Crude and Gulf Coast NGLs pricing, respectively, which have recently traded at premium levels relative to the WTI index.
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During most of 2012, we operated one drilling rig in South Louisiana Wilcox. In the fourth quarter of 2012, we idled drilling activity to allow completion of a regional model based on our well results and seismic data. For the six months ended June 30, 2013 we had average daily production of 1.7 MBoe/d and as of that date we had 22 net producing wells.
Arklatex Tight Gas. Our Arklatex Tight Gas area includes wells producing from reservoirs other than the Haynesville Shale in our acreage located in Northern Louisiana. These properties are generally in the same areas as our Haynesville Shale. Our wells in this area produce from reservoirs such as the Travis Peak, Hosston and Cotton Valley, and have relatively stable production with shallow declines rates. In the current gas price environment, we are not currently drilling in this area. We have a significant low-risk inventory in this area that we believe would generate economic returns at higher gas prices. For the six months ended June 30, 2013, we had average daily production of 3.6 MBoe/d and as of that date we had 274 net producing wells.
Unconsolidated AffiliateFour Star Oil & Gas Company ("Four Star"). We have an approximate 49% equity interest in Four Star. Four Star operates primarily in the San Juan, Permian, Hugoton and South Alabama basins. Production is from conventional and CBM assets in several basins. For the six months ended June 30, 2013, our equity interest in Four Star's daily equivalent production averaged approximately 8.7 MBoe/d.
Brazil. Our Brazilian assets consist of producing fields along with exploration and development projects offshore Brazil. Our Brazilian operations are in the Camamu, Espirito Santo and Potiguar basins covering approximately 111,000 net acres. For the six months ended June 30, 2013, we invested less than $1 million of capital expenditures in Brazil and averaged 4.7 MBoe/d of production. We have agreed to sell all of our Brazil operations. See "Recent Divestitures."
During the third quarter of 2013, we sold certain of our natural gas properties, including our CBM properties (Raton, Arkoma and Black Warrior Basin), the majority of our Arklatex natural gas properties and our natural gas properties in South Texas, in three separate transactions. The total consideration was approximately $1.3 billion, and proceeds were used to repay outstanding borrowings under the RBL Facility and to fund capital expenditures.
Additionally, in July 2013, certain of our subsidiaries entered into a Quota Purchase Agreement relating to the sale of all of our Brazil operations. Pursuant to the Quota Purchase Agreement, the subsidiaries have agreed to sell all of our equity interests in two Brazilian subsidiaries to a third party. The transaction is expected to close by the end of the first quarter of 2014, subject to Brazilian regulatory approval and certain other customary closing conditions.
We are a high-growth, 100% onshore U.S., oil-weighted company with a large inventory of high-return, low-risk drilling locations. We are focused on creating shareholder value by implementing the following strategies:
Grow Oil Production, Cash Flow and Reserves through the Development of our Extensive Drilling Inventory
We have assembled a drilling inventory of over 5,200 drilling locations across approximately 450,000 net (620,000 gross) acres in the Eagle Ford Shale, the Wolfcamp Shale, the Uinta Basin and the Haynesville Shale. The concentration and scale of our core leasehold positions, coupled with our technical understanding of the reservoirs, should allow us to efficiently develop our core areas and allocate capital to maximize the value of our resource base. In 2012, we invested $1.5 billion (92% in
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our core oil areas) of capital expenditures and grew domestic oil production by 11,511 Bbls/d, or 88%, from an average of 13,042 Bbls/d in 2011 to an average of 24,553 Bbls/d in 2012. Pro Forma Adjusted EBITDAX increased by 46% from 2011 to 2012. We also increased domestic proved oil reserves by 82 MMBbls, or 47%, from 175 MMBbls at December 31, 2011 to 257 MMBbls at December 31, 2012. In 2013, we plan to invest approximately $1.9 billion of capital expenditures, of which 95% is dedicated to developing our core oil areas. For the six months ended June 30, 2013, $937 million of capital expenditures had been spent. We believe that our extensive inventory of low-risk drilling locations, combined with our operating expertise, will enable us to continue to deliver production, cash flow and reserve growth and create shareholder value. We consider our inventory of drilling locations to be low risk because those locations were selected based on our (and the industry's) extensive drilling and production experience and success in the relevant areas. For additional information regarding Adjusted EBITDAX, please read "Management's Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Measures."
Maintain an Extensive Low-Risk Drilling Inventory
We have a demonstrated track record of identifying and cost effectively acquiring low-risk resource development opportunities. We follow a geologically driven strategy to establish large, contiguous leasehold positions in the core of prolific basins and opportunistically add to those positions through bolt-on acquisitions over time. We were an early entrant into the Eagle Ford and Wolfcamp Shales through grassroots leasing efforts, amassing average positions of over 100,000 net acres, and we methodically expanded our position in the Uinta Basin through targeted acquisitions. We will continue to identify and opportunistically acquire additional acreage and producing assets to add to our multi-year drilling inventory.
Enhance Returns by Continuously Improving Capital and Operating Efficiencies
We maintain a disciplined, returns-focused approach to capital allocation. Our large and diverse portfolio of drilling locations allows us to conduct cost-efficient operations and allocate capital to our highest-margin assets in a variety of commodity price environments. We continuously monitor and adjust our development program in order to maximize the value of our extensive portfolio of drilling opportunities. In each of our core areas, we have realized improvements in EURs while delivering reductions in drilling and completion costs since 2011. We have reduced our average cost per well in the Wolfcamp by 40%, Eagle Ford by 24% and Uinta Basin by 22% from 2011 through the first half of 2013. The cost reductions to date have been due to many improvements, including substantial reductions in cycle times and successful negotiations for supplies and services. We expect further cost reductions going forward due to additional learning and efficiencies, including drilling wells from common pad sites, shared use of pre-existing central facilities and other economies of scale.
Identify and Develop Additional Drilling Opportunities in our Portfolio
Our existing asset base provides numerous opportunities for our highly experienced technical team to create shareholder value by increasing our inventory beyond our currently identified drilling locations. In the Permian Basin, we have evaluated multiple Wolfcamp horizons, and we are currently running pilot delineation programs in the Wolfcamp A and C horizons. Additionally, this acreage is prospective for the Cline Shale, the Spraberry and other stacked formations. The Uinta Basin has a significant inventory of low-risk, vertical infill drilling locations and is also currently being assessed for additional horizontal development potential in multiple shale and tight sands intervals. Our primary focus in the Eagle Ford is increasing incremental returns through a reduction in drilling and completion costs. Our 3-D seismic programs in the Uinta and Permian Basins should further enhance our ability to increase the number of and high grade our drilling locations.
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Maintain Liquidity and Financial Flexibility
We intend to fund our organic growth predominantly with internally generated cash flows while maintaining ample liquidity. We will continue to maintain a disciplined approach to spending whereby we allocate capital in order to optimize returns and create shareholder value. Upon completion of this offering, we will have $2.5 billion available for borrowing under the RBL Facility. As we pursue our strategy of developing high-return opportunities in our core areas, we expect our cash flow and borrowing base to grow, thereby further enhancing our liquidity and financial strength. We protect these future cash flows and liquidity levels by maintaining a three year rolling hedge program. In general, we target hedging levels of over 50% of expected production on a rolling three year basis.
We believe the following strengths provide us with significant competitive advantages:
Large, Concentrated Operated Positions in the Core Areas of Prolific Oil Resource Plays
We own and operate contiguous leasehold positions in the core areas of three of the premier North American oil resource plays: the Eagle Ford Shale, the Wolfcamp Shale and the Uinta Basin. We have approximately 410,000 net (560,000 gross) acres across these three plays that we have substantially de-risked through our ongoing drilling programs. Since 2010, we have drilled and completed 338 wells across these three plays with a success rate of approximately 99%. Based on our analysis of subsurface data and the production history of our wells and those of offset operators, we have confirmed high quality reservoir characteristics across a broad aerial extent with significant hydrocarbon resources in place. Based upon our well costs and production rates, we believe our core oil areas offer some of the best single well rates of return of all North American resource plays.
Multi-Year Inventory of Low-Risk Drilling Opportunities
Our 5,215 low-risk drilling locations across our core areas as of June 30, 2013 provide us with approximately 24 years of drilling inventory, of which 96% are oil wells. We have used the subsurface data from our development programs to identify and prioritize our inventory. These drilling locations are included in our inventory after they have passed through a rigorous technical evaluation. In addition to our 5,215 identified drilling locations, we believe we have the potential to increase our multi-year drilling inventory with horizontal drilling locations in the Cline Shale and vertical drilling locations in the Spraberry and other stacked formations in the Permian Basin, and vertical infill and horizontal drilling locations in the Wasatch and Green River formations in the Uinta Basin. Our ongoing technical assessment and development activities provide the potential for identification of additional drilling opportunities on our properties. A portion of this acreage is also prospective for the Cline Shale. In the Uinta Basin, we have potential for additional vertical infill drilling locations.
High-Quality Proved Reserve Base with Substantial Current Production
Our leasehold position and inventory of low-risk drilling locations is complemented by a substantial proved reserve base. As of June 30, 2013, we had domestic proved reserves of 501 MMBoe (57% oil and 66% liquids) with a PV-10 of $7.4 billion (86% oil and 91% liquids). For the three months ended June 30, 2013, our average domestic net daily production was 93,674 Boe/d, which was 37% oil and 46% liquids. Our current production provides a stable source of cash flow to fund the development of our core programs. This significantly reduces our reliance on outside sources of capital. In addition, our extensive inventory improves our ability to replace and grow proved reserves.
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Significant Operational Control with Low Cost Operations
Our significant operational control permits us to efficiently manage the amount and timing of our capital outflows, allowing us to continually improve our drilling and operating practices. We operate over 83% of our producing wells and have operational control of approximately 95% of our core area drilling inventory as of June 30, 2013. We employ a centralized operational structure to accelerate our internal knowledge transfer between our drilling and completion programs and to continually enhance our field operations and base production performance. We have decreased our average cost per well by 24%, 11% and 13% in the Wolfcamp Shale, Eagle Ford Shale and Uinta Basin, respectively, for the six months ended June 30, 2013, compared to our average cost per well for the same period in 2012.
Capital Allocation Flexibility and Scale across Multiple Basins
Our existing assets are geographically diversified among many of the major basins of North America, which helps to insulate us from regional commodity pricing and cost dislocations that occur from time to time. While our existing producing assets are well diversified, they are also of a critical mass (on average over 100,000 net acres in each core area), which enables us to drive efficiencies and benefit from economies of scale across multiple basins. Furthermore, because of our centralized operational structure, we are able to quickly transfer operational efficiencies from one project to the next. From January 1, 2008 to June 30, 2013, we have drilled 386 horizontal shale wells. From this deep operational knowledge base and sizeable, concentrated positions in multiple basins, we have the flexibility to allocate significant amounts of capital across our properties in an efficient and value-maximizing manner.
Ability to Direct Capital to the Prolific Haynesville Shale
The Haynesville Shale is a key asset for us and is likely to compete for development capital if natural gas prices improve. Because our operations are surrounded by existing infrastructure, future returns are primarily driven by drilling and completion costs and natural gas prices. Since our Haynesville wells have demonstrated high initial production rates and strong EURs, small movements in natural gas prices can drive significant incremental value creation. Since these leases are held-by-production, we have the ability to redirect capital to this prolific asset in the future.
Significant Liquidity and Financial Flexibility
Upon completion of this offering, we will have $2.5 billion available for borrowing under our RBL Facility. We maintain a robust hedging program in order to protect our cash flows through commodity cycles. As of August 2, 2013, our hedged volumes for 2013, 2014, 2015 and 2016 represent 89%, 83%, 61% and 6%, respectively, based on our total equivalent domestic production for the three months ended June 30, 2013. After the completion of this offering, we expect that liquidity provided by operating cash flow, availability under the RBL Facility and available cash will give us the financial flexibility to pursue our planned capital expenditures for the foreseeable future.
Experienced Management Team with Proven Track Record
With an average of 24 years of experience, our senior management team has a strong track record built at El Paso Corporation and in former leadership roles with Burlington Resources, ConocoPhillips and other leading energy companies. The majority of our senior management team has worked together for over a decade and has significant experience in identifying, acquiring and developing unconventional oil and natural gas assets, including experience in horizontal drilling and developing shales. Through a combination of invested equity and incentive programs, we believe our management is motivated to deliver high returns, create shareholder value and maintain safe and reliable operations.
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We have a projected 2013 capital program of approximately $1.9 billion. Our capital program will remain focused on continuing to grow production, cash flows, and reserves in our highest return oil programs. In particular, the Eagle Ford currently generates the highest returns in our portfolio and, as a result we are investing the majority of our capital in this program. We expect that liquidity provided by operating cash flow, availability under the RBL Facility and available cash will be sufficient to fund the 2013 capital plan.
|
2013 Capital Program |
|
|
Six months ended
June 30, 2013 |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in Millions)
|
Drilling &
Completion |
Facilities
& Other |
Total |
%
of Total |
Active Rigs(2) |
2013 Drilling
Locations(3) |
Capital
Expenditures |
Gross Wells
Drilled |
|||||||||||||||||
Core Areas |
|||||||||||||||||||||||||
Eagle Ford Shale |
$ | 897 | $ | 221 | $ | 1,118 | 58 | % | 5 | 126 | $ | 600 | 67 | ||||||||||||
Wolfcamp Shale |
447 | 54 | 501 | 26 | % | 3 | 65 | 236 | 25 | ||||||||||||||||
Uinta Basin |
137 | 58 | 195 | 10 | % | 2 | 26 | 94 | 13 | ||||||||||||||||
Haynesville Shale |
| 1 | 1 | 0 | % | | | 1 | | ||||||||||||||||
Total Core Areas |
$ | 1,481 | $ | 334 | $ | 1,815 | 95 | % | 10 | 217 | $ | 931 | 105 | ||||||||||||
Other(1) |
14 |
85 |
99 |
5 |
% |
|
1 |
6 |
|
||||||||||||||||
Total |
$ | 1,495 | $ | 419 | $ | 1,914 | 100 | % | 10 | 218 | $ | 937 | 105 | ||||||||||||
In the beginning of the year, we projected a 2013 capital program of approximately $1.7 billion. Based on the results of the first half of the year and the results of our asset divestitures, we increased our 2013 capital program by up to $175 million for incremental drilling and completion activity. This incremental capital has added 36 wells to the original budget of 182 wells to be drilled and completed this year.
2013 Capital Budget
$1.9 Billion(1) |
2013 Drilling Locations
218 Locations(2) |
|
|
|
|
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Oil and Natural Gas Properties
Oil and Condensate, Natural Gas and NGLs Reserves and Production
Proved Reserves
The table below presents information about our estimated proved reserves as of June 30, 2013, based on our internal reserve report. The reserve data represents only estimates which are often different from the quantities of oil and natural gas that are ultimately recovered. The risks and uncertainties associated with estimating proved oil and natural gas reserves are discussed further in "Risk Factors." Net proved reserves exclude royalties and interests owned by others and reflect contractual arrangements and royalty obligations in effect at June 30, 2013.
|
Net Proved Reserves as of June 30, 2013 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Oil
(MMBbls) |
NGL
(MMBbls) |
Natural Gas
(Bcf) |
Total
(MMBoe) |
Percent
(%) |
|||||||||||
Reserves by Classification |
||||||||||||||||
Consolidated: |
||||||||||||||||
Domestic |
||||||||||||||||
Proved Developed |
||||||||||||||||
Core Areas |
||||||||||||||||
Eagle Ford Shale |
35.2 | 7.0 | 56.6 | 51.5 | 10 | % | ||||||||||
Wolfcamp Shale |
9.2 | 1.9 | 13.2 | 13.3 | 3 | % | ||||||||||
Uinta Basin |
25.1 | | 54.9 | 34.4 | 7 | % | ||||||||||
Haynesville Shale |
| | 257.0 | 42.8 | 8 | % | ||||||||||
Total Core Areas |
69.5 | 8.9 | 381.7 | 142.0 | 28 | % | ||||||||||
Other |
1.2 |
0.4 |
64.5 |
12.3 |
2 |
% |
||||||||||
Total Proved Developed(1) |
70.7 | 9.3 | 446.2 | 154.3 | 30 | % | ||||||||||
Proved Undeveloped |
||||||||||||||||
Core Areas |
||||||||||||||||
Eagle Ford Shale |
132.6 | 20.3 | 160.8 | 179.7 | 35 | % | ||||||||||
Wolfcamp Shale |
34.3 | 6.6 | 45.2 | 48.4 | 9 | % | ||||||||||
Uinta Basin |
46.7 | | 93.4 | 62.4 | 12 | % | ||||||||||
Haynesville Shale |
| | 116.1 | 19.3 | 4 | % | ||||||||||
Total Core Areas |
213.6 | 26.9 | 415.5 | 309.8 | 60 | % | ||||||||||
Other |
0.7 |
0.6 |
7.2 |
2.6 |
1 |
% |
||||||||||
Total Proved Undeveloped |
214.3 | 27.5 | 422.7 | 312.4 | 61 | % | ||||||||||
Total ConsolidatedDomestic |
285.0 | 36.8 | 868.9 | 466.7 | 91 | % | ||||||||||
Unconsolidated Affiliate(2) |
||||||||||||||||
Proved Developed |
2.2 | 5.5 | 145.4 | 31.8 | 6 | % | ||||||||||
Proved Undeveloped |
| 0.7 | 10.5 | 2.5 | 1 | % | ||||||||||
Total Unconsolidated Affiliate(2) |
2.2 | 6.2 | 155.9 | 34.3 | 7 | % | ||||||||||
Total CombinedDomestic |
287.2 | 43.0 | 1,024.8 | 501.0 | 98 | % | ||||||||||
Brazil(3) |
||||||||||||||||
Proved Developed |
2.0 | | 63.2 | 12.5 | 2 | % | ||||||||||
Proved Undeveloped |
| | | | 0 | % | ||||||||||
Total Brazil |
2.0 | | 63.2 | 12.5 | 2 | % | ||||||||||
Total CombinedWorldwide |
289.2 | 43.0 | 1,088.0 | 513.5 | 100 | % | ||||||||||
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Our consolidated reserves in the table above are consistent with estimates of reserves filed with other federal agencies except for differences of less than 5% resulting from actual production, acquisitions, property sales, necessary reserve revisions and additions to reflect actual experience. Our estimated proved reserves were prepared by our internal reserve engineers and audited by Ryder Scott Company, L.P., our independent petroleum engineering consultants since 2004.
We employ a technical staff of engineers and geoscientists that perform technical analysis of each undeveloped location. The staff uses industry accepted practices to estimate, with reasonable certainty, the economically producible oil and natural gas. The practices for estimating hydrocarbons in place include, but are not limited to, mapping, seismic interpretation of two-dimensional and/or three-dimensional data, core analysis, mechanical properties of formations, thermal maturity, well logs of existing penetrations, correlation of known penetrations, decline curve analysis of producing locations with significant production history, well testing, static bottom hole testing, flowing bottom hole pressure analysis and pressure and rate transient analysis.
Our primary internal technical person in charge of overseeing our reserves estimates, including the reserves estimate we prepare related to our investment in Four Star, has a B.S. degree in Petroleum Engineering and is a member of the Society of Petroleum Engineers. He is the executive vice president and chief operating officer of the company. In this capacity, he is responsible for the company's operating divisions as well as the Marketing and Business Development groups. In addition, he oversees the reserve reporting and technical/business excellence groups. He has more than 25 years of industry experience in various domestic and international engineering and management roles. For a discussion of the internal controls over our proved reserves estimation process, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Estimates."
Ryder Scott conducted an audit of the estimates of the proved reserves that we prepared as of June 30, 2013 for each of our core areas as well as our Arklatex Tight Gas assets. Our estimates of proved reserves for our South Louisiana Wilcox assets, Four Star and the natural gas assets that we divested as described in "Recent Divestitures" were not included in the Ryder Scott audit. In connection with its audit, Ryder Scott reviewed 70% (by volume) of our total proved reserves on a barrel of oil equivalent basis, representing 86% of the total discounted future net cash flows of these proved reserves (before giving effect to our pending and recently completed divestitures). For the reviewed properties, 91% of our total PUD reserves (before giving effect to our pending and recently completed divestitures) were evaluated. Ryder Scott concluded the overall procedures and methodologies that we utilized in preparing our estimates of proved reserves as of June 30, 2013 complied with current SEC regulations and the overall proved reserves for the reviewed properties as estimated by us are, in aggregate, reasonable within the established audit tolerance guidelines of 10% as set forth in the SPE auditing standards.
Although Ryder Scott did not conduct a mid-year 2013 audit of Four Star, they did review these properties in 2012. As of December 31, 2012, Ryder Scott reviewed 85% (by value) of Four Star total proved reserves on a natural gas equivalent basis, representing 92% of the total discounted future net cash flows of these proved reserves. For the Four Star properties, 100% of our total PUD reserves were evaluated and Ryder Scott concluded the overall procedures and methodologies that we utilized in preparing our estimates of proved reserves as of December 31, 2012 complied with current SEC regulations and the overall proved reserves for the reviewed properties as estimated by us are, in aggregate, reasonable within the established audit tolerance guidelines of 10% as set forth in the SPE auditing standards.
Ryder Scott's reports are included as exhibits to the registration statement of which this prospectus forms a part.
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The technical person primarily responsible for overseeing the reserves audit by Ryder Scott has a B.S. degree in chemical engineering. He is a Licensed Professional Engineer in the State of Texas, a member of the Society of Petroleum Engineers and has more than nine years of experience in petroleum reserves evaluation.
In general, the volume of production from oil and natural gas properties declines as reserves are depleted. Except to the extent we conduct successful exploration and development activities or acquire additional properties with proved reserves, or both, our proved reserves will decline as they are produced. Recovery of PUD reserves requires significant capital expenditures and successful drilling operations. The reserve data assumes that we can and will make these expenditures and conduct these operations successfully, but future events, including commodity price changes, may cause these assumptions to change. In addition, estimates of PUD reserves and proved non-producing reserves are inherently subject to greater uncertainties than estimates of proved producing reserves.
Proved Undeveloped Reserves (PUDs)
As of June 30, 2013, we have 630 net PUD locations, of which 619 are in our core areas. At this time we do not have a developed to undeveloped relationship that is beyond one adjacent offset to a productive well.
We assess our PUD reserves on a quarterly basis. At June 30, 2013, we had 312 MMBoe of consolidated PUD reserves, representing an increase of 19 MMBoe of PUD reserves compared to December 31, 2012, excluding sales related to our recent divestitures of 22 MMBoe of PUD reserves. During the six months ended June 30, 2013, we added 47 MMBoe of PUD reserves primarily from our drilling activities in the Eagle Ford Shale and the Wolfcamp Shale, we had 19 MMBoe of PUD reserves transferred to proved developed reserves and negative revisions of 9 MMBoe primarily due to forecast updates. As of June 30, 2013, we had no PUD reserves associated with our Brazil assets.
We spent approximately $370 million, $587 million and $601 million, during the first six months of 2013, and for the entirety of 2012 and 2011, respectively, to convert approximately 6% or 19 MMBoe, 10% or 32 MMBoe and 17% or 35 MMBoe, respectively, of our prior year-end PUD reserves to proved developed reserves. In our June 30, 2013 internal reserve report, the amounts estimated to be spent in 2013, 2014 and 2015 to develop our consolidated worldwide PUD reserves are $591 million, $1,042 million and $1,156 million, respectively. The upward trend in the amounts estimated to be spent to develop our PUD reserves is a result of our focus on developing our core programs. The amount and timing of these expenditures will depend on a number of factors, including actual drilling results, service costs and commodity prices.
Of the 312 MMBoe of consolidated PUD reserves at June 30, 2013, none are scheduled to remain undeveloped beyond five years.
101
The following table summarizes our changes in consolidated PUDs during 2012 and the last six months ended June 30, 2013 (in MMBoe):
Balance, December 31, 2011 |
320 | |||
Purchase of minerals-in-place |
131 | |||
Extensions and discoveries |
0 | |||
Revisions of previous estimates(1) |
(103 | ) | ||
Transfers to proved developed |
(32 | ) | ||
Divestitures |
(1 | ) | ||
Balance, December 31, 2012 |
315 | |||
Purchase of minerals-in-place |
0 | |||
Extensions and discoveries |
47 | |||
Revisions of previous estimates |
(9 | ) | ||
Transfers to proved developed |
(19 | ) | ||
Divestitures |
(22 | ) | ||
Balance, June 30, 2013 |
312 | |||
Acreage and Wells
The following tables detail (i) our interest in developed and undeveloped acreage at June 30, 2013, (ii) our interest in oil and natural gas wells at June 30, 2013 and (iii) our exploratory and development wells drilled during the six months ended June 30, 2013 and years 2010 through 2012. Any acreage in which our interest is limited to owned royalty, overriding royalty and other similar interests is excluded.
|
Developed | Undeveloped | Total | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross(1) | Net(2) | Gross(1) | Net(2) | Gross(1) | Net(2) | |||||||||||||
Acreage |
|||||||||||||||||||
Core Areas |
|||||||||||||||||||
Eagle Ford Shale |
14,959 | 14,070 | 90,457 | 83,619 | 105,416 | 97,689 | |||||||||||||
Wolfcamp Shale |
7,398 | 7,398 | 131,070 | 130,732 | 138,468 | 138,130 | |||||||||||||
Uinta Basin |
138,830 | 115,824 | 179,738 | 56,469 | 318,568 | 172,293 | |||||||||||||
Haynesville Shale |
35,844 | 28,306 | 23,366 | 11,723 | 59,210 | 40,029 | |||||||||||||
Total Core Areas |
197,031 | 165,598 | 424,631 | 282,543 | 621,662 | 448,141 | |||||||||||||
Other |
127,604 |
28,607 |
468,091 |
326,112 |
595,695 |
354,719 |
|||||||||||||
Total AcreageDomestic |
324,635 | 194,205 | 892,722 | 608,655 | 1,217,357 | 802,860 | |||||||||||||
Brazil(3) |
47,377 |
14,492 |
398,732 |
96,418 |
446,109 |
110,910 |
|||||||||||||
Total AcreageWorldwide |
372,012 | 208,697 | 1,291,454 | 705,073 | 1,663,466 | 913,770 | |||||||||||||
Our net developed acreage is concentrated primarily in Texas (14%), Louisiana (24%), and Utah (58%). Our net undeveloped acreage is concentrated primarily in Texas (37%), Louisiana (10%), and Utah (10%). Approximately 5%, 6% and 8% of our net undeveloped acreage is held under leases
102
that have minimum remaining primary terms expiring in 2013, 2014 and 2015, respectively. We employ various techniques to manage the expiration of leases, including drilling the acreage ourselves prior to lease expiration, entering into farm-out agreements with other operators or extending lease terms.
|
Natural Gas | Oil | Total |
Wells Being
Drilled at June 30, 2013(1) |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross(2)(3) | Net(4) | Gross(2) | Net(4) | Gross(2) | Net(4)(5) | Gross(2) | Net(4) | |||||||||||||||||
Productive Wells |
|||||||||||||||||||||||||
Core Areas |
|||||||||||||||||||||||||
Eagle Ford Shale |
3 | 3 | 211 | 201 | 214 | 204 | 24 | 22 | |||||||||||||||||
Wolfcamp Shale |
| | 56 | 56 | 56 | 56 | 29 | 26 | |||||||||||||||||
Uinta Basin |
3 | 1 | 418 | 325 | 421 | 326 | 8 | 3 | |||||||||||||||||
Haynesville Shale |
191 | 106 | | | 191 | 106 | | | |||||||||||||||||
Total Core Areas |
197 | 110 | 685 | 582 | 882 | 692 | 61 | 51 | |||||||||||||||||
Other |
387 |
291 |
5 |
5 |
392 |
296 |
|
|
|||||||||||||||||
Total Productive WellsDomestic |
584 | 401 | 690 | 587 | 1,274 | 988 | 61 | 51 | |||||||||||||||||
Brazil(6) |
12 |
4 |
2 |
1 |
14 |
5 |
|
|
|||||||||||||||||
Total Productive WellsWorldwide |
596 | 405 | 692 | 588 | 1,288 | 993 | 61 | 51 | |||||||||||||||||
103
|
Net Exploratory(1) | Net Development(1) | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Year ended
December 31, |
|
Year ended
December 31, |
|||||||||||||||||||||
|
Six months
ended June 30, 2013 |
Six months
ended June 30, 2013 |
|||||||||||||||||||||||
|
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
Wells Drilled |
|||||||||||||||||||||||||
Core Areas |
|||||||||||||||||||||||||
Productive |
6 | 13 | 73 | 28 | 92 | 116 | 57 | 46 | |||||||||||||||||
Dry |
| 1 | | | 1 | 2 | | | |||||||||||||||||
Total Core Areas |
6 |
14 |
73 |
28 |
93 |
118 |
57 |
46 |
|||||||||||||||||
Other Domestic |
|||||||||||||||||||||||||
Productive |
| 7 | 9 | | | 5 | 2 | | |||||||||||||||||
Dry |
| | | | | 1 | | | |||||||||||||||||
Total Other Domestic |
|
7 |
9 |
|
|
6 |
2 |
|
|||||||||||||||||
Divested Assets(2) |
|||||||||||||||||||||||||
Productive |
| | 5 | 7 | | 11 | 36 | 9 | |||||||||||||||||
Dry |
| | | | | | | 2 | |||||||||||||||||
Total Divested Assets |
|
|
5 |
7 |
|
11 |
36 |
11 |
|||||||||||||||||
ConsolidatedDomestic |
|||||||||||||||||||||||||
Productive |
6 | 20 | 87 | 35 | 92 | 132 | 95 | 55 | |||||||||||||||||
Dry |
| 1 | | | 1 | 3 | | 2 | |||||||||||||||||
TotalDomestic |
6 |
21 |
87 |
35 |
93 |
135 |
95 |
57 |
|||||||||||||||||
Brazil |
|||||||||||||||||||||||||
Productive |
| | | | | | | | |||||||||||||||||
Dry |
| | 1 | | | | | | |||||||||||||||||
Total Brazil |
|
|
1 |
|
|
|
|
|
|||||||||||||||||
TotalWorldwide |
|||||||||||||||||||||||||
Productive |
6 | 20 | 87 | 35 | 92 | 132 | 95 | 55 | |||||||||||||||||
Dry |
| 1 | 1 | | 1 | 3 | | 2 | |||||||||||||||||
TotalWorldwide |
6 |
21 |
88 |
35 |
93 |
135 |
95 |
57 |
|||||||||||||||||
The drilling performance above should not be considered indicative of future drilling performance, nor should it be assumed that there is any correlation between the number of productive wells drilled and the amount of oil and natural gas that may ultimately be recovered.
104
Net Production, Sales Prices, Transportation and Production Costs
The following table details our net production volumes, net production volume by core area, average sales prices received, average transportation costs, average lease operating expense and average production taxes associated with the sale of oil and natural gas for the periods indicated:
|
Six months
ended June 30, |
Year ended December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2012 | 2011 | 2010 | |||||||||||
Volumes: |
||||||||||||||||
Consolidated Net Production Volumes |
||||||||||||||||
Core Areas |
||||||||||||||||
Oil and Condensate (MBbls) |
5,718 | 3,428 | 8,277 | 4,220 | 2,451 | |||||||||||
Natural Gas (MMcf) |
45,324 | 64,557 | 122,254 | 105,429 | 57,479 | |||||||||||
NGL (MBbls) |
1,032 | 361 | 1,056 | 216 | 38 | |||||||||||
Total Core Areas (MMBoe) |
14,304 | 14,548 | 29,709 | 22,008 | 12,069 | |||||||||||
Other Domestic |
||||||||||||||||
Oil and Condensate (MBbls) |
161 | 218 | 427 | 234 | 129 | |||||||||||
Natural Gas (MMcf) |
4,538 | 7,384 | 12,603 | 14,440 | 18,652 | |||||||||||
NGL (MBbls) |
66 | 155 | 245 | 22 | 60 | |||||||||||
Total Other (MMBoe) |
984 | 1,604 | 2,772 | 2,662 | 3,298 | |||||||||||
Total DomesticContinuing |
||||||||||||||||
Oil and Condensate (MBbls) |
5,879 | 3,646 | 8,704 | 4,454 | 2,580 | |||||||||||
Natural Gas (MMcf) |
49,862 | 71,941 | 134,857 | 119,869 | 76,131 | |||||||||||
NGL (MBbls) |
1,098 | 516 | 1,301 | 238 | 98 | |||||||||||
Total Domestic(MMBoe) |
15,288 | 16,152 | 32,481 | 24,670 | 15,367 | |||||||||||
Divested Assets |
||||||||||||||||
Oil and Condensate (MBbls) |
| 281 | 297 | 1,226 | 1,783 | |||||||||||
Natural Gas (MMcf) |
| 39,019 | 39,419 | 110,800 | 139,774 | |||||||||||
NGL (MBbls) |
| 304 | 312 | 830 | 1,325 | |||||||||||
Total (MMBoe) |
| 7,088 | 7,179 | 20,523 | 26,403 | |||||||||||
ConsolidatedDomestic |
||||||||||||||||
Oil and Condensate (MBbls) |
5,879 | 3,927 | 9,001 | 5,680 | 4,363 | |||||||||||
Natural Gas (MMcf) |
49,862 | 110,960 | 174,276 | 230,669 | 215,905 | |||||||||||
NGL (MBbls) |
1,098 | 820 | 1,613 | 1,068 | 1,423 | |||||||||||
Total (MMBoe) |
15,288 | 23,240 | 39,660 | 45,193 | 41,770 | |||||||||||
MBoe/d |
84.4 | 127.7 | 108.4 | 123.8 | 114.4 | |||||||||||
Unconsolidated Affiliate(1) |
||||||||||||||||
Oil and Condensate (MBbls) |
136 | 143 | 282 | 306 | 364 | |||||||||||
Natural Gas (MMcf) |
7,317 | 7,848 | 15,552 | 16,881 | 17,165 | |||||||||||
NGL (MBbls) |
229 | 237 | 478 | 556 | 573 | |||||||||||
Total (MMBoe) |
1,585 | 1,688 | 3,352 | 3,675 | 3,798 | |||||||||||
MBoe/d |
8.8 | 9.3 | 9.2 | 10.1 | 10.4 | |||||||||||
Total Combined VolumesDomestic |
||||||||||||||||
Oil and Condensate (MBbls) |
6,015 | 4,070 | 9,283 | 5,986 | 4,727 | |||||||||||
Natural Gas (MMcf) |
57,179 | 118,808 | 189,828 | 247,550 | 233,070 | |||||||||||
NGL (MBbls) |
1,327 | 1,057 | 2,091 | 1,624 | 1,996 | |||||||||||
Total Equivalent Volumes (MMBoe) |
16,873 | 24,927 | 43,012 | 48,868 | 45,568 | |||||||||||
MBoe/d |
93.2 | 137.0 | 117.6 | 133.9 | 124.8 | |||||||||||
|
105
|
Six months
ended June 30, |
Year ended December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2012 | 2011 | 2010 | |||||||||||
Brazil |
||||||||||||||||
Oil and Condensate (MBbls) |
97 | 187 | 406 | 354 | 384 | |||||||||||
Natural Gas (MMcf) |
4,489 | 5,380 | 10,230 | 10,414 | 9,706 | |||||||||||
NGL (MBbls) |
| | | | | |||||||||||
Total Brazil (MMBoe) |
845 | 1,084 | 2,111 | 2,090 | 2,002 | |||||||||||
MBoe/d |
4.7 | 6.0 | 5.8 | 5.7 | 5.5 | |||||||||||
Total Combined VolumesWorldwide |
||||||||||||||||
Oil and Condensate (MBbls) |
6,112 | 4,257 | 9,689 | 6,340 | 5,111 | |||||||||||
Natural Gas (MMcf) |
61,668 | 124,188 | 200,058 | 257,964 | 242,776 | |||||||||||
NGL (MBbls) |
1,327 | 1,057 | 2,091 | 1,624 | 1,996 | |||||||||||
Total Equivalent Volumes (MMBoe) |
17,718 | 26,011 | 45,123 | 50,958 | 47,570 | |||||||||||
MBoe/d |
97.9 | 143.0 | 123.4 | 139.6 | 130.3 |
|
Six months
ended June 30, |
Year ended December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2012 | 2011 | 2010 | |||||||||||
Eagle Ford Shale |
||||||||||||||||
Oil and Condensate (MBbls) |
3,849 | 1,882 | 5,023 | 1,702 | 177 | |||||||||||
Natural Gas (MMcf) |
7,135 | 3,251 | 8,425 | 3,094 | 947 | |||||||||||
NGL (MBbls) |
929 | 338 | 936 | 207 | 30 | |||||||||||
Total Eagle Ford Shale (MMBoe) |
5,967 | 2,762 | 7,364 | 2,425 | 366 | |||||||||||
Wolfcamp Shale |
||||||||||||||||
Oil and Condensate (MBbls) |
403 | 209 | 489 | 132 | | |||||||||||
Natural Gas (MMcf) |
692 | 391 | 763 | 212 | | |||||||||||
NGL (MBbls) |
99 | 21 | 116 | | | |||||||||||
Total Wolfcamp Shale (MMBoe) |
617 | 295 | 734 | 168 | | |||||||||||
Uinta Basin |
||||||||||||||||
Oil and Condensate (MBbls) |
1,466 | 1,337 | 2,765 | 2,385 | 2,273 | |||||||||||
Natural Gas (MMcf) |
3,332 | 3,262 | 6,632 | 5,677 | 4,915 | |||||||||||
NGL (MBbls) |
4 | 2 | 4 | 7 | 5 | |||||||||||
Total Uinta Basin (MMBoe) |
2,026 | 1,884 | 3,876 | 3,338 | 3,097 | |||||||||||
Haynesville Shale |
||||||||||||||||
Oil and Condensate (MBbls) |
| | | 1 | 1 | |||||||||||
Natural Gas (MMcf) |
34,165 | 57,653 | 106,434 | 96,446 | 51,617 | |||||||||||
NGL (MBbls) |
| | | 2 | 3 | |||||||||||
Total Haynesville Shale (MMBoe) |
5,694 | 9,608 | 17,736 | 16,077 | 8,606 |
106
|
Six months ended
June 30, |
Year ended December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2012 | 2011 | 2010 | |||||||||||
Consolidated Prices and Costs per Unit: |
||||||||||||||||
Oil and Condensate Average Realized Sales Price ($/Bbl) |
||||||||||||||||
ConsolidatedDomestic |
||||||||||||||||
Physical Sales |
$ | 94.81 | $ | 95.83 | $ | 92.58 | $ | 90.22 | $ | 72.37 | ||||||
Including Financial Derivatives(1) |
$ | 101.39 | $ | 97.51 | $ | 97.19 | $ | 88.98 | $ | 70.52 | ||||||
Brazil |
||||||||||||||||
Physical Sales |
$ | 104.39 | $ | 108.30 | $ | 108.81 | $ | 110.33 | $ | 78.02 | ||||||
Including Financial Derivatives(1) |
$ | 104.39 | $ | 108.30 | $ | 108.81 | $ | 110.33 | $ | 78.02 | ||||||
Total ConsolidatedWorldwide |
||||||||||||||||
Physical Sales |
$ | 94.96 | $ | 96.40 | $ | 93.28 | $ | 91.40 | $ | 72.83 | ||||||
Including Financial Derivatives(1) |
$ | 101.44 | $ | 98.00 | $ | 97.69 | $ | 90.23 | $ | 71.13 | ||||||
Natural Gas Average Realized Sales Price ($/Mcf) |
||||||||||||||||
ConsolidatedDomestic |
||||||||||||||||
Physical Sales |
$ | 3.42 | $ | 2.36 | $ | 2.54 | $ | 3.91 | $ | 4.26 | ||||||
Including Financial Derivatives(1) |
$ | 3.12 | $ | 4.17 | $ | 4.49 | $ | 5.37 | $ | 5.71 | ||||||
Brazil |
||||||||||||||||
Physical Sales |
$ | 7.65 | $ | 7.77 | $ | 7.66 | $ | 6.94 | $ | 5.65 | ||||||
Including Financial Derivatives(1) |
$ | 7.65 | $ | 7.77 | $ | 7.66 | $ | 6.94 | $ | 4.93 | ||||||
Total ConsolidatedWorldwide |
||||||||||||||||
Physical Sales |
$ | 3.77 | $ | 2.61 | $ | 2.82 | $ | 4.04 | $ | 4.32 | ||||||
Including Financial Derivatives(1) |
$ | 3.49 | $ | 4.34 | $ | 4.66 | $ | 5.44 | $ | 5.67 | ||||||
NGL Average Realized Sales Price ($/Bbl) |
||||||||||||||||
ConsolidatedDomestic |
||||||||||||||||
Physical Sales |
$ | 28.68 | $ | 40.42 | $ | 37.63 | $ | 53.50 | $ | 42.38 | ||||||
Brazil |
||||||||||||||||
Physical Sales |
$ | | $ | | $ | | $ | | $ | | ||||||
Total ConsolidatedWorldwide |
||||||||||||||||
Physical Sales |
$ | 28.68 | $ | 40.42 | $ | 37.63 | $ | 53.50 | $ | 42.38 |
107
|
Six months ended
June 30, |
Year ended December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2012 | 2011 | 2010 | |||||||||||
Average Transportation Costs |
||||||||||||||||
Core Areas |
||||||||||||||||
Oil and Condensate ($/Bbl) |
$ | 2.13 | $ | 1.46 | $ | 2.09 | $ | 0.05 | $ | 0.04 | ||||||
Natural Gas ($/Mcf) |
$ | 0.55 | $ | 0.37 | $ | 0.40 | $ | 0.34 | $ | 0.27 | ||||||
NGL ($/Bbl) |
$ | 4.97 | $ | 3.92 | $ | 2.93 | $ | 1.12 | $ | 7.66 | ||||||
Other Domestic |
||||||||||||||||
Oil and Condensate ($/Bbl) |
$ | 0.01 | $ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.37 | ||||||
Natural Gas ($/Mcf) |
$ | 0.66 | $ | 0.45 | $ | 0.46 | $ | 0.39 | $ | 0.34 | ||||||
NGL ($/Bbl) |
$ | 7.52 | $ | 10.41 | $ | 9.32 | $ | 11.46 | $ | 8.30 | ||||||
Divested Assets |
||||||||||||||||
Oil and Condensate ($/Bbl) |
$ | | $ | 0.14 | $ | 0.17 | $ | 0.13 | $ | 0.14 | ||||||
Natural Gas ($/Mcf) |
$ | | $ | 0.43 | $ | 0.43 | $ | 0.35 | $ | 0.33 | ||||||
NGL ($/Bbl) |
$ | | $ | 6.94 | $ | 6.82 | $ | 4.33 | $ | 2.79 | ||||||
ConsolidatedDomestic |
||||||||||||||||
Oil and Condensate ($/Bbl) |
$ | 2.07 | $ | 1.29 | $ | 1.93 | $ | 0.06 | $ | 0.09 | ||||||
Natural Gas ($/Mcf) |
$ | 0.56 | $ | 0.40 | $ | 0.41 | $ | 0.35 | $ | 0.31 | ||||||
NGL ($/Bbl) |
$ | 5.13 | $ | 6.27 | $ | 4.65 | $ | 3.83 | $ | 3.16 | ||||||
Brazil(1) |
||||||||||||||||
Oil and Condensate ($/Bbl) |
$ | | $ | | $ | | $ | | $ | | ||||||
Natural Gas ($/Mcf) |
$ | | $ | | $ | | $ | | $ | | ||||||
NGL ($/Bbl) |
$ | | $ | | $ | | $ | | $ | | ||||||
Total ConsolidatedWorldwide |
||||||||||||||||
Oil and Condensate ($/Bbl) |
$ | 2.04 | $ | 1.23 | $ | 1.85 | $ | 0.06 | $ | 0.08 | ||||||
Natural Gas ($/Mcf) |
$ | 0.51 | $ | 0.38 | $ | 0.39 | $ | 0.33 | $ | 0.30 | ||||||
NGL ($/Bbl) |
$ | 5.13 | $ | 6.27 | $ | 4.65 | $ | 3.83 | $ | 3.16 | ||||||
Average Lease Operating Expenses ($/Boe) |
||||||||||||||||
Core Areas |
$ | 4.98 | $ | 3.10 | $ | 3.26 | $ | 2.53 | $ | 2.87 | ||||||
Other |
$ | 7.07 | $ | 4.66 | $ | 5.33 | $ | 5.17 | $ | 3.15 | ||||||
Divested Assets |
$ | | $ | 5.49 | $ | 5.44 | $ | 5.19 | $ | 4.23 | ||||||
Total ConsolidatedDomestic |
$ | 5.11 | $ | 3.94 | $ | 3.80 | $ | 3.89 | $ | 3.75 | ||||||
Brazil(1) |
$ | 23.43 | $ | 18.86 | $ | 19.62 | $ | 19.77 | $ | 18.43 | ||||||
Total ConsolidatedWorldwide |
$ | 6.07 | $ | 4.60 | $ | 4.60 | $ | 4.59 | $ | 4.42 | ||||||
Average Production Taxes ($/Boe) |
||||||||||||||||
Core Areas |
$ | 2.93 | $ | 1.93 | $ | 1.93 | $ | 1.25 | $ | 1.21 | ||||||
Other |
$ | 4.21 | $ | 3.54 | $ | 3.30 | $ | 2.50 | $ | 3.50 | ||||||
Divested Assets |
$ | | $ | 1.19 | $ | 1.18 | $ | 1.71 | $ | 1.33 | ||||||
Total ConsolidatedDomestic |
$ | 3.01 | $ | 1.82 | $ | 1.89 | $ | 1.53 | $ | 1.47 | ||||||
Brazil(1) |
$ | 5.98 | $ | 5.73 | $ | 5.57 | $ | 5.45 | $ | 4.39 | ||||||
Total ConsolidatedWorldwide |
$ | 3.17 | $ | 1.99 | $ | 2.07 | $ | 1.71 | $ | 1.60 |
108
Acquisition, Development and Exploration Expenditures
The following table details information regarding the capital expenditures in our acquisition, development and exploration activities for the periods indicated:
109
Operations
As of June 30, 2013, we operated approximately 83% of our producing wells. As operator, we design and manage the development of a well and supervise operation and maintenance activities on a day-to-day basis. We employ petroleum engineers, geologists and land professionals who work to improve production rates, increase reserves and lower the cost of operating our oil and natural gas properties.
Transportation, Markets and Customers
Our physical commodity marketing strategy seeks to ensure both maximum deliverability of our production and maximum realized prices. We leverage our knowledge of markets and transportation infrastructure to enter into optimal downstream processing, treating and marketing contracts. We primarily sell our domestic oil and gas production to third parties at spot market prices, while we sell our NGLs at market prices under monthly or long-term contracts. We typically sell our oil production to a relatively small number of credit-worthy counterparties, as is customary in the industry. For the six months ended June 30, 2013, three purchasers accounted for approximately 80% of our oil revenues. As oil volumes grow, we anticipate further diversification of our revenue exposure to a wider range of buyers under a mix of short-term and long-term sales agreements. Across all of our core areas, we maintain adequate gathering, treating, processing and transportation capacity, as well as downstream sales arrangements, to accommodate our growing production volumes.
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In our Eagle Ford Shale operating area, we are connected to the Camino Real Gathering System, which is comprised of a crude oil gathering pipeline system and a separate natural gas gathering pipeline system. The Camino Real gas gathering system receives high-pressure unprocessed wellhead gas into an 83-mile pipeline with capacity of 150-170 MMcf/d. The gas is redelivered to interconnects with Energy Transfer, Enterprise, Regency and Eagle Ford Gathering. We currently have 125 MMcf/d of firm transportation capacity on the Camino Real gas gathering system, of which we used an average of 50% during July 2013, and have additional capacity available as needed. Our gas gathering capacity utilization will increase as additional wells are connected. We have firm gas gathering, processing and transportation agreements on three of the interconnected pipelines downstream of the Camino Real gas gathering system that range between 85 and 100 MMcf/d, with rights to increase firm capacity if necessary. We market our physical gas to various purchasers at spot market prices.
The Camino Real oil gathering system is a 68-mile long pipeline with over 110,000 Bbls/d of capacity and a gravity bank which allows for oil blending to support attractive API levels. We have 80,000 Bbls/d of firm capacity on this system, of which we used an average of 33% during July 2013. The system delivers oil to the Storey Oil Terminal on Highway 97 east of Cotulla, Texas, six miles southeast of Gardendale. From the Storey Terminal, oil can be pumped into Harvest's Arrowhead #1 and/or Arrowhead #2 pipelines or loaded into trucks. Oil can also be delivered into trucks at the various central batteries throughout the field, providing additional deliverability and flexibility. We expect our utilization rate of this system to increase as additional wells are connected. We currently market our oil at the Storey Terminal or at our central batteries under a combination of short and long-term contracts, ranging from monthly deals to a seven-year term sale. We are receiving a price premium for our Eagle Ford Shale oil relative to NYMEX WTI, due primarily to strong Louisiana Light Sweet pricing and exposure to waterborne crude markets. With adequate takeaway capacity in the region and close proximity to the Gulf Coast refining complex, we do not anticipate any issues with marketing additional crude volumes from the Eagle Ford Shale.
In our Wolfcamp Shale operating area, we continue to leverage significant legacy gathering, processing and transportation infrastructure. For natural gas, we are connected to both the West Texas Gas and DCP gathering systems, and we process the vast majority of our gas at the WTG Benedum gas plant. We receive Waha pricing for our natural gas and Mont Belvieu pricing for our NGLs. Our crude oil production facilities are connected to a third party oil gathering system that delivers to Plains pipeline at Owens Station in Reagan County, Texas. We sell our pipeline delivered crude to multiple purchasers under both short and long-term contracts at WTI-based pricing. We also maintain the capability to truck crude oil to those same purchasers under similarly-priced contracts to provide additional flow assurance. With new Permian Basin takeaway pipelines coming online this year, we anticipate no constraints moving physical crude oil to market and expect regional pricing to remain correlated with NYMEX WTI.
In our Uinta Basin operating area, the wax crude we produce is sold at the wellhead to multiple purchasers who transport the oil via truck to downstream refineries. We sell most of the oil we produce in the basin to Salt Lake City refineries under long-term sales agreements that accommodate our production growth forecasts. In addition, we pioneered a crude-by-rail solution four years ago to expand the market for Uinta Basin wax crude beyond Salt Lake City. We anticipate that planned expansions of Salt Lake City refineries and expanded rail capacity will keep pace with basin-wide production growth, and we continue to develop new market solutions. Our produced natural gas is gathered and processed at an Altamont plant under a long-term sales agreement that provides for residue gas return for operational use.
In our Haynesville Shale operating area, our facilities are connected to multiple gas takeaway pipeline systems, including Tennessee Gas Pipeline, Enterprise Acadian Gas Pipeline, Enterprise Stateline Gathering, and Crosstex LIG Pipeline. We currently control 300 MMcf/d of firm capacity on these pipelines, of which we used an average of 80% during July 2013. Currently, our Haynesville Shale
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gas is produced at close to pipeline specifications and requires only CO2 removal before delivery into takeaway pipelines. We sell our physical gas production to a wide variety of purchasers at spot market prices under short-term sales agreements. Given the abundance of pipeline infrastructure in the region and the growing demand for natural gas in the southeast, we do not anticipate any issues with production deliverability.
While most of our physical production is priced off spot market indices, we actively manage the volatility of spot market pricing through a dynamic and active risk management program. We enter into an array of financial derivatives contracts on our oil and natural gas production to stabilize our cash flows, reduce the risk of downward commodity price movements and protect the economic assumptions associated with our capital investment program. We employ a sophisticated, disciplined risk management program that utilizes rigorous risk control processes and leverages the extensive commodity trading expertise of our staff. For a further discussion of these risk management activities and derivative contracts, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Competitors
The exploration and production business is highly competitive in the search for and acquisition of additional oil and natural gas reserves and in the sale of oil, natural gas and NGLs. Our competitors include major and intermediate sized oil and natural gas companies, independent oil and natural gas operators and individual producers or operators with varying scopes of operations and financial resources. Competitive factors include price and contract terms, our ability to access drilling, completion and other equipment and our ability to hire and retain skilled personnel on a timely and cost effective basis. Ultimately, our future success in this business will be dependent on our ability to find or acquire additional reserves at costs that yield acceptable returns on the capital invested.
Use of 3-D Seismic Data
We have an inventory of over 1,500 square miles of 3-D seismic data. We have 435 square miles of 3-D seismic data in our four core areas which provides approximately 30% coverage in those areas. We use the data to identify and optimize drilling locations and completion operations, field development plans and new resource targets. In the Wolfcamp and Altamont plays in particular, we utilize 3-D seismic technologies to help identify areas with natural fractures and use this information to help with the placement of future drill well locations that could result in higher productivity wells.
Regulatory Environment
Our oil and natural gas exploration and production activities are regulated at the federal, state and local levels in the United States and Brazil. These regulations include, but are not limited to, those governing the drilling and spacing of wells, conservation, forced pooling and protection of correlative rights among interest owners. We are also subject to various governmental safety and environmental regulations in the jurisdictions in which we operate.
Our domestic operations under federal oil and natural gas leases are regulated by the statutes and regulations of the U.S. Department of the Interior that currently impose liability upon lessees for the cost of environmental impacts resulting from their operations. Royalty obligations on all federal leases are regulated by the Office of Natural Resources Revenue within the Department of Interior, which has promulgated valuation guidelines for the payment of royalties by producers. Our exploration and production operations in Brazil are subject to environmental regulations administered by that government, which include political subdivisions in that country. These domestic and international laws and regulations affect the construction and operation of facilities, water disposal rights, drilling
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operations, production or the delay or prevention of future offshore lease sales. In addition, we maintain insurance to limit exposure to sudden and accidental pollution liability exposures.
Hydraulic Fracturing. Hydraulic fracturing is a process of pumping fluid and proppant (usually sand) under high pressure into deep underground geologic formations that contain recoverable hydrocarbons. These hydrocarbon formations are typically thousands of feet below the surface. The hydraulic fracturing process creates small fractures in the hydrocarbon formation. These fractures allow natural gas and oil to move more freely through the formation to the well and finally to the surface production facilities. We use hydraulic fracturing to maximize productivity of our oil and natural gas wells in our core areas. Our domestic proved undeveloped oil and natural gas reserves are subject to hydraulic fracturing. For the six months ended June 30, 2013, we incurred costs of approximately $235 million associated with hydraulic fracturing.
Hydraulic fracturing fluid is typically composed of over 99% water and proppant, which is usually sand. The other 1% or less of the fluid is composed of additives that may contain acid, friction reducer, surfactant, gelling agent and scale inhibitor. We retain service companies to conduct such operations and we have worked with several service companies to evaluate, test and, where appropriate, modify our fluid design to reduce the use of chemicals in our fracturing fluid. We have worked closely with our service companies to provide voluntary and regulatory disclosure of our hydraulic fracturing fluids.
In order to protect surface and groundwater quality during the drilling and completion phases of our operations, we follow applicable industry practices and legal requirements of the applicable state oil and natural gas commissions with regard to well design, including requirements associated with casing steel strength, cement strength and slurry design. Our activities in the field are monitored by state and federal regulators. Key aspects of our field protection measures include: (i) pressure testing well construction and integrity, (ii) casing and cementing practices to ensure pressure management and separation of hydrocarbons from groundwater and (iii) public disclosure of the contents of hydraulic fracture fluids.
In addition to these measures, our drilling, casing and cementing procedures are designed to prevent fluid migration, which typically include some or all of the following:
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In addition to the required use of casing and cement in the well construction, we follow additional regulatory requirements and industry operating practices. These typically include pressure testing of casing and surface equipment and continuous monitoring of surface pressure, pumping rates, volumes of fluids and chemical concentrations during hydraulic fracturing operations. When any pressure differential outside the normal range of operations occurs, pumping is shut down until the cause of the pressure differential is identified and any required remedial measures are completed. Hydraulic fracturing fluid is delivered to our sites in accordance with Department of Transportation ("DOT") regulations in DOT approved shipping containers using DOT transporters.
We also have procedures to address water use and disposal. This includes evaluating surface and groundwater sources, commercial sources, and potential recycling and reuse of treated water sources. When commercially and technically feasible, we use recycled or treated water. This practice helps mitigate against potential adverse impacts to other water supply sources. When using raw surface or groundwater, we obtain all required water rights or compensate owners for water consumption. We are evaluating additional treatment capability to augment future water supplies at several of our sites. During our drilling and completions operations, we manage waste water to minimize environmental risks and costs. Flowback water returned to the surface is typically contained in steel tanks or pits. Water that is not treated for reuse is typically piped or trucked to waste disposal injection wells, many of which we own and operate. These wells are permitted through Underground Injection Control ("UIC") program of the Safe Drinking Water Act. We also use commercial UIC permitted water injection facilities for flowback and produced water disposal.
We have not received regulatory citations or notice of suits related to our hydraulic fracturing operations for environmental concerns. We have not experienced a surface release of fluids associated with hydraulic fracturing that resulted in material financial exposure or significant environmental impact. Consistent with local, state and federal requirements, releases are reported to appropriate regulatory agencies and site restoration completed. No remediation reserve has been identified or anticipated as a result of hydraulic fracturing releases experienced to date.
Spill Prevention/Response Procedures. There are various state and federal regulations that are designed to prevent and respond to any spills or leaks resulting from exploration and production activities. In this regard, we maintain spill prevention control and countermeasures programs, which frequently include the installation and maintenance of spill containment devices designed to contain spill materials on location. In addition, we maintain emergency response plans to minimize potential environmental impacts in the event of a spill or leak or any significant hydraulic fracturing well control issue.
We are subject to existing federal, state and local laws and regulations governing environmental quality, pollution control and GHG emissions. Numerous governmental agencies, such as the EPA, issue regulations which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit construction or drilling activities on certain lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, require action to prevent or remediate pollution from current or former operations, such as plugging abandoned wells or closing pits, result in the suspension or revocation of necessary permits, licenses
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and authorizations, require that additional pollution controls be installed and impose substantial liabilities for pollution resulting from our operations or relate to our owned or operated facilities. The strict and joint and several liability nature of such laws and regulations could impose liability upon us regardless of fault. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position, as well as the oil and natural gas industry in general. Our management believes that we are in substantial compliance with applicable environmental laws and regulations and we have not experienced any material adverse effect from compliance with these environmental requirements. This trend, however, may not continue in the future.
The environmental laws and regulations to which we are subject also require us to remove or remedy the effect on the environment of the disposal or release of specified substances at current and former operating sites. As of June 30, 2013, we had accrued less than $1 million for related environmental remediation costs associated with onsite, offsite and groundwater technical studies and for related environmental legal costs. Our accrual represents a combination of two estimation methodologies. First, where the most likely outcome can be reasonably estimated, that cost has been accrued. Second, where the most likely outcome cannot be estimated, a range of costs is established and if no one amount in that range is more likely than any other, the lower end of the expected range has been accrued. Our exposure could be as high as $1 million. Our environmental remediation projects are in various stages of completion. The liabilities we have recorded reflect our current estimates of amounts that we will expend to remediate these sites. However, depending on the stage of completion or assessment, the ultimate extent of contamination or remediation required may not be known. As additional assessments occur or remediation efforts continue, we may incur additional liabilities.
Climate Change and Other Emissions. On December 15, 2009, the EPA published its findings that emissions of carbon dioxide, methane, and other GHGs, present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth's atmosphere and other climate changes. These findings served as a statutory prerequisite for EPA to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the Clean Air Act. The EPA has adopted two sets of related rules, one of which purports to regulate emissions of GHGs from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources of emissions such as power plants or industrial facilities. The EPA finalized the motor vehicle rule in April 2010 and it became effective January 2011. The EPA adopted the stationary source rule, also known as the "Tailoring Rule," in May 2010, and it also became effective January 2011. Additionally, in September 2009, the EPA issued a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the U.S., including NGLs fractionators and local natural gas/distribution companies, beginning in 2011 for emissions occurring in 2010. More recently, in November 2010, the EPA expanded its existing GHG reporting rule to include onshore and offshore oil and natural gas production and onshore processing, transmission, storage and distribution facilities, which may include certain of our facilities, beginning in 2012 for emissions occurring in 2011. In addition, the EPA has continued to adopt GHG regulations of other industries, such as the March 2012 proposed GHG rule restricting future development of coal-fired power plants. As a result of this continued regulatory focus, future GHG regulations of the oil and natural gas industry remain a possibility.
In addition, the U.S. Congress has from time to time considered adopting legislation to reduce emissions of GHGs and almost one-half of the states have already taken legal measures to reduce emissions of GHGs primarily through the planned development of GHG emission inventories and/or
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regional GHG cap and trade programs. Although the U.S. Congress has not adopted such legislation at this time, it may do so in the future and many states continue to pursue regulations to reduce greenhouse gas emissions. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants or major producers of fuels, such as refineries and natural gas processing plants, to acquire and surrender emission allowances that correspond to their annual emissions of GHGs. The number of allowances available for purchase is reduced each year until the overall GHG emission reduction goal is achieved. As the number of GHG emission allowances declines each year, the cost or value of such allowances is expected to escalate significantly.
Restrictions on GHG emissions that may be imposed in various states could adversely affect the oil and natural gas industry. Any GHG regulation could increase our costs of compliance by potentially delaying the receipt of permits and other regulatory approvals; requiring us to monitor emissions, install additional equipment or modify facilities to reduce GHG and other emissions; purchase emission credits; and utilize electric-driven compression at facilities to obtain regulatory permits and approvals in a timely manner. While we are subject to certain federal GHG monitoring and reporting requirements, our operations are not adversely impacted by existing federal, state and local climate change initiatives and, at this time, it is not possible to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business.
Air Quality Regulations. The Clean Air Act ("CAA") and comparable state laws and regulations regulate emissions of various air pollutants through the issuance of permits and the imposition of other requirements. The EPA has developed, and continues to develop, stringent regulations governing emissions of air pollutants at specified sources. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to obtain additional permits and incur capital costs in order to remain in compliance. In August 2010, the EPA finalized a rule that impacts emissions of hazardous air pollutants from reciprocating internal combustion engines and requires us to install emission controls on engines across our operations. Engines subject to the regulations have to be in compliance by October 2013. On August 16, 2012, EPA published regulations in the Federal Register pursuant to the federal Clean Air Act to reduce various air pollutants from the oil and natural gas industry, which are discussed in more detail in "Hydraulic Fracturing Regulations." At this time, we estimate less than $1 million in 2013 capital expenditures to meet these requirements.
In Utah, we are currently obtaining or amending air quality permits for a number of small oil and natural gas production facilities. As part of this permitting process we anticipate installation of tank emission controls. At this time, we estimate that we will incur capital expenditures of approximately $2 million in 2013 and 2014 related to the installation of these controls.
Hydraulic Fracturing Regulations. We use hydraulic fracturing extensively in our operations. The hydraulic fracturing process is typically regulated by state oil and natural gas commissions. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The SDWA regulates the underground injection of substances through the UIC program. While hydraulic fracturing generally is exempt from regulation under the UIC program, the EPA has taken the position that hydraulic fracturing with fluids containing diesel fuel is subject to regulation under the UIC program as "Class II" UIC wells. On October 21, 2011, the EPA announced its intention to propose federal Clean Water Act regulations by 2014 governing wastewater discharges from hydraulic fracturing and certain other natural gas operations. In addition, the U.S. Department of the Interior published a revised proposed rule on May 16, 2013 that would update existing regulation of hydraulic fracturing activities on federal lands, including requirements for disclosure, well bore integrity and handling of flowback water. The revised proposed rule is presently subject to an extended 90-day public comment period, which ends on August 23, 2013.
The EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, and a committee of the U.S. House of Representatives is also conducting an investigation of
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hydraulic fracturing practices. The EPA issued a Progress Report in December 2012 and a final draft is anticipated by 2014 for peer review and public comment. As part of these studies, both the EPA and the House committee have requested that certain companies provide them with information concerning the chemicals used in the hydraulic fracturing process. These studies, depending on their results, could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise. Further, on October 21, 2011, the EPA announced its intention to propose federal Clean Water Act regulations by 2014 governing wastewater discharges from hydraulic fracturing and certain other natural gas operations. Congress has considered legislation in recent legislative sessions to amend the SDWA, including legislation that would repeal the exemption for hydraulic fracturing from the definition of "underground injection" and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, were proposed in recent sessions of Congress. The U.S. Congress may consider similar SDWA legislation in the future.
On August 16, 2012, the EPA published final regulations under the CAA that establish new air emission controls for oil and natural gas production and natural gas processing operations. Specifically, the EPA promulgated New Source Performance Standards establishing emission limits for sulfur dioxide (SO2) and volatile organic compounds (VOCs). The final rule requires a 95% reduction in VOCs emitted by mandating the use of reduced emission completions or "green completions" on all hydraulically-fractured gas wells constructed or refractured after January 1, 2015. The rules also establish new requirements regarding emissions from compressors, controllers, dehydrators, storage tanks and other production equipment. In response to numerous requests for reconsideration of these rules from both industry and the environmental community and court challenges to the final rules, the EPA announced its intention to issue revised rules in 2013. The EPA revised portions of these rules on August 2, 2013 (awaiting Federal Register publication) for VOCs emissions for production oil and gas storage tanks. The final revised rules could require modifications to our operations or increase our capital and operating costs without being offset by increased product capture. At this point, we cannot predict the final regulatory requirements or the cost to comply with such requirements with any certainty.
Several states have adopted, or are considering adopting, regulations that could restrict or prohibit hydraulic fracturing in certain circumstances and/or require the disclosure of the composition of hydraulic fracturing fluids. For example in June 2011, Texas enacted a law requiring oil and natural gas operators to publicly disclose the chemicals used in the hydraulic fracturing process, effective as of September 1, 2011. The Texas Railroad Commission adopted rules and regulations applicable to all wells for which the Texas Railroad Commission issues an initial drilling permit on or after February 1, 2012. The new regulations require that well operators disclose the list of chemical ingredients subject to the requirements of the OSHA for disclosure on an internet website and also file the list of chemicals with the Texas Railroad Commission with the well completion report. The total volume of water used to hydraulically fracture a well must also be disclosed to the public and filed with the Texas Railroad Commission. Furthermore, on May 23, 2013, the Texas Railroad Commission issued a "well integrity rule," which updates the requirements for drilling, putting pipe down, and cementing wells. The rule also includes new testing and reporting requirements, such as (i) the requirement to submit cementing reports after well completion or after cessation of drilling, whichever is later, and (ii) the imposition of additional testing on wells less than 1,000 feet below usable groundwater. The "well integrity rule" takes effect in January 2014. Similarly, Utah's Division of Oil, Gas and Mining passed a rule on October 24, 2012 requiring all oil and gas operators to disclose the amount and type of chemicals used in hydraulic fracturing operations using the national registry Fracfocus.org.
A number of lawsuits and enforcement actions have been initiated across the country alleging that hydraulic fracturing practices have adversely impacted drinking water supplies, use of surface water, and the environment generally. If new laws or regulations that significantly restrict hydraulic fracturing,
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such as amendments to the SDWA, are adopted, such laws could make it more difficult or costly for us to perform fracturing to stimulate production from tight formations as well as make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, if hydraulic fracturing is further regulated at the federal or state level, our fracturing activities could become subject to additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and recordkeeping obligations, plugging and abandonment requirements and also to attendant permitting delays and potential increases in costs. Such legislative changes could cause us to incur substantial compliance costs, and compliance or the consequences of any failure to comply by us could have a material adverse effect on our financial condition and results of operations. Until such regulations are finalized and implemented, it is not possible to estimate their impact on our business. At this time, no adopted regulations have imposed a material impact on our hydraulic fracturing operations.
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") Matters. The Comprehensive Environmental Response, Compensation and Liability Act, as amended, also known as the "Superfund" law, and analogous state laws, generally imposes strict and joint and several liability, without regard to fault or legality of the original conduct, on classes of persons who are considered to be responsible for the release of a "hazardous substance" into the environment. These persons include the current owner or operator of a contaminated facility, a former owner or operator of the facility at the time of contamination, and those persons that disposed or arranged for the disposal of the hazardous substance at the facility. Under CERCLA and comparable state statutes, persons deemed "responsible parties" may be subject to strict and joint and several liability for the costs of removing or remediating previously disposed wastes (including wastes disposed of or released by prior owners or operators) or property contamination (including groundwater contamination), for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. As part of our environmental remediation projects, we are or have received notice that we could be designated as a Potentially Responsible Party ("PRP") with respect to one active site under the CERCLA or state equivalents. As of June 30, 2013, we have estimated our share of the remediation costs at this site to be less than $1 million. Because the clean-up costs are estimates and are subject to revision as more information becomes available about the extent of remediation required, and in some cases we have asserted a defense to any liability, our estimates could change. Moreover, liability under the federal CERCLA statute may be joint and several, meaning that we could be required to pay in excess of our pro rata share of remediation costs. Our understanding of the financial strength of other PRPs has been considered, where appropriate, in estimating our liabilities. Accruals for these matters are included in the environmental reserve discussed above.
Waste Handling. The Resource Conservation and Recovery Act, as amended, ("RCRA") and comparable state statutes and regulations promulgated thereunder, affect oil and natural gas exploration, development and production activities by imposing requirements regarding the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. With federal approval, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Although most wastes associated with the exploration, development and production of crude oil and natural gas are exempt from regulation as hazardous wastes under RCRA, such wastes may constitute "solid wastes" that are subject to the less stringent requirements of non-hazardous waste provisions. However, we cannot assure you that the EPA or state or local governments will not adopt more stringent requirements for the handling of non-hazardous wastes or categorize some non-hazardous wastes as hazardous for future regulation. Indeed, legislation has been proposed from time to time in Congress to re-categorize certain oil and natural gas exploration, development and production wastes as "hazardous wastes." Any such changes
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in the laws and regulations could have a material adverse effect on our capital expenditures and operating expenses.
Administrative, civil and criminal penalties can be imposed for failure to comply with waste handling requirements. We believe that we are in substantial compliance with applicable requirements related to waste handling, and that we hold all necessary and up-to-date permits, registrations and other authorizations to the extent that our operations require them under such laws and regulations. Any legislative or regulatory reclassification of oil and natural gas exploration and production wastes could increase our costs to manage and dispose of such wastes.
Water Discharges. The Federal Water Pollution Control Act of 1972, as amended, also known as the CWA, the SDWA, the Oil Pollution Act (the "OPA") and analogous state laws and regulations promulgated thereunder impose restrictions and strict controls regarding the unauthorized discharge of pollutants, including produced waters and other gas and oil wastes, into navigable waters of the United States, as well as state waters. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or the state. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by an appropriately issued permit. Spill prevention, control and countermeasure plan requirements under federal law require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. These laws and regulations also prohibit certain activity in wetlands unless authorized by a permit issued by the U.S. Army Corps of Engineers. The EPA has also adopted regulations requiring certain oil and natural gas exploration and production facilities to obtain individual permits or coverage under general permits for storm water discharges. In addition, on October 20, 2011, the EPA announced a schedule to develop pre-treatment standards for wastewater discharges produced by natural gas extraction from underground coalbed and shale formations. The EPA stated that it will gather data, consult with stakeholders, including ongoing consultation with industry, and solicit public comment on a proposed rule for coalbed methane in 2013 and a proposed rule for shale gas in 2014. Costs may be associated with the treatment of wastewater or developing and implementing storm water pollution prevention plans, as well as for monitoring and sampling the storm water runoff from certain of our facilities. Some states also maintain groundwater protection programs that require permits for discharges or operations that may impact groundwater conditions.
The OPA is the primary federal law for oil spill liability. The OPA contains numerous requirements relating to the prevention of and response to petroleum releases into waters of the United States, including the requirement that operators of offshore facilities and certain onshore facilities near or crossing waterways must develop and maintain facility response contingency plans and maintain certain significant levels of financial assurance to cover potential environmental cleanup and restoration costs. The OPA subjects owners of facilities to strict, joint and several liability for all containment and cleanup costs and certain other damages arising from a release, including, but not limited to, the costs of responding to a release of oil to surface waters.
Noncompliance with the CWA or the OPA may result in substantial administrative, civil and criminal penalties, as well as injunctive obligations. We believe we are in substantial compliance with the requirements of each of these laws.
It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws, regulations, and orders of regulatory agencies, as well as claims for damages to property and the environment or injuries to employees and other persons resulting from our current or past operations, could result in substantial costs and
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liabilities in the future. As this information becomes available, or other relevant developments occur, we will adjust our accrual amounts accordingly. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we believe our reserves are adequate.
Our principal executive offices are located at 1001 Louisiana Street, Houston, Texas 77002. Our telephone number is (713) 997-1000. As of August 15, 2013, we had 806 full-time employees in the United States. In addition, we had 32 employees in Brazil who are subject to collective bargaining arrangements. We also hire independent contractors.
From time to time, we are a party to ongoing legal proceedings in the ordinary course of business, including workers' compensation claims and employment related disputes. We do not believe the results of these proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or liquidity. For additional information, see Note 8 to our historical consolidated financial statements and related notes included elsewhere in this prospectus.
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Board of Directors and Executive Officers
The following table provides information regarding our current executive officers and Board members, including the experience, qualifications, attributes or skills of such board members (with ages as of August 30, 2013). Our current directors were nominated and appointed by the Sponsors pursuant to the terms of the Stockholders Agreement. See "Certain Relationships and Related Party Transactions" for further details regarding the rights of the Sponsors to elect our directors following the consummation of this offering.
Name
|
Age | Position | |||
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Brent J. Smolik |
52 | President, Chief Executive Officer and Chairman of the Board | |||
Clayton A. Carrell |
47 | Executive Vice President and Chief Operating Officer | |||
Joan M. Gallagher |
49 | Senior Vice President, Human Resources and Administrative Services | |||
John D. Jensen |
44 | Executive Vice President, Operations Services | |||
Dane E. Whitehead |
52 | Executive Vice President and Chief Financial Officer | |||
Marguerite N. Woung-Chapman |
48 | Senior Vice President, General Counsel and Corporate Secretary | |||
Ralph Alexander |
58 | Director | |||
Gregory A. Beard |
41 | Director | |||
Joshua J. Harris |
48 | Director | |||
Sam Oh |
43 | Director | |||
Ilrae Park |
46 | Director | |||
Robert M. Tichio |
36 | Director | |||
Donald A. Wagner |
50 | Director | |||
Rakesh Wilson |
38 | Director |
Brent J. Smolik. Mr. Smolik has been our President, Chief Executive Officer and Chairman of the Board since August 30, 2013, President and Chief Executive Officer of EP Energy LLC since May 2012 and previously served as Chairman of the Board of Managers of EPE Acquisition from May 2012 to August 2013. He was previously Executive Vice President and a member of the Executive Committee of El Paso Corporation and President of our predecessor, Historical EP Energy Corporation, since November 2006. Mr. Smolik was President of ConocoPhillips Canada from April 2006 to October 2006. Prior to the Burlington Resources merger with ConocoPhillips, he was President of Burlington Resources Canada from September 2004 to March 2006. From 1990 to 2004, Mr. Smolik worked in various engineering and asset management capacities for Burlington Resources Inc., including the Chief Engineering role from 2000 to 2004. He was a member of Burlington's Executive Committee from 2001 to 2006. Mr. Smolik also serves on the boards of the American Exploration and Production Council and America's Natural Gas Alliance. Mr. Smolik received his Bachelor of Science in Petroleum Engineering from Texas A&M University. As the President and Chief Executive Officer of EP Energy, Mr. Smolik is the only officer of our company to sit on the board. With over 29 years of energy industry experience, Mr. Smolik brings a comprehensive knowledge and understanding of our business to the Board and provides the Board with essential insight and guidance from an inside perspective on the day-to-day operations of our company.
Clayton A. Carrell. Mr. Carrell has been our Executive Vice President and Chief Operating Officer since August 30, 2013 and Executive Vice President and Chief Operating Officer of EP Energy LLC since May 2012. He was previously Senior Vice President, Chief Engineer of our predecessor, Historical EP Energy Corporation, since June 2010. Mr. Carrell joined El Paso Corporation in March 2007 as Vice President, Texas Gulf Coast Division. Prior to that, he was Vice President, Engineering & Operations at Peoples Energy Production from February 2001 to March 2007.
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Prior to joining Peoples Energy Production, Mr. Carrell worked at Burlington Resources and ARCO Oil and Gas Company from May 1988 to February 2001 in various domestic and international engineering and management roles. He serves on the Industry Board of the Texas A&M Petroleum Engineering Department, is a member of the Society of Petroleum Engineers and a Board Member of the US Oil & Gas Association. Mr. Carrell is also a member of the Center for Hearing and Speech Board of Trustees.
Joan M. Gallagher. Ms. Gallagher has been our Senior Vice President, Human Resources and Administrative Services, since August 30, 2013 and Senior Vice President, Human Resources and Administrative Services, of EP Energy LLC since May 2012. She was previously Vice President, Human Resources of El Paso Corporation since March 2011. From August 2005 until February 2011, she served as Vice President, Human Resources of our predecessor, Historical EP Energy Corporation. In that capacity, Ms. Gallagher had HR responsibility for El Paso Corporation's exploration and production business unit and from January 2010 to February 2011 she also had HR responsibilities for shared services and midstream. Prior to 2005, Ms. Gallagher served as Vice President and Chief Administrative Officer of Torch Energy Advisors Incorporated.
John D. Jensen. Mr. Jensen has been our Executive Vice President, Operations Services, since August 30, 2013 and Executive Vice President, Operations Services, of EP Energy LLC since May 2012. He was previously Senior Vice President, Operations of our predecessor, Historical EP Energy Corporation since June 2010, and was Vice President of Operations from May 2009 until May 2010. Mr. Jensen previously served as Vice President, Strategy and Engineering from April 2007 to May 2009. Prior to joining El Paso, Mr. Jensen served as Vice President, Business Development and Strategic Planning for ConocoPhillips Canada from June 2005 to March 2007. In addition, he held various positions in upstream and midstream engineering, planning, and business development at ConocoPhillips starting in July 1990. He is a board member of the Texas Oil and Gas Association, the Independent Petroleum Association of America, and Junior Achievement of Southeast Texas. Mr. Jensen is also a member of the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers.
Dane E. Whitehead. Mr. Whitehead has been our Executive Vice President and Chief Financial Officer since August 30, 2013 and Executive Vice President and Chief Financial Officer since May 2012. He was previously Senior Vice President of Strategy and Enterprise Business Development and a member of the Executive Committee of El Paso Corporation since October 2009. He previously served as Senior Vice President and Chief Financial Officer of our predecessor, Historical EP Energy Corporation, from May 2006 to October 2009. He was the Vice President and Controller of Burlington Resources Inc. from June 2005 to March 2006. From January 2002 to May 2005 he was Senior Vice President and Chief Financial Officer of Burlington Resources Canada. He was a member of the Burlington Resources Executive Committee from 2000 to 2006. From 1984 to 1993, Mr. Whitehead was an independent accountant with Coopers and Lybrand. He is a member of the American Institute of Certified Public Accountants.
Marguerite N. Woung-Chapman. Ms. Woung - Chapman has been our Senior Vice President, General Counsel and Corporate Secretary since August 30, 2013 and Senior Vice President, General Counsel and Corporate Secretary since May 2012. She was previously Vice President, Legal Shared Services, Corporate Secretary and Chief Governance Officer of El Paso Corporation since November 2009. Ms. Woung-Chapman was Vice President, Chief Governance Officer and Corporate Secretary at El Paso Corporation from May 2007 to November 2009 and from May 2006 to May 2007 served as General Counsel and Vice President of Rates and Regulatory Affairs for El Paso Corporation's Eastern Pipeline Group. She served as General Counsel of El Paso Corporation's Eastern Pipeline Group from April 2004 to May 2006. Ms. Woung-Chapman served as Vice President and Associate General Counsel of El Paso Merchant Energy from July 2003 to April 2004. Prior to that time, she held various legal
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positions with El Paso Corporation and Tenneco Energy starting in 1991. Ms. Woung-Chapman is also on the Board of Directors for the Girl Scouts of San Jacinto Council.
Ralph Alexander. Mr. Alexander has been a director of our Board since September 3, 2013. Mr. Alexander is a Managing Director of Riverstone Holdings LLC and joined Riverstone in September 2007. During 2007, Mr. Alexander served as a consultant to TPG Capital. For nearly 25 years, Mr. Alexander served in various positions with subsidiaries and affiliates of BP plc, one of the world's largest energy firms. From June 2004 until December 2005, he served as Chief Executive Officer of Innovene, BP's $20bn olefins and derivatives subsidiary. From 2001 until June 2004, he served as Chief Executive Officer of BP's Gas, Power and Renewables and Solar segment and was a member of the BP group executive committee. Prior to that, Mr. Alexander served as a Group Vice President in BP's Exploration and Production segment and BP's Refinery and Marketing segment He held responsibilities for various regions of the world, including North America, Russia, the Caspian, Africa and Latin America. Prior to these positions, Mr. Alexander held various positions in the upstream, downstream and finance groups of BP. In addition to serving on the boards of a number of Riverstone portfolio companies and their affiliates, Mr. Alexander is a director of Stein Mart Corporation since May 2007. He previously served on the board of KiOR Inc., Amyris, Inc., Foster Wheeler AG and Anglo American plc. He holds a B.S. and M.S. in nuclear engineering from Brooklyn Polytech (now NYU Polytechnic) and holds an M.S. in management science from Stanford University. He is currently Chairman of the Board of NYU Polytechnic and is a New York University Trustee. Mr. Alexander was appointed to our Board by Riverstone. We believe Mr. Alexander's extensive experience with the energy industry enables him to provide important insight and guidance to our management team and Board of Directors.
Gregory A. Beard. Mr. Beard has been a director of our Board since August 30, 2013 and previously served as a member of the Board of Managers of EPE Acquisition from May 2012 to August 2013. Mr. Beard joined Apollo in 2010 as the Global Head of Natural Resources, based in the New York office. Mr. Beard joined Apollo with 17 years of investment experience, the last ten years with Riverstone Holdings where he was a founding member, Managing Director and lead deal partner in many of the firm's top oil and gas and energy service investments. While at Riverstone, Mr. Beard was involved in all aspects of the investment process including sourcing, structuring, monitoring and exiting transactions. Mr. Beard began his career as a Financial Analyst at Goldman Sachs, where he played an active role in that firm's energy-sector principal investment activities. Mr. Beard has served on the board of directors of many oil and gas companies including Apex Energy, Athlon Energy, Belden & Blake Corporation, Canera Resources, Cobalt International Energy, Eagle Energy, Legend Natural Gas IIV, Mariner Energy, NRI Management Group, LLC, Phoenix Exploration, Pinnacle Agriculture, Talos Energy, Titan Operating, and Vantage Energy. Mr. Beard has served on the Board of various oilfield services companies, including CDM Max, CDM Resource Management, and International Logging. Mr. Beard received his BA from the University of Illinois at Urbana. Mr. Beard was appointed to our Board by Apollo. Based upon Mr. Beard's extensive investment and management experience, particularly in the energy sector, his strong financial background and his service on the boards of multiple oil and natural gas exploration and production companies and oilfield services companies, which have provided him with a deep working knowledge of our operating environment, we believe that he possesses the requisite skills to serve as a member of our Board.
Joshua J. Harris. Mr. Harris has been a director of our Board since August 30, 2013 and previously served as a member of the Board of Managers of EPE Acquisition from May 2012 to August 2013. Mr. Harris is a Senior Managing Director of Apollo Global Management, LLC and Managing Partner of Apollo Management, L.P., which he co-founded in 1990. Prior to 1990, Mr. Harris was a member of the Mergers and Acquisitions Group of Drexel Burnham Lambert Incorporated. Mr. Harris currently serves on the boards of directors of Apollo Global Management, LLC, Berry Plastics Group Inc., CEVA Group plc, Momentive Performance Materials and the holding company for
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Constellium and is the Managing Partner of the Philadelphia 76ers. During the past five years, Mr. Harris has served on the boards of directors of Verso Paper, Metals USA, Nalco, Covalence Specialty Materials, United Agri Products, Quality Distribution, Whitmire Distribution, Noranda Aluminum, and LyondellBasell Industries and served as a general partner of AP Alternative Assets, L.P. Mr. Harris is actively involved in charitable and political organizations. Mr. Harris graduated summa cum laude and Beta Gamma Sigma from the University of Pennsylvania's Wharton School of Business with a Bachelor of Science degree in Economics and received his Master of Business Administration from the Harvard Business School, where he graduated as a Baker and Loeb Scholar. Mr. Harris was appointed to our Board by Apollo. Based upon Mr. Harris' leadership of Apollo and his extensive financial and business experience, we believe that he possesses the requisite skills to serve as a member of our Board.
Sam Oh. Mr. Oh has been a director of our Board since August 30, 2013 and previously served as a member of the Board of Managers of EPE Acquisition from May 2012 to August 2013. Mr. Oh joined Apollo in 2008. He is a Senior Partner and one of the original founding members of Apollo's Natural Resources Group and is a member of the firm's Operating Committee. Prior to 2008, Mr. Oh was with Morgan Stanley's Commodities Department where he led principal investments for the group. While at Morgan Stanley, Mr. Oh launched a successful oil and gas fund, Helios Energy/Royalty Partners, and sat on the board of several portfolio companies. Mr. Oh has 18 years of experience, including 13 years of principal investing. He also has a broad range of experience in the commodities markets including risk management and structured products. Since joining Apollo, Mr. Oh has been actively involved in E&P investments made by Apollo managed funds, including leading the Parallel Petroleum acquisition in 2009. Mr. Oh was formerly Chairman of the Board of Parallel Petroleum and is a Director of Athlon Energy. Mr. Oh received a Bachelor of Science from the University of Pennsylvania's Wharton School of Business and a Master of Business Administration from the Yale School of Management. He is also a Certified Public Accountant and a Chartered Financial Analyst. Mr. Oh was appointed to our Board by Apollo. Based upon Mr. Oh's strong management experience and extensive background in commodities markets having overseen various complex commodities investments, as well as his experience with the Company and his service on multiple boards of directors, we believe that Mr. Oh possesses the requisite set of skills to serve as a member of our Board.
Ilrae Park. Mr. Park has been a director of our Board since August 30, 2013 and previously served as a member of the Board of Managers of EPE Acquisition from December 2012 to August 2013. Mr. Park joined KNOC in 1990 and worked in the areas of new ventures, asset management worldwide and field operations, spending most of his career in Korea, Indonesia, United Arab Emirates, Yemen and the United States. He is currently the Representative and Managing Director of the U.S. Business Unit of KNOC under which three subsidiaries are running E&P businesses. At the same time, in the United States he is serving as President and board member for KNOC Eagle Ford Corporation and Executive Vice President and board member for Ankor E&P Holdings Corporation. Mr. Park received his bachelor degree in Petroleum & Minerals Engineering from Hanyang University, a master degree in Petroleum Engineering from Hanyang University and a PhD ABD in Petroleum Engineering from Hanyang University. Mr. Park was appointed to our Board by KNOC. Based on Mr. Park's engineering background and extensive experience in the energy industry, we believe that Mr. Park possesses the requisite set of skills to serve as a member of our Board.
Robert M. Tichio. Mr. Tichio has been a director of our Board since September 3, 2013. Mr. Tichio is a Managing Director of Riverstone Holdings LLC and joined Riverstone in 2006. Prior to joining Riverstone, Mr. Tichio was in the Principal Investment Area (PIA) of Goldman Sachs which manages the firm's private corporate equity investments. Mr. Tichio began his career at J.P. Morgan in the Mergers & Acquisition group where he concentrated on assignments that included public company combinations, asset sales, takeover defenses and leveraged buyouts. In addition to serving on the
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boards of a number of Riverstone portfolio companies and their affiliates, Mr. Tichio has served as a member of the board of directors of Midstates Petroleum Company, Inc. since October 2012. Mr. Tichio previously served as a member of the board of directors of Gibson Energy (TSE:GEI) from 2008 to 2013 and is a member of the Board of Visitors of the Nelson A. Rockefeller Center at Dartmouth College. He holds an M.B.A. from Harvard Business School and a bachelor's degree from Dartmouth College. Mr. Tichio was appointed to our Board by Riverstone. We believe Mr. Tichio's extensive energy industry background, particularly his expertise in mergers and acquisitions, brings important experience and skill to our Board of Directors.
Donald A. Wagner. Mr. Wagner has been a director of our Board since August 30, 2013 and previously served as a member of the Board of Managers of EPE Acquisition from May 2012 to August 2013. Mr. Wagner is a Managing Director of Access Industries, having been with Access since 2010. He is responsible for sourcing and executing new investment opportunities in North America, and he oversees Access' current North American investments. From 2000 to 2009, Mr. Wagner was a Senior Managing Director of Ripplewood Holdings L.L.C., responsible for investments in several areas and heading the industry group focused on investments in basic industries. Previously, Mr. Wagner was a Managing Director of Lazard Freres & Co. LLC and had a 15-year career at that firm and its affiliates in New York and London. He is a board member of Access portfolio companies Warner Music Group and Boomerang Tube and was on the board of NYSE-listed RSC Holdings from November 2006 until August 2009. Mr. Wagner graduated summa cum laude with an A.B. in physics from Harvard College. Mr. Wagner was appointed to our Board by Access. Based upon Mr. Wagner's experience as a director of various companies, including public companies, and over 25 years of experience in investing, banking and private equity, we believe that Mr. Wagner possesses the requisite set of skills to serve as a member of our Board.
Rakesh Wilson. Mr. Wilson has been a director of our Board since August 30, 2013 and previously served as a member of the Board of Managers of EPE Acquisition from May 2012 to August 2013. Mr. Wilson joined Apollo in 2009, where he is currently a senior member of the Natural Resources group. Prior to joining Apollo, Mr. Wilson was at Morgan Stanley's Commodities Department in the principal investing group responsible for generating, evaluating and executing investment ideas across the energy sector. Mr. Wilson began his career at Goldman Sachs in equity research and then moved to its investment banking division in New York and Asia. Mr. Wilson currently serves on the boards of directors of Athlon Energy and Talos Energy and previously served as a director of Parallel Petroleum. Mr. Wilson graduated from the University of Texas at Austin and received his Master of Business Administration from INSEAD, Fontainebleau, France. He has also taught business courses at universities in China. Mr. Wilson was appointed to our Board by Apollo. We believe that Mr. Wilson's extensive international investment and risk management experience, his knowledge of the Company and his service on multiple boards have provided him with a strong understanding of the financial, operational and strategic issues facing public companies in our industry, and that he possesses the requisite set of skills to serve as a member of our Board.
Board Composition
The supervision of our management and the general course of our affairs and business operations is entrusted to our Board. Upon the completion of this offering, we expect that our Board will have 11 directors, (i) five of whom will be designated by Apollo, (ii) two of whom will be designated by Riverstone, (iii) one of whom will be designated by Access, (iv) one of whom will be designated by KNOC, (v) one of whom will be our chief executive officer and (vi) one of whom will be an independent director designated by Apollo. Apollo has the right to designate any director as the Chairman of the Board. Apollo has the right to and will designate one additional independent director within one year of the Effective Time and Riverstone has the right to and will designate an independent director within 90 days of the Effective Time. Upon the designation of such independent
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directors following the Effective Time, our Board will have a total of 13 directors, of which three will be "independent" of us, the Legacy Stockholders and their affiliates under the rules of the NYSE. See "Certain Relationships and Related Party Transactions" for further details.
We intend to avail ourselves of the "controlled company" exception under the NYSE rules, which eliminates the requirements that we have a majority of independent directors on our Board and that we have compensation and nominating committees composed entirely of independent directors. We will be required, however, to have an audit committee with one independent director during the 90-day period beginning on the Effective Time. After such 90-day period and until one year from the Effective Time, we will be required to have a majority of independent directors on our audit committee. Thereafter, we will be required to have an audit committee comprised entirely of independent directors.
If at any time we cease to be a "controlled company" under applicable stock exchange rules, our Board will take all action necessary to comply with the applicable stock exchange rules, including appointing a majority of independent directors to our Board and establishing certain committees composed entirely of independent directors, subject to a permitted "phase-in" period. We will cease to qualify as a "controlled company" once our Sponsors, as a group, cease to control a majority of our voting stock.
Committees of the Board of Directors
The Stockholders Agreement provides that for so long as each Sponsor has the right to designate a director or an observer to the Board, we will cause any committee of our Board to include in its membership such number of members that are consistent with, and reflects, the right of each Sponsor to designate a director or observer to the Board, except to the extent that such membership would violate applicable securities laws or stock exchange or stock market rules. See "Certain Relationships and Related Party Transactions" for further details.
Audit Committee. Upon the Effective Time, we expect that our Audit Committee will consist of members: . Our Board has determined that qualifies as an "audit committee financial expert" as such term is defined in Item 407(d)(5) of Regulation S-K and that is independent as independence is defined in Rule 10A-3 of the Exchange Act and under the NYSE listing standards. We intend to avail ourselves of the "controlled company" exception under the NYSE listing rules, which means we will be required to have an audit committee with one independent director during the 90-day period beginning on the Effective Time. After such 90-day period and until one year from the date of the Effective Time, we will be required to have a majority of independent directors on our audit committee. Thereafter, we will be required to have an audit committee comprised entirely of independent directors.
Compensation Committee. Upon the Effective Time, we expect that our Compensation Committee will consist of members: . The Compensation Committee is responsible for formulating, evaluating and approving the compensation and employment arrangements of our senior officers. We intend to avail ourselves of the "controlled company" exception under the NYSE listing rules which eliminates the requirement that we have a compensation committee composed entirely of independent directors.
Nominating Committee. Upon the Effective Time, we expect that our Nominating Committee will consist of members: . The Nominating Committee is responsible for assisting the Board in, among other things, effecting the organization, membership and function of the Board and its committees. The Nominating Committee shall only nominate a director after consulting with the Sponsor or majority-in-interest of the Legacy Class A Stockholders, as applicable, that is entitled to designate such director. See "Certain Relationships and Related Party TransactionsStockholders
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AgreementComposition of the Board" for further details. We intend to avail ourselves of the "controlled company" exception under the NYSE listing rules which eliminates the requirement that we have a nominating and governance committee composed entirely of independent directors.
Code of Ethics
We have adopted a code of ethics, referred to as our "Code of Conduct," that applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer and senior financial and accounting officers. In addition to other matters, our Code of Conduct establishes policies to deter wrongdoing and to promote honest and ethical conduct. A copy of our Code of Conduct is available on our website at www.epenergy.com. We will post to our website all waivers to or amendments of our Code of Conduct, which are required to be disclosed by applicable law.
Compensation Discussion and Analysis
The following compensation discussion and analysis ("CD&A"), provides information relevant to understanding the 2012 compensation of the executive officers identified in the Summary Compensation Table below, to whom we refer as our named executive officers. They include our Chief Executive Officer, Mr. Brent J. Smolik, our Chief Financial Officer, Mr. Dane E. Whitehead, and our other three most highly compensated executive officers, Mr. Clayton A. Carrell, Mr. John D. Jensen, and Ms. Marguerite N. Woung-Chapman. The focus of this CD&A relates to our executive compensation policies and decisions following the closing of the Acquisition in May 2012. Unless otherwise stated, this compensation discussion does not give effect to the Corporate Reorganization or this offering (including the stock split). The discussion is divided into the following sections:
I. Compensation Objectives
In connection with the closing of the Acquisition in May 2012, we adopted new compensation programs designed to achieve the following objectives:
We believe these designs are accomplished by providing our executives with a competitive mix of short-term and long-term compensation, by rewarding superior performance, and by linking a significant portion of pay to measurable performance goals.
II. Role of Compensation Committee, Compensation Consultant and Management
Compensation Committee
The compensation committee of our Board (the "Compensation Committee") is responsible for overseeing and approving all compensation for our CEO and those executive officers reporting directly to him, which includes all of our named executive officers. The Compensation Committee receives information and advice from its compensation consultant as well as from our human resources department and management to assist in compensation determinations.
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Compensation Consultant
In late 2012, the Compensation Committee retained Frederic W. Cook & Co. ("FW Cook") as its independent compensation consultant. During 2012, FW Cook advised the committee on incentive plan design and ongoing performance metrics. Commencing in 2013, FW Cook's services have also included advising the Compensation Committee on an ongoing basis on executive officer compensation and the company's general compensation programs, including (i) comparative market data on compensation practices, (ii) incentive plan design, (iii) public offering-related compensation considerations, (iv) updates on compensation trends and regulatory matters affecting compensation and (v) industry best practices. FW Cook attends meetings of the Compensation Committee, participates in the committee's executive sessions, and is directly accountable to the committee. FW Cook is an independent compensation consulting firm and provides no services to us other than the executive compensation consulting services provided to the committee.
Role of Management and CEO in Determining Executive Compensation
While the Compensation Committee has the responsibility to approve and monitor all compensation for our named executive officers, management plays a supporting role in determining executive compensation. At the Compensation Committee's request, management recommends appropriate company-wide financial and non-financial performance goals. Management works with the Compensation Committee to establish the agenda and prepare meeting information for each Compensation Committee meeting. In addition, our CEO assists the Compensation Committee by providing his evaluation of the performance of the executive officers who report directly to him, and recommends compensation levels for such officers. The Compensation Committee evaluates the performance of the CEO and makes compensation decisions for him independently.
III. Elements of Total Compensation Program
The table below summarizes the elements of EP Energy's 2012 executive compensation program. The primary elements of this program were adopted through negotiations between our management team and our Sponsors leading up to the closing of the Acquisition in May 2012.
Compensation Element
|
Objective | Key Features | ||
---|---|---|---|---|
Base Salary | To provide a minimum, fixed level cash compensation | Reviewed annually with adjustments made based on individual performance and anticipated inflation | ||
Performance-Based Annual Cash Incentive Awards |
To motivate named executive officers and reward them for their contributions to achievement of pre-established performance goals, as well as individual performance |
Target bonus opportunity established for each named executive officer; actual bonus payable from 0% to 200% of
target
|
||
|
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Compensation Element
|
Objective | Key Features | ||
---|---|---|---|---|
Long-Term Equity Awards*
* 2012 long-term equity awards were granted in the form of equity interests in EPE Acquisition. In connection with the Corporate Reorganization, the MIPs were converted into Class B common stock and the Class A units were converted into common stock as described in "Corporate Reorganization." |
To align interests of executive officers with our equity owners and encourage retention |
Grant of equity awards following closing of the Acquisition consisting of following:
Management Incentive Units (MIPs) :
intended to constitute profits
interests
issued at no cost and have value only to the
extent that the value of company increases
vest ratably over 5 years or earlier in
connection with certain liquidity events
become payable only upon occurrence of certain liquidity events |
||
|
Class A Unit "Matching" Grant
:
each named executive officer purchased with
his own funds Class A units in our parent company following closing of the Acquisition
named executive officers awarded a
"matching" Class A unit grant equal to 50% of the Class A units purchased
Class A units are vested, but subject to transfer restrictions until earliest of four years from grant and certain liquidity events and subject to repurchase at the company's election in certain termination scenarios |
|||
|
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Compensation Element
|
Objective | Key Features | ||
---|---|---|---|---|
401(k) Plan | To provide retirement savings in a tax-efficient manner |
Retirement benefits are provided under the following plan:
401(k) Retirement Plan
401(k) plan covering all employees
company contributes an amount equal to 100%
of each participant's voluntary contributions under the plan, up to a maximum of 6% of eligible compensation
company contributes a "retirement contribution" equal to 5% of each participant's eligible compensation annually |
||
Health & Welfare Benefits |
To provide reasonable health and welfare benefits to executives and their dependents and promote healthy living |
Health and welfare benefits available to all employees, including medical, dental, vision and disability coverage
Named executive officers also participate in our Senior Executive Survivor Benefits Plan Senior Executive Survivor Benefits Plan : provides executive officers with survivor benefit coverage in lieu of the coverage provided generally to employees under our group life insurance plan in the event of a named executive officer's death |
||
|
amount of survivor benefit is 2 1 / 2 times the executive officer's annual salary |
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Compensation Element
|
Objective | Key Features | ||
---|---|---|---|---|
Severance |
|
To provide a measure of financial security in the event that an executive's employment is terminated without cause |
|
Severance payable in the event of an executive's involuntary termination of employment without cause or voluntary termination for good reason, as set forth under the terms of the executive's employment agreement Benefits include three times the sum of annual salary plus target bonus for CEO; two times the sum of annual salary plus target bonus for other named executive officers |
Perquisites |
|
Limited perquisites provided to assist executives in carrying out duties and increase productivity |
|
Includes financial planning assistance and subsidized annual physical examinations |
Going forward, we expect to continue to provide the same or similar elements of compensation to our named executive officers (with future equity-based award grants to be denominated in shares of common stock). In addition, following this offering, we will continue to evaluate our compensation programs in light of our status as a public company.
IV. 2012 Compensation Decisions
2012 Annual Base Salaries and 2012 Target Bonus Opportunities
Our named executive officers entered into employment agreements with EPE Acquisition in connection with the closing of the Acquisition in May 2012. The employment agreements provide for, among other things, base salaries and annual performance bonus targets. Under the agreements, base salary levels for our named executive officers are reviewed on an annual basis by the Compensation Committee and may be increased at the committee's discretion. The following table sets forth the base salaries and annual target bonus opportunities for our named executive officers for 2012.
Annual Base Salaries and
Target Bonus Opportunities
Name
|
2012
Base Salary ($)(1) |
2012 Target
Bonus Opportunity (% of salary)(2) |
|||||
---|---|---|---|---|---|---|---|
Brent J. Smolik |
850,000 | 100 | % | ||||
Dane E. Whitehead |
450,000 | 100 | % | ||||
Clayton A. Carrell |
400,000 | 100 | % | ||||
John D. Jensen |
400,000 | 100 | % | ||||
Marguerite N. Woung-Chapman |
370,000 | 55 | % |
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Annual Cash Incentive Awards for 2012 Performance
2012 Scorecard. Shortly following the closing of the Acquisition in May 2012, the Compensation Committee approved our 2012 scorecard for use in determining 2012 cash incentive awards. The 2012 scorecard consists of four categories of company-wide financial, operational and non-financial performance goals. These scorecard goals were set in alignment with our strategic plan and objectives for the year. Each category includes between five to nine individual goals, each with a threshold, target and maximum achievement level, although no one goal is material to the overall scorecard weighting or determination process. The 2012 scorecard categories and weightings are set forth in the following table.
Scorecard Category
|
Weighting | |||
---|---|---|---|---|
Current Period Returns |
45 | % | ||
Long-Term Value Creation |
35 | % | ||
Health, Safety and Ethics |
10 | % | ||
Transition Milestones |
10 | % |
Annual Incentive Bonus Pool Funding. The annual incentive bonus pool was designed to fund based on the achievement levels of the 2012 scorecard, with target performance resulting in 100% pool funding. The bonus pool's funding uses a sliding scale approach based on actual scorecard achievement levels and was designed with significant upside to motivate employees to achieve, and reward them for achieving superior performance. The following table sets forth the percentage that the annual incentive bonus pool is funded based on the level of performance relative to the performance goals that were established for the year.
Funding of the
Annual Incentive Bonus Pool
Performance
|
Pool Funding | |||
---|---|---|---|---|
Maximum Goals Exceeded |
200 | %(1) | ||
Maximum Goals Met |
150 | %(2) | ||
Target Goals Met |
100 | %(3) | ||
Threshold Goals Met |
50 | %(4) | ||
Threshold Not Met |
0 | % |
Range of Individual Bonus Amounts. In addition to company performance, individual performance plays an important role in determining annual incentives. Each named executive officer has individual accountabilities which are evaluated and taken into account in determining their specific bonus amounts. Pursuant to the terms of the executives' employment agreements, the actual percentage of cash incentive bonuses could be at any level between from 0% to 200% of target, based on overall pool funding and individual performance adjustments.
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The range of annual cash incentive bonuses is illustrated as a percentage of base salary for each named executive officer in the following table. The target and maximum amounts are as set forth in the named executive officers' individual employment agreements. The threshold amount below is provided for illustrative purposes only and assumes threshold bonus pool funding with no individual performance adjustments. As noted above, actual bonus amounts could be at any level between 0% to 200% of target as determined by the Compensation Committee.
Range of Cash Incentive Bonuses as a Percentage of Base Salary for 2012
|
Minimum
Threshold Not Met |
Threshold | Target | Maximum | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brent J. Smolik |
0 | % | 50 | % | 100 | % | 200 | % | |||||
Dane E. Whitehead |
0 | % | 50 | % | 100 | % | 200 | % | |||||
Clayton A. Carrell |
0 | % | 50 | % | 100 | % | 200 | % | |||||
John D. Jensen |
0 | % | 50 | % | 100 | % | 200 | % | |||||
Marguerite N. Woung-Chapman |
0 | % | 27.5 | % | 55 | % | 110 | % |
The potential range of values of the annual cash incentive awards for 2012 performance for each of the named executive officers is reflected in the Grants of Plan-Based Awards table in the "Estimated Possible Payouts under Non-Equity Incentive Plan Awards" column.
EP Energy Scorecard Results. In February 2013, the Compensation Committee reviewed the actual performance of our company relative to the 2012 scorecard and, based on the achievement levels and designated weightings of each of the four scorecard categories, approved a 2012 company scorecard achievement level of 119%, reflecting above-target scorecard performance.
The Compensation Committee also evaluated each executive officer's individual performance and contributions during 2012 and discussed with our CEO his recommendation as to the appropriate bonus levels for the executive officers reporting to him.
2012 Annual Incentives. Based on the policies described above, the Compensation Committee approved the following annual incentive bonuses for our named executive officers, reflecting both 2012 scorecard achievement as well as individual performance, which were paid in March 2013.
Annual Cash Incentives
for 2012 Performance
|
Cash
Incentive Bonus ($) |
|||
---|---|---|---|---|
Brent J. Smolik |
1,147,500 | |||
Dane E. Whitehead |
630,000 | |||
Clayton A. Carrell |
540,000 | |||
John D. Jensen |
510,000 | |||
Marguerite N. Woung-Chapman |
280,000 |
2012 Long-Term Incentive Award Grants
EPE Acquisition provided our named executive officers with two forms of long-term equity incentive awards, each of which is designed to align the interests of our named executive officers with that of our equity investors, as described below. These awards were granted at or shortly following the closing of the Acquisition.
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Management Incentive Units. At the time of the closing of the Acquisition, EPE Acquisition issued Management Incentive Units ("MIPs") to our executive officers, which units were intended to constitute profits interests. The number of MIPs awarded to each named executive officer is set forth in the table below.
Name
|
MIPs
(#)(1) |
|||
---|---|---|---|---|
Brent J. Smolik |
207,985 | |||
Dane E. Whitehead |
69,328 | |||
Clayton A. Carrell |
69,328 | |||
John D. Jensen |
69,328 | |||
Marguerite N. Woung-Chapman |
27,731 |
Prior to the Corporate Reorganization, each award of MIPs represented a share in future appreciation of EPE Acquisition, subject to certain limitations, after the date of grant and once certain shareholder returns have been achieved. The MIPs were subject to time-based vesting requirements and vested ratably over 5 years (20% each year) based on the executive's continued employment with the company. In addition, the MIPs would have vested on an accelerated basis and become payable based on the achievement of certain predetermined performance measures, including the occurrence of certain liquidity events where our Sponsors received a return of at least one times their invested capital in our company. The MIPs were issued at no cost to the executives and would have had value only to the extent that the value of EPE Acquisition increased and a liquidity event occurred. If the named executive officer voluntarily terminated his or her employment without good reason, 25% of the vested award and all unvested awards would be forfeited. See the "Potential Payments upon Termination or Change in Control" section for further detail. In connection with the Corporate Reorganization, all outstanding MIPs were converted into shares of Class B common stock as described in the table above and such shares remain subject to all of the vesting provisions described above for the MIPs.
Pursuant to our Second Amended and Restated Certificate of Incorporation and subject to certain limitations, holders of Class B common stock are entitled to participate in dividends and distributions of proceeds upon our liquidation. In connection with certain sales of shares of common stock by Apollo and Riverstone, holders of shares of Class B common stock will have their shares exchanged for shares of common stock that are newly issued by the company. The extent to which holders of Class B common stock participate in dividends and distributions of liquidation proceeds will depend on the return on invested capital in the Company and EPE Acquisition received by our Sponsors and the other Legacy Class A Stockholders, but will in any event be limited to 8.5% of the amount of such returns in excess of such invested capital by the Sponsors and the other Legacy Class A Stockholders. The number of shares of common stock issued in an exchange will depend on the return on invested capital in the Company and EPE Acquisition received by Apollo and Riverstone subject to an adjustment multiple. See "Description of Capital StockClass B common stock," "Description of Capital StockDistributions Upon a Liquidation" and "Description of Capital StockClass B Exchange."
Class A Investment Units. In addition to the MIPs described above, each of our named executive officers purchased with his or her own funds Class A units (capital interests) in EPE Acquisition shortly
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following the closing of the Acquisition, at a price of $1,000 per unit. In connection with this purchase, each named executive officer was awarded a "matching" Class A unit grant in an amount equal to 50% of the Class A units purchased. The purchase of the Class A units by our named executive officers represented a significant commitment by our executive team to the future success of our company, and the corresponding grant of the matching units was made to recognize such commitment and further align the interests of our executive team with that of our Sponsors. The matching units were vested upon grant, but along with the buy-in units were subject to transferability restrictions until the earliest of four years from grant and certain liquidity events. In addition, the Class A units (both buy-in and matching) were subject to repurchase by the company in the event of certain termination scenarios, as described in "ManagementExecutive CompensationPotential Payments upon Termination or Change in Control." All outstanding Class A units (both buy-in and matching) were converted into shares of common stock as described in "Corporate Reorganization." The number of Class A units issued to each named executive officer is set forth in the table below.
Name
|
Buy-In
Units (#)(1) |
Matching
Units (#)(2) |
Total Units
(#) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Brent J. Smolik |
4,000 | 2,000 | 6,000 | |||||||
Dane E. Whitehead |
1,700 | 850 | 2,550 | |||||||
Clayton A. Carrell |
1,200 | 600 | 1,800 | |||||||
John D. Jensen |
1,200 | 600 | 1,800 | |||||||
Marguerite N. Woung-Chapman |
740 | 370 | 1,110 |
V. Other Compensation Matters
Employment Agreements
In connection with the closing of the Acquisition, we entered into employment agreements with each of our named executive officers. These agreements provide us and the executives with certain rights and obligations during and following a termination of employment. We believe these agreements are necessary to protect our legitimate business interests, as well as to protect the executives in the event of certain termination events. The employment agreements provide for, among other things, base salaries, annual performance bonuses and severance benefits in the event of a termination of employment under certain circumstances. The employment agreements became effective as of the closing of the Acquisition. The employment agreements have an initial term that expires on the fifth anniversary of their effective date, but the term of each agreement will be extended automatically for successive additional one-year periods unless either the executive or company provides written notice to the other at least 60 days prior to the end of the then-current initial term or extension term that no such automatic extension will occur. In addition, in connection with entering into the agreement, the executives agreed to waive any rights relating to their participation in El Paso Corporation's change in
135
control severance plan. In connection with the Corporate Reorganization, the employment agreements were assigned to the Company. Additional detail regarding the employment agreements is set forth following the Grants of Plan-Based Awards Table below.
2013 Guaranteed Bonus
In connection with the purchase by our named executive officers of Class A units of EPE Acquisition following the closing of the Acquisition, each of our named executive officers was awarded a "guaranteed cash bonus" payable in March 2013, contingent upon the executive's continued employment by us through such date. The guaranteed bonus was awarded in an amount equal to 50% of the value of the Class A units purchased by such executive. The guaranteed bonus was designed to further motivate the executive officers to participate in the buy-in of Class A units of EPE Acquisition and to encourage retention during the formative months following the closing of the Acquisition. The guaranteed bonus is not a substitute for the annual incentive bonus program described earlier in this CD&A. The amount of each named executive officer's guaranteed bonus payable in 2013 is set forth below.
Name
|
($) | |||
---|---|---|---|---|
Brent J. Smolik |
2,000,000 | |||
Dane E. Whitehead |
850,000 | |||
Clayton A. Carrell |
600,000 | |||
John D. Jensen |
600,000 | |||
Marguerite N. Woung-Chapman |
370,000 |
The guaranteed bonus was paid in the first quarter of 2013 and will be reflected in next year's Summary Compensation Table under the "bonus" column as part of 2013 compensation in accordance with SEC reporting requirements.
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Executive Compensation
The following table and the narrative text that follows it provide a summary of the compensation earned or paid to our named executive officers on or following the closing of the Acquisition on May 24, 2012 according to applicable SEC regulations. The principal position listed for each named executive officer below reflects the current position each executive holds at EP Energy Corporation. The compensation reflected for each individual was for his or her services provided in all capacities to us and our subsidiaries.
Name and Principal
Position |
Year |
Salary
($)(1) |
Bonus
($) |
Stock
Awards ($)(2) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($)(3) |
Change in
Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other
Compensation ($)(4) |
Total
($) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brent J. Smolik |
2012 | 511,063 | | 20,951,593 | | 1,147,500 | | 8,050 | 22,618,206 | |||||||||||||||||||
President & Chief Executive Officer |
||||||||||||||||||||||||||||
Dane E. Whitehead |
2012 | 270,395 | | 7,167,167 | | 630,000 | | 8,592 | 8,076,154 | |||||||||||||||||||
Executive Vice President & Chief Financial Officer |
||||||||||||||||||||||||||||
Clayton A. Carrell |
2012 | 240,372 | | 6,917,167 | | 540,000 | | 21,179 | 7,718,718 | |||||||||||||||||||
Executive Vice President & Chief Operating Officer |
||||||||||||||||||||||||||||
John D. Jensen |
2012 | 240,372 | | 6,917,167 | | 510,000 | | 17,222 | 7,684,761 | |||||||||||||||||||
Executive Vice President, Operations Services |
||||||||||||||||||||||||||||
Marguerite N. Woung-Chapman |
2012 | 222,382 | | 2,896,849 | | 280,000 | | 16,907 | 3,416,138 | |||||||||||||||||||
Senior Vice President, General Counsel & Corporate Secretary |
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All Other Compensation included in the Summary Compensation Table for 2012
Name
|
Company
Contributions to the 401(k) Retirement Plan ($) |
Annual
Executive Physicals ($)(A) |
Financial
Planning ($)(B) |
Total
($) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brent J. Smolik |
6,750 | 1,300 | | 8,050 | |||||||||
Dane E. Whitehead |
7,292 | 1,300 | | 8,592 | |||||||||
Clayton A. Carrell |
16,042 | | 5,137 | 21,179 | |||||||||
John D. Jensen |
9,634 | 1,300 | 6,288 | 17,222 | |||||||||
Marguerite N. Woung-Chapman |
15,549 | 1,358 | | 16,907 |
The table below supplements the Summary Compensation Table that appears above. This table shows the compensation actually realized by our named executive officers in 2012 for service on or after the closing of the Acquisition on May 24, 2012. This table is supplementary in nature and is not intended to replace the detailed disclosures set forth in the Summary Compensation Table above. The primary difference between this supplemental table and the standard Summary Compensation Table is the removal of the "stock awards" column from this table. SEC rules require that the grant date fair value of all stock awards be reported in the Summary Compensation Table for the year in which they were granted. As noted in the Summary Compensation Table and discussed in detail in "ManagementCompensation Discussion and Analysis," in 2012 our named executive officers were awarded MIPs and were also awarded a "matching" Class A unit grant in connection with their purchase of Class A units in EPE Acquisition. As a result, a significant portion of the total compensation amounts reported in the Summary Compensation Table relate to stock awards that were not vested and/or are subject to significant transfer restrictions, that were not publicly traded, and for which the value is uncertain (and with respect to the MIPs, that may end up having no value at all). In
138
contrast, the supplemental table below includes only amounts actually realized by our named executive officers for service in 2012 following the closing of the Acquisition.
Name and Principal Position
|
Year |
Salary
($)(1) |
Annual
Incentive Bonus ($)(2) |
All Other
Compensation ($)(3) |
Total
($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brent J. Smolik |
2012 | 511,063 | 1,147,500 | 8,050 | 1,666,613 | |||||||||||
President & Chief Executive Officer |
||||||||||||||||
Dane E. Whitehead |
2012 | 270,395 | 630,000 | 8,592 | 908,987 | |||||||||||
Executive Vice President & Chief Financial Officer |
||||||||||||||||
Clayton A. Carrell |
2012 | 240,372 | 540,000 | 21,179 | 801,551 | |||||||||||
Executive Vice President & Chief Operating Officer |
||||||||||||||||
John D. Jensen |
2012 | 240,372 | 510,000 | 17,222 | 767,594 | |||||||||||
Executive Vice President, Operations Services |
||||||||||||||||
Marguerite N. Woung-Chapman |
2012 | 222,382 | 280,000 | 16,907 | 519,289 | |||||||||||
Senior Vice President, General Counsel & Corporate Secretary |
Grants of Plan-Based Awards
The following table sets forth the range of potential annual cash incentive bonuses for 2012 performance as a dollar amount for each of the named executive officers. The table also sets forth the number of MIPs and the number of matching Class A units of EPE Acquisition awarded during 2012 to the named executive officers. In satisfaction of the applicable SEC regulations, the table further sets forth the date of grant of each award.
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Grants of Plan-Based Awards
During the Year Ended December 31, 2012
|
|
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(1) |
All Other
Stock Awards: Number of Shares of Stock or Units (#)(3) |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Grant Date
Fair Value of Stock and Option Awards ($)(4) |
||||||||||||||||
Name
|
Grant
Date(2) |
Threshold
($) |
Target
($) |
Maximum
($) |
||||||||||||||
Brent J. Smolik |
||||||||||||||||||
Short-Term Incentive |
N/A | 425,000 | 850,000 | 1,700,000 | ||||||||||||||
MIPs |
5/24/2012 | 207,985 | 18,951,593 | |||||||||||||||
Class A Units (matching grant) |
5/24/2012 | 2,000 | 2,000,000 | |||||||||||||||
Dane E. Whitehead |
||||||||||||||||||
Short-Term Incentive |
N/A | 225,000 | 450,000 | 900,000 | ||||||||||||||
MIPs |
5/24/2012 | 69,328 | 6,317,167 | |||||||||||||||
Class A Units (matching grant) |
5/24/2012 | 850 | 850,000 | |||||||||||||||
Clayton A. Carrell |
||||||||||||||||||
Short-Term Incentive |
N/A | 200,000 | 400,000 | 800,000 | ||||||||||||||
MIPs |
5/24/2012 | 69,328 | 6,317,167 | |||||||||||||||
Class A Units (matching grant) |
5/24/2012 | 600 | 600,000 | |||||||||||||||
John D. Jensen |
||||||||||||||||||
Short-Term Incentive |
N/A | 200,000 | 400,000 | 800,000 | ||||||||||||||
MIPs |
5/24/2012 | 69,328 | 6,317,167 | |||||||||||||||
Class A Units (matching grant) |
5/24/2012 | 600 | 600,000 | |||||||||||||||
Marguerite N. Woung-Chapman |
||||||||||||||||||
Short-Term Incentive |
N/A | 101,750 | 203,500 | 407,000 | ||||||||||||||
MIPs |
5/24/2012 | 27,731 | 2,526,849 | |||||||||||||||
Class A Units (matching grant) |
5/24/2012 | 370 | 370,000 |
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Description of Plan-Based Awards
Non-Equity Incentive Plan Awards
The material terms of the non-equity incentive plan awards reported in the above table are described in "ManagementCompensation Discussion and Analysis."
Equity Awards
The equity awards reported in the above table are likewise described in "ManagementCompensation Discussion and Analysis." They include the MIPs granted to our named executive officers at the time of the closing of the Acquisition, as well as the "matching" Class A units of EPE Acquisition that our named executive officers received in connection with their purchase of Class A units of EPE Acquisition following the closing of the Acquisition.
The MIPs reflected in the table were scheduled to vest ratably over five years based on the executive's continued employment with the company, although 25% of any vested awards would have been forfeitable in the event of certain termination events. In addition, the MIPs would have vested on an accelerated basis and become payable based on the achievement of certain predetermined performance measures, including the occurrence of certain liquidity events where our Sponsors received a return of at least one times their invested capital in our company. The MIPs were issued at no cost and would have had value only to the extent that the value of EPE Acquisition increased and a liquidity event occurred. The grant date fair value per MIP granted on May 24, 2012, was determined to equal $91.12, computed using a reverse option pricing model based on several assumptions. In accordance with FASB ASC Topic 718, 75% of the aggregate grant date fair value of the MIPs will be expensed over the five-year vesting period, with the remaining 25% to be expensed upon a liquidity event when the right to such amounts become nonforfeitable. See Note 9 to our consolidated financial statements included elsewhere in this prospectus for further detail. In connection with the Corporate Reorganization, each MIP was converted into one share of Class B common stock, and each matching Class A unit was converted into one share of common stock. The shares of Class B common stock issued in exchange for the MIPs remain subject to the same vesting conditions applicable to the corresponding MIPs, as described above.
The matching Class A units reflected in the table were vested upon grant but, along with the buy-in units purchased by the executives, are subject to transfer restrictions until the earliest of four years from grant and certain liquidity events. The grant date fair value of each Class A unit was determined to equal $1,000. The shares of common stock issued in exchange for the Class A units remain subject to the same transfer restrictions.
Class A Unit Distributions
In December 2012, the Board of Managers of EPE Acquisition authorized a cash distribution to all Class A unitholders of our parent on a pro-rata basis. Our named executive officers, as owners of Class A units (buy-in units and matching award) received their pro-rata share of the distribution, which was treated as a non-taxable return of investment. In addition, in July 2013 the Board of Managers of EPE Acquisition authorized an additional pro-rata cash distribution to all Class A unitholders of our parent, which distribution was made prior to the Corporate Reorganization.
Employment Agreements
As discussed in the "ManagementCompensation Discussion and Analysis," we entered into employment agreements with our named executive officers in connection with the closing of the Acquisition. The employment agreements are effective as of May 24, 2012 and have a five-year term.
141
In connection with the Corporate Reorganization, the employment agreements were assigned to the Company. Additional detail regarding the employment agreements is set forth below.
Brent J. Smolik
EPE Acquisition entered into an employment agreement with Mr. Smolik, effective May 24, 2012, to serve as our President and Chief Executive Officer, as well as the Chairman of the Board of Managers of EPE Acquisition, LLC. Under the terms of the agreement, Mr. Smolik's annual base salary is $850,000, with an annual cash bonus target equal to 100% of his annual base salary, with higher or lower amounts (0% to 200% of target) payable depending on performance relative to targeted results. Mr. Smolik is also entitled to an additional one-time guaranteed bonus of $2,000,000 payable in the first quarter of 2013. Mr. Smolik is eligible to participate in all benefit plans and programs that are available to other senior executives of our company. Mr. Smolik's employment agreement contains provisions related to the payment of benefits upon certain termination events, as well as non-compete, non-solicitation and confidentiality restrictions.
Dane E. Whitehead
EPE Acquisition entered into an employment agreement with Mr. Whitehead, effective May 24, 2012, to serve as our Executive Vice President and Chief Financial Officer. Under the terms of the agreement, Mr. Whitehead's annual base salary is $450,000, with an annual cash bonus target equal to 100% of his annual base salary, with higher or lower amounts (0% to 200% of target) payable depending on performance relative to targeted results. Mr. Whitehead was also entitled to an additional one-time guaranteed bonus of $850,000 payable in the first quarter of 2013. Mr. Whitehead is eligible to participate in all benefit plans and programs that are available to other senior executives of our company. Mr. Whitehead's employment agreement contains provisions related to the payment of benefits upon certain termination events, as well as certain non-compete, non-solicitation and confidentiality restrictions.
Clayton A. Carrell
EPE Acquisition entered into an employment agreement with Mr. Carrell, effective May 24, 2012, to serve as our Executive Vice President and Chief Operating Officer. Under the terms of the agreement, Mr. Carrell's annual base salary is $400,000, with an annual cash bonus target equal to 100% of his annual base salary, with higher or lower amounts (0% to 200% of target) payable depending on performance relative to targeted results. Mr. Carrell was also entitled to an additional one-time guaranteed bonus of $600,000 payable in the first quarter of 2013. Mr. Carrell is eligible to participate in all benefit plans and programs that are available to other senior executives of our company. Mr. Carrell's employment agreement contains provisions related to the payment of benefits upon certain termination events, as well as certain non-compete, non-solicitation and confidentiality restrictions.
John D. Jensen
EPE Acquisition entered into an employment agreement with Mr. Jensen, effective May 24, 2012, to serve as our Executive Vice President, Operations Services. Under the terms of the agreement, Mr. Jensen's annual base salary is $400,000, with an annual cash bonus target equal to 100% of his annual base salary, with higher or lower amounts (0% to 200% of target) payable depending on performance relative to targeted results. Mr. Jensen was also entitled to an additional one-time guaranteed bonus of $600,000 payable in the first quarter of 2013. Mr. Jensen is eligible to participate in all benefit plans and programs that are available to other senior executives of our company. Mr. Jensen's employment agreement contains provisions related to the payment of benefits upon
142
certain termination events, as well as certain non-compete, non-solicitation and confidentiality restrictions.
Marguerite N. Woung-Chapman
EPE Acquisition entered into an employment agreement with Ms. Woung-Chapman, effective May 24, 2012, to serve as our Senior Vice President, General Counsel & Corporate Secretary. Under the terms of the agreement, Ms. Woung-Chapman's annual base salary is $370,000, with an annual cash bonus target equal to 55% of her annual base salary, with higher or lower amounts (0% to 200% of target) payable depending on performance relative to targeted results. Ms. Woung-Chapman was also entitled to an additional one-time guaranteed bonus of $370,000 payable in the first quarter of 2013. Ms. Woung-Chapman is eligible to participate in all benefit plans and programs that are available to other senior executives of our company. Ms. Woung-Chapman's employment agreement contains provisions related to the payment of benefits upon certain termination events, as well as certain non-compete, non-solicitation and confidentiality restrictions.
Outstanding Equity Awards
The following table provides information with respect to outstanding equity awards held by the named executive officers as of December 31, 2012.
Outstanding Equity Awards
at Fiscal Year-End
|
Stock Awards | ||||||
---|---|---|---|---|---|---|---|
Name
|
Number of
Shares or Units of Stock That Have Not Vested (#)(1) |
Market Value
of Shares or Units of Stock That Have Not Vested ($)(2) |
|||||
Brent J. Smolik |
207,985 | 18,951,593 | |||||
Dane E. Whitehead |
69,328 | 6,317,167 | |||||
Clayton A. Carrell |
69,328 | 6,317,167 | |||||
John D. Jensen |
69,328 | 6,317,167 | |||||
Marguerite N. Woung-Chapman |
27,731 | 2,526,849 |
Potential Payments upon Termination or Change in Control
The following section describes the benefits that may become payable to our named executive officers in connection with a termination of their employment.
143
Potential Payments under Employment Agreements
As discussed above, we have entered into employment agreements with our named executive officers. The agreements contain provisions for the payment of severance benefits following certain termination events. Below is a summary of the payments and benefits these named executive officers would receive in connection with various employment termination scenarios.
Under the terms of each employment agreement, if the executive's employment is terminated by us without cause or by the executive with good reason then the executive will be entitled to receive:
If the executive's employment is terminated for any other reason, our only obligation will be the payment of any accrued obligations. For purposes of the above, "good reason" means, as to any executive, the occurrence of any of the following events without the executive's consent: (a) a reduction in the executive's annual base salary other than a reduction of not more than 5% in connection with a general reduction in base salaries that affects all similarly situated executives in substantially the same proportions which is implemented in response to a material downturn in the U.S. domestic oil and natural gas exploration and development industry; (b) a failure of the company to cause the executive to be eligible under benefit plans that provide benefits that are substantially comparable in the aggregate to those provided to executive as of the effective date of the employment agreement; (c) any material breach by the company of the employment agreement; (d) a material diminution in the executive's title, authority, duties, or responsibilities; (e) the requirement that the executive's principal place of employment be outside a 35 mile radius of his or her then-current principal place; (f) any purported termination of the executive's employment for cause which does not comply with the employment agreement; and solely with respect to Mr. Smolik, (g) the failure of the company to re-elect him as a member of the board in connection with any election of managers. The term "cause" means the executive's (i) willful failure to perform the executive's material duties, (ii) willful and material breach of the employment agreement, (iii) conviction of or plea of guilty or no contest to, any felony or any crime involving moral turpitude, or (iv) engaging in actual fraud or willful material misconduct in the performance of the executive's duties under the employment agreement.
Potential Payments under Welfare Benefit Plans
We sponsor a welfare benefit plan available to all employees that provides long-term disability benefits in the event of an employee's permanent disability. In the event of a named executive officer's permanent disability, disability income would be payable on a monthly basis as a long as the executive officer qualified as permanently disabled. Long-term disability benefits are equal to 60% of the executive's base salary in effect immediately prior to the disability, with a maximum monthly benefit equal to $25,000. In the event of a named executive officer's permanent disability, he or she may also elect to maintain basic life and health insurance coverage under our welfare benefit plan at active-employee rates for as long as the individual qualifies as permanently disabled or until he or she reaches age 65.
144
In addition, our named executive officers participate in our Senior Executive Survivor Benefits Plan, which provides each of our named executive officers with survivor benefits coverage in the event of the executive's death in lieu of the coverage provided generally under our group life insurance plan. The amount of benefits provided is 2.5 times the executive's annual salary.
Estimated Severance, Disability and Survivor Benefits
The following table presents the company's estimate of the amount of the benefits to which each of the named executive officers would have been entitled had his or her employment been terminated or a change in control occurred on December 31, 2012 under the scenarios noted below.
Name
|
Voluntary
Termination Without Good Reason or Involuntary Termination with Cause ($) |
Death
($) |
Disability
($)(1) |
Involuntary
Termination without Cause or Voluntary Termination with Good Reason ($) |
Change in
Control (no termination) ($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brent J. Smolik |
||||||||||||||||
Severance Payment |
| | | 5,950,000 | | |||||||||||
Continued Medical |
| | 15,810 | 47,430 | | |||||||||||
Disability Income |
| | 300,000 | | | |||||||||||
Survivor Benefit |
| 2,125,000 | | | | |||||||||||
Dane E. Whitehead |
||||||||||||||||
Severance Payment |
| | | 2,250,000 | | |||||||||||
Continued Medical |
| | 15,810 | 31,620 | | |||||||||||
Disability Income |
| | 270,000 | | | |||||||||||
Survivor Benefit |
| 1,125,000 | | | | |||||||||||
Clayton A. Carrell |
||||||||||||||||
Severance Payment |
| | | 2,000,000 | | |||||||||||
Continued Medical |
| | 15,810 | 31,620 | | |||||||||||
Disability Income |
| | 240,000 | | | |||||||||||
Survivor Benefit |
| 1,000,000 | | | | |||||||||||
John D. Jensen |
||||||||||||||||
Severance Payment |
| | | 2,000,000 | | |||||||||||
Continued Medical |
| | 15,810 | 31,620 | | |||||||||||
Disability Income |
| | 240,000 | | | |||||||||||
Survivor Benefit |
| 1,000,000 | | | | |||||||||||
Marguerite N. Woung-Chapman |
||||||||||||||||
Severance Payment |
| | | 1,350,500 | | |||||||||||
Continued Medical |
| | 7,614 | 15,228 | | |||||||||||
Disability Income |
| | 222,000 | | | |||||||||||
Survivor Benefit |
| 925,000 | | | |
Treatment of Equity Awards
In addition to the severance and welfare benefits described above, our named executive officers' outstanding equity awards may be impacted in the event of certain termination scenarios, as described below.
145
Class A Units and Corresponding Common Stock
As discussed in the Compensation Discussion and Analysis, the Class A units of EPE Acquisition issued to the named executive officers during 2012, including the buy-in units purchased by the executives and "matching" units awarded in connection with such purchase, were 100% vested upon grant, but were granted subject to transfer restrictions until the earliest of four years from grant and certain liquidity events. The shares of Class A common stock issued in exchange for such Class A units issued to the named executive officers remain subject to the same vesting and transfer restrictions. In addition, the units were, and following the Corporate Reorganization the corresponding shares are, subject to repurchase at the company's election in certain termination scenarios as follows:
Voluntary Termination without Good Reason or Involuntary Termination with Cause
In the event of a named executive officer's voluntary termination without good reason or if the executive's employment is terminated by the company with cause, then for a period of one year following the termination, the company would be able to elect (but would not be required) to repurchase the Class A units or shares of Class A common stock, as applicable, held by such executive for a purchase price equal to the lesser of the original cost paid by the executive to purchase the units and the fair market value of the units or shares, as applicable (as determined by the Board), on the repurchase date. As the "matching" Class A units were awarded to the executives at no cost, this repurchase option would cause the units or shares of common stock, as applicable, to be repurchased for no consideration.
Involuntary Termination without Cause or Voluntary Termination with Good Reason or Termination due to Death or Disability
In the event of a named executive officer's involuntary termination by the company without cause or termination by the executive with good reason, or in the event of the named executive officer's death or disability, the company would be able to elect (but would not be required) to repurchase the Class A units or shares of Class A common stock, as applicable, held by such executive for a purchase price equal to the fair market value of the units or shares, applicable (as determined by the Board), on the repurchase date.
Management Incentive Units (MIPs) and Corresponding Class B Common Stock
As discussed in the Compensation Discussion and Analysis, the MIPs awarded to the named executive officers during 2012 were scheduled to vest ratably over five years, and the corresponding shares of Class B common stock remain subject to the same vesting schedule. Below is a description of the impact of certain termination scenarios on the MIP awards prior to the Corporate Reorganization, and the Class B common stock following the Corporate Reorganization.
Involuntary Termination with Cause
In the event of a named executive officer's termination with cause, all MIPs or Class B common stock, as applicable, held by such executive (whether vested or unvested) would be forfeited without consideration.
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Voluntary Termination without Good Reason
In the event of a named executive officer's voluntary termination, 25% of the executive's vested MIPs and all unvested MIPs or Class B common stock, as applicable, would be forfeited without consideration. In such event, the company would be able to elect (but would not be required) to redeem the non-forfeited MIPs or shares of Class B common stock, as applicable, held by such executive at the fair market value of such MIPs or shares, as applicable (as determined by the Board) on the repurchase date.
Involuntary Termination without Cause or Voluntary Termination with Good Reason or Termination due to Death or Disability
In the event of a named executive officer's involuntary termination by the company without cause or termination by the executive with good reason, or in the event of the named executive officer's death or disability, a pro-rata portion of the unvested MIPs or Class B common stock, as applicable, would vest as of the termination date (pro-rata vesting relating solely to the single tranche of MIPs or Class B common stock, as applicable, that would have vested as of the next vesting date). All remaining unvested MIPs or Class B common stock, as applicable, would be forfeited without consideration. In such event and for a period of one year following the termination, the company would be able to elect (but would not be required) to redeem the non-forfeited MIPs or shares of Class B common stock, as applicable, held by such executive at the fair market value of such MIPs or shares, applicable (as determined by the Board), on the repurchase date.
Director Compensation
During 2012 and 2013 to the date of this prospectus, members of our Board did not receive a retainer or board meeting fees from us for serving on the Board. Members of the Board were reimbursed for their reasonable expenses for attending board functions. Following the completion of this offering, we expect that our independent non-employee directors will receive cash and/or equity-based compensation for their services as directors. Although the terms of our director compensation program have not yet been determined, we expect such compensation may consist of the following:
Directors will also receive reimbursement for out-of-pocket expenses associated with attending board or committee meetings and director and officer liability insurance coverage. Each director will be fully indemnified by us for actions associated with being a director to the fullest extent permitted under Delaware law. In connection with this offering, we may enter into separate indemnification agreements with each of our directors and executive officers, which may be broader than the specific indemnification provisions contained in Delaware law.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is currently composed of . During 2012 and 2013 to the date of the prospectus, no member of the Compensation Committee was a former or current officer or employee of the Company. In addition, during 2012 and 2013 to the date of this prospectus, none of our executive officers served (i) as a member of the compensation committee or board of directors of another entity, one of whose executive officers served on our Compensation Committee, or (ii) as a
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member of the compensation committee of another entity, one of whose executive officers served on our Board.
EP Energy Corporation 2013 Omnibus Incentive Plan
We intend to adopt the 2013 Omnibus Incentive Plan of EP Energy Corporation (the "omnibus plan") prior to the completion of this offering, which will be effective no later than the day prior to the completion of this offering. The following is a general description of the omnibus plan. We are in the process of adopting the omnibus plan, and accordingly this summary is subject to change prior to the Effective Time.
Summary of the Omnibus Plan
Purpose of the Omnibus Plan
The purpose of the omnibus plan is to promote the interests of the company and its stockholders by enhancing the company's ability to attract and retain employees and non-employee directors through suitable recognition of their ability and experience. The omnibus plan is further intended to align the employees' and non-employee directors' interests and efforts with the long-term interests of the company's stockholders, and to provide participants with a direct incentive to achieve the company's strategic and financial goals.
Effective Date and Duration
The omnibus plan will become effective when it is approved by our Board of Directors, which will occur prior to the completion of this offering. The plan authorizes the granting of awards for up to ten years from the plan's effective date. The omnibus plan will remain in effect, subject to the right of our Board of Directors to terminate the plan at any time, until no awards remain outstanding.
Administration of the Omnibus Plan
The Compensation Committee of our Board of Directors is the plan administrator. The plan administrator has the full power to select employees and non-employee directors to receive awards under the omnibus plan; determine the terms and conditions of awards; construe and interpret the plan and any awards granted thereunder; and, subject to certain limitations, amend the terms and conditions of outstanding awards. The plan administrator's determinations and interpretations under the omnibus plan are binding on all interested parties.
Eligibility and Participation
Eligible participants include all employees (other than an employee who is a member of a unit covered by a collective bargaining agreement) of the company or any subsidiary, including employees who are members of our Board of Directors, as well as non-employee members of our Board of Directors and consultants, as determined by the plan administrator.
Shares Subject to the Omnibus Plan
The omnibus plan currently authorizes the issuance of up to shares of our common stock.
Any shares that are potentially deliverable under an award granted under the omnibus plan that is canceled, forfeited, settled in cash, expires or is otherwise terminated without delivery of such shares shall not be counted as having been issued under the plan. Likewise, shares that have been issued in connection with an award of restricted stock that is canceled or forfeited prior to vesting or settled in cash, causing the shares to be returned to the company, will not be counted as having been issued under the plan.
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If shares are returned to the company in satisfaction of taxes related to restricted stock, in connection with a cash-out of restricted stock (but excluding upon forfeiture of restricted stock) or in connection with the tendering of shares by a participant in satisfaction of the exercise price or taxes relating to an award, such issued shares shall not become available again for issuance under the plan. In addition, each stock appreciation right issued under the plan will be counted as one share issued under the plan without regard to the number of shares issued to the participant upon exercise of such stock appreciation right.
In the event of a change in capitalization, as defined in the omnibus plan, the plan administrator shall make such adjustments as it determines are appropriate and equitable to (i) the maximum number and class of shares of common stock or other stock or securities with respect to which awards may be granted under the plan, (ii) the maximum number and class of shares of common stock or other stock or securities that may be issued upon exercise of stock options, (iii) the individual annual grant limits for Section 162(m), (iv) the number and class of shares of common stock or other stock or securities that are subject to outstanding awards and the option price or grant price therefor, if applicable, and (v) performance goals.
The shares to be delivered under the omnibus plan may be made available from any combination of shares held in EP Energy's treasury or authorized but unissued shares of EP Energy's common stock.
Individual Annual Grant Limits
For purposes of Section 162(m), (i) the maximum number of our shares with respect to which stock options or stock appreciation rights may be granted to any participant in any calendar year is million shares; (ii) the maximum number of our shares of restricted stock that may be granted to any participant in any calendar year is million shares; (iii) the maximum number of our shares with respect to which restricted stock units, performance shares, performance units or other stock-based awards may be granted to any participant in any calendar year is million shares; and (iv) the maximum amount of other awards under the plan, including cash incentive awards, that may be paid pursuant to the omnibus plan in any calendar year to any participant is $ million.
Awards under the Omnibus Plan
Grants under the omnibus plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, incentive awards, and other cash or stock-based awards.
Types of Awards
Following is a general description of the types of awards that may be granted under the omnibus plan. Terms and conditions of awards will be determined on a grant-by-grant basis by the plan administrator, subject to limitations contained in the omnibus plan.
Stock Options. A stock option is the grant of an option made to eligible employees to purchase a specific number of shares of common stock under certain terms and conditions and for a set price. The plan administrator will determine the price of the shares of common stock covered by each stock option, except that the stock option price may not be less than 100% of the fair market value of the shares of common stock on the date the stock options are granted. The plan administrator will also set the term of each stock option. The term of a stock option may not exceed ten years from the date of the grant.
Stock options granted under the omnibus plan may be either "incentive stock options" that qualify under the meaning of Section 422 of the Code or "non-qualified stock options" that are not designed
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to qualify under Section 422. With respect to each stock option granted under the omnibus plan, the plan administrator will determine the nature and extent of any restrictions to be imposed on the shares of common stock that may be purchased, including, but not limited to, restrictions on the transferability of shares acquired upon exercise. Stock options granted under the omnibus plan cannot be repriced without the approval of the stockholders other than in connection with a "change in capitalization" in which an adjustment is permitted. In addition, underwater stock options cannot be cashed out without stockholder approval.
The actual purchase of shares of common stock pursuant to a stock option is called the "exercise" of that stock option. Stock options granted under the omnibus plan will be exercisable at such time or times and subject to such terms and conditions as determined by the plan administrator at the time of grant. The plan administrator may waive such restrictions on the exercisability of a stock option at any time on or after the date of the grant in whole or in part, as the plan administrator may determine in its sole discretion. Shares covered by a stock option may be purchased at one time or in such installments over the option period as determined by the plan administrator.
The plan administrator will determine the form of payment of the stock option price, which may include cash, shares of common stock already owned by the participant, or any combination of cash and shares of common stock, with the fair market value of the common stock valued as of the day prior to delivery. The plan administrator may also designate additional forms of payment that will be permitted, provided the methods are permitted by applicable laws and regulations. A participant will not have any of the rights of a stockholder until the shares of common stock are issued to the participant.
Stock Appreciation Rights. A stock appreciation right granted under the omnibus plan is a right to receive the appreciation in value of a share of common stock between the date the stock appreciation right or related award is granted and the date it is exercised. A stock appreciation right may be granted freestanding or in tandem or in combination with any other award under the omnibus incentive plan. Upon exercise, each stock appreciation right will entitle a participant to receive payment from the company determined by multiplying (i) the difference between the fair market value of a share of common stock on the date the stock appreciation right is exercised over the price fixed at the date of grant (which shall not be less than 100% of the fair market value of a share of common stock on the date of grant) times (ii) the number of shares of common stock with respect to which the stock appreciation right is exercised. At the discretion of the plan administrator, the payment upon stock appreciation right exercise may be in cash, in shares of common stock of equivalent value, or in some combination thereof.
A stock appreciation right granted in tandem with any other award under the omnibus plan shall be exercisable only at such times and to the extent that the award as to which it relates is exercisable or at such other times as the plan administrator may determine. A stock appreciation right expires at the same time the associated award expires, but in no case shall the right be exercisable later than the tenth anniversary of the date of its grant. A holder of a stock appreciation right will not have any of the rights of a stockholder until shares of common stock are issued. Stock appreciation rights granted under the omnibus plan cannot be repriced without the approval of the stockholders other than in connection with a "change in capitalization" in which an adjustment is permitted. In addition, underwater stock appreciation rights cannot be cashed out without stockholder approval.
Performance Shares and Performance Units. Performance shares granted under the omnibus plan represent the right to receive a number of shares of common stock for each performance share granted. Performance units granted under the omnibus plan represent the right to receive a payment, either in cash or shares of common stock, equal to the value of a performance unit. Performance shares or performance units may be granted to participants at any time and from time to time as the plan administrator determines. Performance shares and performance units may be granted alone or in combination with any other award.
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Prior to the grant of each performance share or performance unit, the plan administrator will establish the initial number of shares of common stock for each performance share and the initial value for each performance unit. In addition, the plan administrator will determine the performance goals used to determine the extent to which the participant receives a payout for the performance period. The plan administrator may assign percentages or other relative values of performance that will be applied to determine the extent to which the participant receives a payout. After a performance period has ended, the plan administrator will determine the extent to which the performance goals have been met and the holder of a performance share or performance unit is entitled to receive a payout of the number of performance shares or value of performance units awarded. No payout will be made without written certification by the plan administrator that the applicable performance goals have been satisfied. No dividends will be paid on unvested performance shares or unvested performance units.
Restricted Stock. Restricted stock is common stock that is subject to forfeiture if a participant's employment terminates before a specified date, if pre-established performance goals for a specified time period are not attained or due to such other factors or criteria as the plan administrator may determine. Restricted stock may be granted to participants under the omnibus plan at any time and from time to time as the plan administrator determines. Generally, there is no purchase price associated with restricted stock.
A participant who receives a grant of restricted stock will be recorded as a stockholder of EP Energy and, except as otherwise determined by the plan administrator, will have all the rights of a stockholder with respect to such shares (except with respect to the restrictions on transferability during the restriction period), including the right to vote the shares and receive dividends and other distributions paid with respect to the underlying shares. When all applicable conditions associated with a participant's restricted stock have been met, the participant will be issued unrestricted shares of common stock subject to any required share withholding to satisfy tax withholding obligations.
Restricted Stock Units. A restricted stock unit granted under the omnibus plan represents a right to receive a payment, in cash or shares of common stock, equal to the value of a share of common stock. Restricted stock units may be granted to participants at any time and from time to time as the plan administrator determines.
A participant who receives a grant of restricted stock units will not be recorded as a stockholder of EP Energy and will not have any of the rights of a stockholder unless or until the participant is issued shares of common stock in settlement of the restricted stock units granted. The plan administrator may determine that restricted stock units are entitled to dividend equivalents equal to cash dividends, if any, paid on shares of common stock. Dividend equivalents may be paid in cash or common stock or credited to the participant as additional restricted stock units. When all applicable conditions associated with a participant's restricted stock units have been met, restricted stock units will be settled in any combination of cash or shares of common stock subject to the payment of all taxes required to be withheld.
Incentive Awards. An incentive award is a percentage of a participant's base salary, fixed dollar amount or other measure of compensation to be awarded in cash or other awards under the omnibus plan at the end of a performance period if certain performance goals or other performance measures are achieved. Prior to the beginning of a particular performance period, or not later than 90 days following the beginning of the relevant fiscal year, the plan administrator will establish the performance goals or other performance measures that must be achieved for any participant to receive an incentive award for that performance period. The performance goals or other performance measures may be based on any combination of corporate and business unit performance goals or other performance measures. The plan administrator may also establish one or more company-wide performance goals or other performance measures that must be achieved. Incentive awards become payable to the extent that
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the plan administrator certifies in writing that the performance goals or other performance measures selected for a particular performance period have been attained.
At the end of each performance period and within 30 days after the information necessary to make a determination is available for the performance period, the plan administrator will determine whether the performance goals or other performance measures for the performance period have been achieved and the amount of each participant's award. Incentive awards may be paid in any combination of cash and/or other awards.
Cash and Other Stock-Based Awards. The plan administrator may grant cash awards to participants in such amounts and upon such terms, including the achievement of specific performance criteria as the plan administrator may determine. The plan administrator may also grant other types of equity-based or equity-related awards known as "other stock-based awards," which would include deferred share awards payable at a specified time or date, under the omnibus plan. Other stock-based awards may involve the transfer of actual shares of common stock or payment in cash or otherwise of amounts based on the value of shares of common stock. The plan administrator may establish performance criteria applicable to such awards in its sole discretion. Each cash award granted will specify a payment amount or payment range as determined by the plan administrator. Each other stock-based award will be expressed in terms of shares of common stock or units based on shares of common stock, as determined by the plan administrator.
Performance Goals
The plan administrator may determine that performance criteria will apply to awards granted under the omnibus plan. To the extent that awards are intended to qualify as "performance-based compensation" under Section 162(m) of the Code, the performance goals may include any one or more of the following, either individually, alternatively or in any combination, applied to either EP Energy as a whole or any subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to the predetermined target, to previous years' results or to a designated comparison group, in each case as specified by the plan administrator:
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The plan administrator will be authorized to adjust the performance goals to include or exclude extraordinary charges, gain or loss on the disposition of business units, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisitions, acquisition expenses, including expenses related to goodwill and other intangible assets, stock offerings, stock repurchases and loan loss provisions.
Termination of Employment
The award agreement applicable to each award granted under the omnibus plan will set forth the effect of a participant's termination of employment or service upon such award. Unless explicitly set forth otherwise in an award agreement or as determined by the plan administrator, (i) all of a participant's unvested and/or unexercisable awards are forfeited automatically upon termination of a participant's employment or service for any reason, and with respect to stock options or stock appreciation rights, a participant is permitted to exercise the vested portion of the stock option or stock appreciation right for three months following termination of employment or service, and (ii) all of a participant's awards whether vested or unvested, exercisable or unexercisable are automatically forfeited upon the termination of the participant's employment for cause. Provisions regarding the effect of a termination of employment or service upon an award are determined in the sole discretion of the plan administrator and need not be uniform among all awards or among all participants.
Change in Control
Except as otherwise provided in an award agreement, in the event of a participant's termination of employment (a) without cause or (b) by a participant for "good reason" (as defined in such participant's employment agreement, if applicable), in either event, within two years following a change in control (i) all stock options and stock appreciation rights will become fully vested and exercisable, (ii) the restriction periods applicable to all shares of restricted stock and restricted stock units will immediately lapse, (iii) the performance periods applicable to any performance shares, performance units and incentive awards that have not ended will end and such awards will become vested and payable in cash in an amount assuming target levels of performance by both participants and EP Energy have been achieved and (iv) any restrictions applicable to cash awards and other stock-based awards will immediately lapse and, if applicable, become payable.
Transferability
Awards granted under the omnibus plan may not be transferred, assigned, pledged, or encumbered in any manner except in the case of the death of a participant. Non-qualified stock options may be transferred to certain immediate family members, directly or indirectly or by means of a trust, corporate entity or partnership, as provided for in the omnibus plan and allowed by the plan
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administrator. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of awards granted under the omnibus plan, or any right or privilege conferred thereby, contrary to the provisions of the omnibus plan, may result in the forfeiture of any affected award.
Termination and Amendment
The plan administrator, subject to the approval of the board of directors, may from time to time amend the omnibus plan; provided, however, (i) stockholder approval is required to the extent required by applicable law, regulation or stock exchange rule and (ii) no change in any award previously granted under the omnibus plan may be made without the consent of the participant which would impair the right of the participant to acquire or retain common stock or cash that the participant may have acquired as a result of the omnibus plan. The board of directors may at any time suspend the operation of or terminate the omnibus plan with respect to any shares of common stock or rights which are not at that time subject to any award outstanding. No award may be granted under the omnibus plan on or after the tenth anniversary of the effective date of the plan.
Tax Withholding
We may deduct or withhold, or require a participant to remit, an amount sufficient to satisfy federal, state, local, domestic or foreign taxes required by law or regulation to be withheld with respect to any taxable event arising as a result of the omnibus plan.
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The following table provides certain information regarding the beneficial ownership of our outstanding common stock as of , 2013, and after giving effect to the offering (assuming that the underwriters do not exercise their option to purchase additional shares), for:
The percentage of ownership indicated before this offering is based on shares of common stock outstanding on , 2013, and the percentage of ownership after this offering is based on shares of common stock outstanding, including the shares to be issued and sold by the Company and does not take into account any shares of common stock that may be issued in the future in connection with a Class B Exchange.
The amounts and percentages of common stock beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under the SEC rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest. Except as indicated by footnote and in the next paragraph, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
Upon the closing of this offering, our Sponsors, as a group, will continue to control a majority of our voting common stock. As a result, we will be a "controlled company" under the NYSE listing rules. However, the number of shares reflected in the table below as beneficially owned by each of the Sponsors does not include shares held by the other Sponsors that are subject to the terms of the Stockholders Agreement pursuant to which, among other things, the Sponsors have agreed to act together to vote for the election of each of their director nominees to the Board.
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|
Shares of Common
Stock Beneficially Owned Before the Offering |
Shares of Common
Stock Beneficially Owned After the Offering |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Shares | Percentage | Shares | Percentage | |||||||||
Apollo Funds(1) |
53.96 | % | |||||||||||
Riverstone(2) |
14.99 | % | |||||||||||
Access(3) |
14.99 | % | |||||||||||
KNOC(4) |
14.99 | % | |||||||||||
Brent J. Smolik |
* | ||||||||||||
Dane E. Whitehead |
* | ||||||||||||
Clayton A. Carrell |
* | ||||||||||||
John D. Jensen |
* | ||||||||||||
Marguerite N. Woung-Chapman |
* | ||||||||||||
Ralph Alexander |
|||||||||||||
Gregory A. Beard |
|||||||||||||
Joshua J. Harris(1) |
|||||||||||||
Ilrae Park |
|||||||||||||
Sam Oh |
|||||||||||||
Robert M. Tichio |
|||||||||||||
Donald A. Wagner |
|||||||||||||
Rakesh Wilson |
|||||||||||||
Directors and executive officers as a group (14 persons) |
* |
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Holdings, L.P. and Riverstone V FT Corp Holdings, L.P. These individuals expressly disclaim any such beneficial ownership. The business address for each of the persons named in this footnote is c/o Riverstone Holdings, 712 Fifth Avenue, 36th Floor, New York, NY 10019.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Corporate Reorganization
In connection with our Corporate Reorganization, we engaged in certain transactions with certain affiliates and the members of EPE Acquisition. Please read "Corporate Reorganization" for a description of these transactions.
Stockholders Agreement
We entered into a Stockholders Agreement with the Legacy Class A Stockholders and the Legacy Class B Stockholder, dated as of August 30, 2013 (the "Stockholders Agreement"), in connection with our Corporate Reorganization. The Stockholders Agreement contains, among other things, the agreement among the stockholders to restrict their ability to transfer our stock as well as rights of first refusal, tag-along rights and drag-along rights. Pursuant to the Stockholders Agreement, certain of the Legacy Class A Stockholders have, subject to certain exceptions, preemptive rights to acquire their pro rata portion of any future issuances of additional securities of EP Energy Corporation. The Stockholders Agreement also permits us to repurchase common stock and Class B common stock beneficially owned by management, and allows such beneficially owned shares to be forfeited, under certain conditions. See "ManagementExecutive CompensationTreatment of Equity Awards."
Composition of the Board
The Stockholders Agreement also provides the Sponsors with certain rights with respect to the designation of directors to serve on our Board. Following the offering, our Board will initially be comprised of not less than 11 directors, (i) five of whom will be designated by Apollo, (ii) two of whom will be designated by Riverstone, (iii) one of whom will be designated by Access, (iv) one of whom will be designated by KNOC, (vi) one of whom will be our chief executive officer and (vii) one of whom will be an independent director designated by Apollo. Pursuant to the Stockholders Agreement, Apollo has the right to designate any director as the Chairman of the Board. Apollo has the right to and will designate one additional independent director within one year of the Effective Time and Riverstone has the right to and will designate an independent director within 90 days of the Effective Time. Upon the designation of such independent directors, our Board will comprise of a total of 13 directors, of which three will be "independent" of us, the Legacy Stockholders and their affiliates under the rules of the NYSE.
As ownership in us by a Sponsor decreases, the Stockholders Agreement provides for the reduction in the number of directors such Sponsor may designate. The tables below state the number of director(s) that each Sponsor may designate to the Board pursuant to the Stockholders Agreement based on such Sponsor's ownership of common stock, in each case, expressed as a percentage of its ownership of common stock as of the Effective Time (e.g., 75% means that the Sponsor holds 75% of the common stock that it held as of the Effective Time).
Apollo Ownership
|
Non-Independent
Directors |
Independent
Directors |
|||||
---|---|---|---|---|---|---|---|
At least 75% |
5 | 2 | |||||
Between 50% and 75% |
4 | 2 | |||||
Between 25% and 50% |
2 | 1 | |||||
Between 10% and 25% |
1 | 0 | |||||
Less than 10% |
0 | 0 |
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Riverstone Ownership
|
Non-Independent
Directors |
Independent
Directors |
|||||
---|---|---|---|---|---|---|---|
50% |
2 | 1 | |||||
Between 20% and 50% |
0 | 1 | |||||
Less than 20% |
0 | 0 |
Access Ownership
|
Non-Independent
Directors |
Independent
Directors |
|||||
---|---|---|---|---|---|---|---|
At least 50% |
1 | 0 | |||||
Less than 50% |
0 | 0 |
KNOC Ownership
|
Non-Independent
Directors |
Independent
Directors |
|||||
---|---|---|---|---|---|---|---|
At least 50% |
1 | 0 | |||||
Less than 50% |
0 | 0 |
A director that is designated by any Sponsor pursuant to the Stockholders Agreement may be removed and replaced at any time and for any reason (or for no reason) only at the direction and upon the approval of such Sponsor for so long as such Sponsor has the right to designate the applicable director. The replacement of any director will be designated by the Sponsor that designated any such vacant seat unless such Sponsor has lost its right to designate the applicable director pursuant to the above. If the Sponsor has lost its right to designate the applicable director and the Legacy Class A Stockholders hold at least 50% of our outstanding common stock, the Legacy Class A Stockholders will have the right to designate a replacement director by a vote of the Legacy Class A Stockholders holding a majority-in-interest of our outstanding common stock then held by the Legacy Class A Stockholders (each such director, a "Replacement Director"); provided, that such Replacement Director is "independent" of us, the Legacy Stockholders and their affiliates under the rules of the NYSE.
Composition of Board Committees
The Stockholders Agreement also provides that for so long as each Sponsor has the right to designate a director or an observer to the Board (as described below), we will cause any committee of our Board to include in its membership such number of members that are consistent with, and reflects, the right of each Sponsor to designate directors or observers to the Board, except to the extent that such membership would violate applicable securities laws or stock exchange or stock market rules. In addition, for so long as the Negative Control Condition is satisfied, the delegation of power to a committee of the Board will be consistent with and will not circumvent the consent rights described under "Consent Rights" below. The Board may not designate an executive committee.
Board Observers
The Stockholders Agreement provides certain Sponsors and Legacy Class A Stockholders with certain rights with respect to the designation of observers to the Board. Subject to certain exceptions with respect to the preservation of attorney-client privilege, each observer may attend the meetings of our Board as an observer (and not as a director) and receive the same information given to directors of our Board. No observer has a vote on our Board. The tables below state the number of board observers that each Sponsor (other than Apollo which has no such right) and other significant Legacy Class A Stockholders may designate pursuant to the Stockholders Agreement based on such Legacy Class A Stockholder's ownership of common stock, in each case, expressed as a percentage of its
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ownership of common stock as of the Effective Time (e.g., 50% means that the Legacy Class A Stockholder holds 50% of the common stock that it held as of the Effective Time).
Riverstone Ownership
|
Board Observer | |||
---|---|---|---|---|
Between 20% and 50% |
2 | |||
Less than 20% |
0 |
Access Ownership
|
Board Observer | |||
---|---|---|---|---|
Between 20% and 50% |
1 | |||
Less than 20% |
0 |
KNOC Ownership
|
Board Observer | |||
---|---|---|---|---|
Between 20% and 50% |
1 | |||
Less than 20% |
0 |
EPE Management Investors, LLC
|
Board Observer | |||
---|---|---|---|---|
100% |
2 | |||
Between 50% and 100% |
1 | |||
Less than 50% |
0 |
Other Significant Legacy Class A Stockholders
|
Board Observer | |||
---|---|---|---|---|
At least 50% |
1 | |||
Less than 50% |
0 |
Consent Rights
The Stockholders Agreement also provides that for so long as the Legacy Class A Stockholders hold at least 25% of our outstanding common stock and either Apollo or Riverstone is entitled to designate at least one director pursuant to the Stockholders Agreement (the "Negative Control Condition"), a majority of our Board, which majority includes (i) at least one director designated to our Board by Apollo and (ii) at least one director designated to our Board by one of the other Sponsors or one Replacement Director, must approve in advance certain of our significant business decisions, including each of the following (each such approval, a "Special Board Approval"):
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Stockholders or (iii) pursuant to the exercise of the right of first refusal, in each case, pursuant to the Stockholders Agreement;
Amendment
The Stockholders Agreement may be amended by a Special Board Approval and the affirmative vote of the Legacy Class A Stockholders holding at least two-thirds of the shares of common stock held by the Legacy Class A Stockholders. Further, the Stockholders Agreement may not be amended in a manner that would disproportionally and materially adversely affect the interests of any Legacy Stockholder (in relation to any other Legacy Stockholder after taking into account the rights of such Legacy Stockholder) without the written approval of such Legacy Stockholder.
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Other Provisions
The Stockholders Agreement further provides that each of the Legacy Stockholders will not vote to amend or modify any provision of our Second Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws in a manner that would disproportionally and materially adversely affect the interests of any Legacy Stockholder (in relation to any other Legacy Stockholder after taking into account the rights of such Legacy Stockholder) without the written approval of such Legacy Stockholder. Further, the Stockholders Agreement provides that the Legacy Stockholders will vote and take all other necessary actions to ensure that the Second Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws do not conflict with the Stockholders Agreement and to give effect to the provisions of the Stockholders Agreement. In addition, the Stockholders Agreement provides that we shall bear all of the costs and expenses associated with a Class B Exchange, including the costs and expenses incurred in connection with filing and maintaining a resale registration statement and brokerage commissions payable by holders of Class B common stock in connection with sales by such holders of shares of common stock received by such holders pursuant to a Class B Exchange.
Registration Rights Agreement
In connection with our Corporate Reorganization, we, the Sponsors and the other Legacy Class A Stockholders entered into a Registration Rights Agreement, dated as of August 30, 2013 (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, we have granted the Sponsors and the other Legacy Class A Stockholders the right, under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act our common stock that are held or acquired by them.
Demand Rights. Specifically, the Registration Rights Agreement grants the Sponsors unlimited "demand" registration rights to request that we register all or part of their shares of common stock on Form S-3 under the Securities Act. We are not required to comply with any demand to file a registration statement on Form S-3 unless the aggregate gross cash proceeds reasonably expected to be received from the sale of securities requested to be included in the registration statement is at least $25 million (or such lower amount approved by the Board). The Registration Rights Agreement also grants Apollo five, and each other Sponsor two, "demand" registration rights to request that we register all or part of their shares of common stock on Form S-1 under the Securities Act. We are not required to comply with any demand to file a registration statement on Form S-1 unless the aggregate proceeds reasonably expected to be received from the sale of securities requested to be included in the registration statement is at least $100 million (or such lower amount approved by the Board).
Blackout Periods. We have the ability to delay the filing of a registration statement in connection with a demand request for not more than one period of 30 days in any twelve-month period, subject to certain conditions.
Piggyback Registration Rights. The Registration Rights Agreement also grants to the Legacy Class A Stockholders certain "piggyback" registration rights, which allow such holders the right to include certain securities in a registration statement filed by us, including in connection with the exercise of any "demand" registration rights by any other security holder possessing such rights, subject to certain customary exceptions.
Cut-Backs and Lock-up Periods. If the underwriter, in a "demand" or "piggyback" registration determines, in good faith, that the amount of common stock requested to be included in such offering exceeds the number or dollar amount that can be sold without adversely affecting such offering, then the underwriters will allocate the common stock to be included in such offering. The Legacy Class A Stockholders have agreed to enter into, if requested by underwriters, customary lock-up agreements in
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connection with an underwritten offering made pursuant to the Registration Rights Agreement. In connection with any underwritten offering, such period will start no earlier than 14 days prior to the expected "pricing" of such offering and will last no longer than 90 days after the date of the prospectus relating to such offering (extendable by not more than 34 days).
Underwriters. In connection with any underwritten offering pursuant to the Registration Rights Agreement, the underwriter will be selected: in the case of a "demand" registration, by the Legacy Class A Stockholders issuing the demand notice (subject to our approval, which will not be unreasonably withheld); and in all other cases (including a "piggyback" registration), by us.
Indemnification; Expenses. We have agreed to indemnify prospective sellers in an offering pursuant to the Registration Rights Agreement and certain related parties against any losses or damages arising out of or based upon any untrue statement or omission of material fact in any registration statement or prospectus pursuant to which such prospective seller sells shares of common stock, unless such liability arose out of or is based on such party's misstatement or omission. The Registration Rights Agreement also provides that we may require each prospective seller, jointly and not severally, as a condition to including any common stock in a registration statement filed in accordance with the Registration Rights Agreement, to agree to indemnify us against all losses caused by its misstatements or omissions up to the amount of net proceeds received by such prospective seller upon the sale of the common stock giving rise to such losses. We will pay all registration expenses incidental to our obligations under the Registration Rights Agreement, including legal fees and expenses, and the prospective seller will pay its portion of all underwriting discounts and commissions, if any, relating to the sale of its shares of common stock under the Registration Rights Agreement.
Except as described above, we shall not be required to pay (i) any fees and disbursements of any counsel retained by any Legacy Class A Stockholders or by any underwriter and (ii) any expenses incurred in connection with any offering of common stock at such time such common stock may be sold without limitation as to volume pursuant to Rule 144; provided, that we will pay such expenses in connection with a "demand" registration by any Sponsor on Form S-1, the first two "demand" registrations by each Legacy Class A Stockholder and any "piggyback" registration.
Amendment. The Registration Rights Agreement may be amended by a Special Board Approval and the affirmative vote of the Legacy Class A Stockholders holding at least two-thirds of the shares held by the Legacy Class A Stockholders. Further, the Registration Rights Agreement may not be amended in a manner that would disproportionally and materially adversely affect the interests of any Legacy Stockholder (in relation to any other Legacy Stockholder after taking into account the rights of such Legacy Stockholder) without the written approval of such Legacy Stockholder.
Transaction Fee Agreement
In connection with the closing of the Acquisition, Apollo Global Securities, LLC, Riverstone V Everest Holdings. L.P. (together, the "Initial Service Providers"), Access and KNOC (collectively with the Initial Service Providers, the "Service Providers") entered into a transaction fee agreement with EP Energy Global LLC, a wholly owned subsidiary of EPE Acquisition ("EP Energy Global") and EPE Acquisition (the "Transaction Fee Agreement") relating to the provision of certain structuring, financial, investment banking and other similar advisory services by the Service Providers to EPE Acquisition, its direct and indirect divisions and subsidiaries, parent entities or controlled affiliates (collectively, the "Company Group") in connection with the closing of the Acquisition and future transactions. EP Energy Global paid the Initial Service Providers a one-time transaction fee of $71.5 million in the aggregate in exchange for services rendered in connection with structuring the closing of the Acquisition, arranging the financing and performing other services in connection with the closing of the Acquisition. Subject to the terms and conditions of the Transaction Fee Agreement, in connection with this offering, we will pay to the Service Providers an additional transaction fee equal to the lesser
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of (i) 1% of the aggregate enterprise value paid or provided by the Company Group and (ii) $100,000,000. The Transaction Fee Agreement requires such payment in connection with any transaction (including any merger, consolidation, recapitalization or sale of assets or equity interests) effected by a member of the Company Group after the consummation of the closing of the Acquisition and (x) which results in a change of control of the equity and voting securities, or sale of all or substantially all of the assets of, the Company Group, or (y) which is in connection with one or more public offerings of any class of equity securities of EPE Acquisition, EP Energy Global or any other member of the Company Group. The Transaction Fee Agreement will terminate automatically in accordance with its terms upon termination of the Management Fee Agreement, which, as described below, will terminate upon the closing of this offering.
Management Fee Agreement
In connection with the closing of the Acquisition, Apollo Management VII, L.P., Apollo Commodities Management, L.P., with respect to Series I, Riverstone V Everest Holdings. L.P., Access and KNOC (collectively, the "Management Service Providers") entered into a management fee agreement with EPE Acquisition and EP Energy Global (the "Management Fee Agreement") relating to the provision of certain management consulting and advisory services to the members of the Company Group following the consummation of the closing of the Acquisition. In exchange for the provision of such services, we will pay the Management Service Providers a non-refundable annual management fee of $25 million in the aggregate. For 2012, we paid the Management Service Providers a pro-rated management fee of approximately $15.2 million. For 2013, we have paid the Management Service Providers the annual fee of $25 million. The Management Fee Agreement will terminate automatically in accordance with its terms upon the closing of this offering.
Participation of Apollo Global Securities, LLC in Offerings
Apollo Global Securities, LLC ("AGS") is an affiliate of Apollo, one of our equity sponsors, and acted as an initial purchaser in four of our private note offerings in 2012. AGS received approximately $937,500, $2,500,000, $131,250 and $131,439 of the gross spread in the sales of our 6.875% senior secured notes due 2019, our 9.375% senior notes due 2020, our 7.750% senior notes due 2022 and our 8.125%/8.875% senior PIK toggle notes due 2017, respectively. In addition, AGS participated as an arranger and underwriter in connection with our October 2012 issuance of $400 million of incremental term loans and received $100,000 for services rendered in connection with this transaction.
Related Party Transactions Policy
Under the Stockholders Agreement, the consummation of any transaction involving us, on the one hand, and any Legacy Stockholder, director or affiliate of any Legacy Stockholder or director, on the other hand (each such transaction, a "Related Party Transaction"), will in each case require the approval of a majority of the directors, other than those directors that are (or whose affiliates are) party to such Related Party Transaction or have been designated by the Legacy Class A Stockholders who are party, or whose affiliates are party to, such Related Party Transaction. This approval is not required for (among other things): (i) any transaction that is consummated in the ordinary course of business, on arm's length terms and de minimis in nature (it being understood that any transaction or series of related transactions that involves goods, services, property or other consideration valued in excess of $10,000 will not be deemed to be de minimis ); and (ii) an acquisition of additional securities by a Legacy Class A Stockholder pursuant to an exercise of its preemptive rights under the Stockholders Agreement.
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On August 30, 2013, we reorganized to form a new corporate holding structure, which we refer to herein as the Corporate Reorganization. Prior to the Corporate Reorganization, we historically held our business through EPE Acquisition, which had two classes of membership interests: Class A membership units (which were beneficially owned by the Legacy Class A Stockholders) and Class B membership units (which were beneficially owned by the Legacy Class B Stockholder). Class A membership units represented full value or capital interests, and Class B membership units represented profits interests. The Corporate Reorganization was effected in order to allow us to hold our business in corporate form.
Incorporation and Equity Contribution
In connection with the Corporate Reorganization, (i) EPE Acquisition caused the initial incorporation of EP Energy Corporation, (ii) certain Legacy Class A Stockholders contributed their Class A membership interests in EPE Acquisition to EP Energy Corporation in exchange for the issuance by EP Energy Corporation to such Legacy Class A Stockholders of shares of common stock, which have substantially the same interests, rights and obligations as such holder's respective Class A membership interests in EPE Acquisition, (iii) certain other Legacy Class A Stockholders, which previously held their Class A membership interests in EPE Acquisition indirectly through other entities (the "Blocker Vehicles"), contributed their ownership interests in their Blocker Vehicles to EP Energy Corporation (such that EP Energy Corporation now indirectly owns such membership interests in EPE Acquisition through the Blocker Vehicles) in exchange for the issuance by EP Energy Corporation to such indirect holders of shares of common stock, which have substantially the same interests, rights and obligations as such indirect holder's respective Class A membership interests in EPE Acquisition, and (iv) the Legacy Class B Stockholder contributed its Class B membership interests in EPE Acquisition to EP Energy Corporation in exchange for the issuance by EP Energy Corporation to such holders of shares of Class B common stock, which have substantially the same interests, rights and obligations as its Class B membership interests in EPE Acquisition, in cancellation of its Class B membership interests in EPE Acquisition. As a result of the Corporate Reorganization, EP Energy Corporation owns, directly, or indirectly through the Blocker Vehicles, 100% of the equity interests in EPE Acquisition. The members of our management team and certain employees that indirectly beneficially own shares of our Class B common stock will have the right, under certain circumstances, to exchange their shares of Class B common stock for shares of our common stock. See "Description of Capital StockClass B Exchange."
As described above, certain indirect beneficial owners of EPE Acquisition became direct stockholders of EP Energy Corporation as a result of contributing their ownership interests in the Blocker Vehicles to EP Energy Corporation. Such stockholders agreed to indemnify us from and against any liabilities arising from or relating to the participation of such Blocker Vehicles in the contribution and any taxes of such Blocker Vehicles for periods (or portions thereof) ending on or before the date of the Corporate Reorganization.
Related Agreements and Issuance
In connection with the Corporate Reorganization, we entered into the Stockholders Agreement, Registration Rights Agreement and certain other agreements with the Legacy Stockholders. For a more detailed description of the Stockholders Agreement and Registration Rights Agreement, see "Certain Relationships and Related Party TransactionsStockholders Agreement" and "Certain Relationships and Related Party TransactionsRegistration Rights Agreement," respectively.
Following the Corporate Reorganization, we will issue an additional 70,000 shares of Class B common stock to EPE Employee Holdings II, LLC, a vehicle through which we will grant to our current and future employees awards representing the right to receive the proceeds paid in respect of such shares of Class B common stock pursuant to the Second Amended and Restated Certificate of
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Incorporation, which proceeds shall in all events be distributed to such grantees within six months of EPE Employee Holdings II, LLC receipt thereof. The grant of any such incentive awards to our non-officer employees shall be at the discretion of our Chief Executive Officer. The grant of any such incentive awards to our officers shall be at the discretion of our Compensation Committee; provided, that our Chief Executive Officer may recommend officer grants to our Compensation Committee for its consideration.
Structure
The diagram below sets forth our organizational structure after giving effect to the Corporate Reorganization and this offering. This diagram is provided for illustrative purposes only and does not represent all legal entities affiliated with us.
Post- Corporate Reorganization Structure:
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The discussion below describes the material terms of our capital stock, the Second Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws as they will be in effect upon the completion of this offering and the discussion below and in "Certain Relationships and Related Party Transactions" describes the material terms of the Stockholders Agreement and the Registration Rights Agreement as they will be in effect from the completion of this offering. The following summaries are qualified in their entirety by reference to the Second Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws, the Stockholders Agreement and the Registration Rights Agreement, copies of which have been filed as exhibits to the registration statement of which the prospectus forms a part.
Upon completion of the offering, our authorized capital stock will consist of shares of common stock, shares of Class B common stock and shares of preferred stock, the rights and preferences of which may be designated by our Board. Upon completion of the offering, there will be shares of common stock issued and outstanding, shares of Class B common stock issued and outstanding and no shares of preferred stock issued and outstanding. As of , 2013, there were holders of record of our common stock and two holders of record of our Class B common stock.
Common Stock
Voting Rights. The holders of our common stock are entitled to one vote per share of common stock on each matter properly submitted to the stockholders on which the holders of shares of common stock are entitled to vote. Subject to the director nomination rights described in "Certain Relationships and Related Party TransactionsStockholders Agreement" and the rights of holders of any series of preferred stock to elect directors under specified circumstances, at any annual or special meeting of the stockholders, holders of common stock will have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders.
Dividend Rights. All shares of our common stock will be entitled to share equally in any dividends our Board may declare from legally available sources, subject to the terms of any outstanding preferred stock and Class B common stock described below. See "Class B common stock" and "Preferred Stock." Provisions of our debt agreements and other contracts, including requirements under the Second Amended and Restated Certificate of Incorporation and the Stockholders Agreement described elsewhere in this prospectus, may impose restrictions on our ability to declare dividends with respect to our common stock.
Liquidation Rights. Upon a liquidation or dissolution of EP Energy Corporation, whether voluntary or involuntary and subject to the rights of the holders of Class B common stock and any preferred stock, all shares of our common stock will be entitled to share equally in the assets available for distribution to holders of common stock after payment of all of our prior obligations, including any then-outstanding preferred stock, in the manner described in "Distributions Upon a Liquidation."
Registration Rights. Pursuant to the Registration Rights Agreement, we have granted the Legacy Class A Stockholders demand registration rights and/or incidental registration rights, in each case, with respect to certain shares of common stock owned by them. See "Certain Relationships and Related Party TransactionsRegistration Rights Agreement."
Other Matters. Except as provided by the Stockholders Agreement with respect to the Legacy Class A Stockholders, the holders of our common stock will have no preemptive rights, and our common stock will not be subject to further calls or assessments by us. There are no redemption or sinking fund provisions applicable to our common stock.
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Class B Common Stock
Voting Rights. Except as required by law, the holders of our Class B common stock are not entitled to vote.
Dividend Rights. After the consummation of a capital transaction, or following any other distribution or series of distributions of capital proceeds or available cash, where the net return on Invested Capital (as defined below) after taking into account costs and expenses incurred in connection with generating such return and after giving effect to such capital transactions or other distribution or series of distributions of capital proceeds or available cash, in EP Energy Corporation and EPE Acquisition to the Legacy Class A Stockholders ("MOIC") is at least 1.0, all shares of our Class B common stock (whether or not vested) will be entitled to share in dividends our Board may declare from legally available sources, subject to the terms of any outstanding preferred stock and common stock, as if such dividends were proceeds from a liquidation or dissolution of the Company or certain change of control transactions with respect to us and our subsidiaries (taken as a whole) and distributed in the manner described in "Distributions Upon a Liquidation." Provisions of our debt agreements and other contracts, including requirements under the Second Amended and Restated Certificate of Incorporation and the Stockholders Agreement described elsewhere in this prospectus, may impose restrictions on our ability to declare dividends with respect to our Class B common stock. See "Distributions Upon a Liquidation," "Preferred Stock" and "Common Stock."
Liquidation Rights. Upon a liquidation or dissolution of EP Energy Corporation, whether voluntary or involuntary and subject to the rights of the holders of common stock and preferred stock, all shares of our Class B common stock will be entitled to share equally in the assets available for distribution to holders of Class B common stock after payment of all of our prior obligations, including any then outstanding Preferred Stock, in the manner described in "Distributions Upon a Liquidation."
Registration Rights. The owners of Class B common stock do not have any registration rights under the terms of the Registration Rights Agreement. Pursuant to the Stockholders Agreement, we intend to file shelf registration statement(s) to register shares of common stock issued in connection with one or more Class B Exchanges. See "Class B ExchangeShelf Registration Statements."
Other Matters. The holders of our Class B common stock will have no preemptive rights, and our Class B common stock will not be subject to further calls or assessments by us other than upon certain termination of employment as described above under "ManagementExecutive CompensationTreatment of Equity Awards." There are no redemption or sinking fund provisions applicable to our Class B common stock. During the first five business days of June of each year, commencing in 2017, but prior to any capital transaction where the MOIC is at least 1.0, any employee who owns Class B common stock (other than our chief executive officer or chief financial officer) and who exhibits sufficient financial need (as determined by the chief executive officer in good faith) may request that a portion of his Class B common stock be repurchased by us at the then fair market value, provided that such repurchases shall not (i) during any fiscal year, exceed $15 million in the aggregate or represent more than 12.5% of such employee's Class B common stock, (ii) cause more than 25% of such employee's Class B common stock to have been so repurchased, or (iii) be consummated if the chief executive officer determines in good faith that such repurchases would not be in our best interests.
Preferred Stock
For so long as the Negative Control Condition is satisfied, our Board may, by a Special Board Approval, and in the event the Negative Control Condition is no longer satisfied, our Board may by a majority vote, issue, from time to time, up to an aggregate of shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates,
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conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences and the number of shares constituting any series or designations of such series. See "Certain Relationships and Related Party TransactionsStockholders Agreement" and "Certain Anti-Takeover, Limited Liability and Indemnification Provisions." Our Board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of us and might affect the market price of our common stock. See "Certain Anti-Takeover, Limited Liability and Indemnification Provisions."
Distributions Upon a Liquidation
Upon a liquidation or dissolution of our company, whether voluntary or involuntary, or upon the consummation of certain change of control transactions with respect to us and our subsidiaries (taken as a whole), the proceeds from such liquidation, dissolution or change of control transaction will be distributed to the holders of common stock and the holders of Class B common stock as follows:
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amount, then the holders of Class B common stock will instead be entitled to receive 50% of such remaining proceeds.
MOIC | Portion of Profits | |
---|---|---|
1.00 £ MOIC £ 1.50 | 3.5% of Profits | |
1.50 < MOIC £ 2.25 | 6.5% of Profits * + 3.5% of Profits | |
MOIC > 2.25 | 6.0% of Profits ** + 6.5% of Profits * + 3.5% of Profits |
Distributions of such proceeds to holders of Class B common stock will not exceed 8.5% of the aggregate Profits distributed to the Class A Stockholders and the Class B Stockholders and no distributions of such proceeds will be made to the holders of Class B common stock unless MOIC is at least 1.0.
Class B Exchange
Upon any sale of shares of common stock by the Specified Stockholders where the net return on Invested Capital to the Specified Stockholders after taking into account costs and expenses incurred in connection with generating such return (but only to the extent not reimbursed by us pursuant to the Stockholders Agreement) ("Specified MOIC") is at least 1.0 (a "Specified Sale"), we will exchange with each holder of Class B common stock a number of shares of Class B common stock for a number of newly issued shares of common stock in such amount and in the manner described below (a "Class B Exchange").
Number of Shares of Class B Common Stock Exchanged
In connection with each Class B Exchange, we will exchange with the holders of Class B common stock the consideration described below for a specified number of shares of Class B common stock such that following the exchange, the number of shares of Class B common stock will equal the Specified Percentage (as defined below) of the number of shares of Class B common stock owned prior to the first sale of common stock by the Specified Stockholders (the "First Sale"). The "Specified Percentage" is a percentage equal to the number of shares of common stock held by the Specified Stockholders after the First Sale divided by the number of shares of common stock held by the Specified Stockholders prior to the First Sale. For example, if the Specified Stockholders sold 20 out of 100 shares of common stock in a Specified Sale and had 80 shares of common stock remaining, the Specified Percentage would equal 80% and the total number of shares of Class B common stock held by the holders of Class B common stock following the Class B Exchange must be equal to 80% of the total number of shares of Class B common stock held by the holders of Class B common stock prior to the First Sale.
Class B Consideration
The aggregate value of the shares of common stock issuable in connection with a Class B Exchange (the "Class B Consideration") will equal:
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Number of shares of common stock issuable in a Class B Exchange
The total number of shares of common stock to be issued to the holders of Class B common stock in connection with a Class B Exchange shall be equal to the Class B Consideration, divided by the average per share closing price of the common stock for the five consecutive trading days immediately prior to the Class B Exchange. No fractional shares of common stock will be issued in connection with a Class B Exchange and each holder of Class B common stock will receive a cash payment in lieu of such fractional share of common stock based on the foregoing per share price. Upon the consummation of a Class B Exchange, we shall cancel the shares of Class B common stock received in such Class B Exchange.
Limitations on Class B Exchange
In no event shall the Class B Consideration exceed 8.5% of the Specified Profits and no Class B Exchange shall be consummated until the consummation of a Specified Sale. The amount of the Class B Consideration will be offset by amounts previously received by such stockholders in respect of their shares of Class B common stock.
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Shelf Registration Statements
Pursuant to the Stockholders Agreement, the shares of common stock issued in a Class B Exchange must be freely transferable under federal securities laws by the holders. In connection with such Class B Exchanges, we intend to file one or more shelf registration statements under the Securities Act covering newly issued shares of common stock pursuant to such Class B Exchanges. Accordingly, shares of our common stock registered under such shelf registration statement(s) may become available for sale in the open market upon the completion of such exchanges, subject to Rule 144 limitations applicable to our affiliates.
Certain Anti-Takeover, Limited Liability and Indemnification Provisions
Certain provisions in our Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and the Stockholders Agreement summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.
"Blank Check" Preferred Stock. Our Second Amended and Restated Certificate of Incorporation provides that, for so long as the Negative Control Condition is satisfied, our Board may by a Special Board Approval, and in the event the Negative Control Condition is no longer satisfied, our Board may by a majority vote, issue shares of Preferred Stock. See "Related Party TransactionsStockholders Agreement" and "Certain Relationships and Related Party TransactionsStockholders AgreementConsent Rights." Preferred Stock could be issued by our Board to increase the number of outstanding shares making a takeover more difficult and expensive. See "Preferred Stock."
No Cumulative Voting. Our Second Amended and Restated Certificate of Incorporation provides that stockholders do not have the right to cumulative votes in the election of directors.
Removal of Directors; Vacancies. Each of the Sponsors, for so long as it beneficially owns certain percentages of their current ownership of common stock as of the Effective Time, will have the right to designate a certain number of directors, and each Legacy Class A Stockholder has agreed to vote its shares of common stock in favor of such designee. Each of the Sponsors shall have the sole right to remove any director designated by it, with or without cause, and to fill any vacancy caused by the removal of any such director. If any Sponsor has lost its right to designate the applicable director nominee and the Legacy Class A Stockholders hold more than 50% of our outstanding common stock, the Legacy Class A Stockholders will have the right to designate a Replacement Director by a vote of the Legacy Class A Stockholders holding a majority-in-interest of our outstanding common stock then held by the Legacy Class A Stockholders. For so long as the Sponsors or a majority-in-interest of the Legacy Class A Stockholders, as applicable, have the right to designate directors, the nominating committee of the Board shall only nominate a director after consulting with the Sponsor or majority-in-interest of the Legacy Class A Stockholders, as applicable, that is entitled to designate such director. Subject to the exceptions described above, directors may be removed only for cause, and only by the affirmative vote of the holders of Class A Stock that together hold at least two-thirds of the voting power entitled to vote in any annual election of directors or class of directors; provided , however , that for so long as the Legacy Class A Stockholders beneficially own more than 50% of the outstanding common stock, directors may be removed only for cause, and only by the affirmative vote of the holders of Class A Stock that together hold at least a majority of the voting power entitled to vote in any annual election of directors or class of directors. See "Certain Relationships and Related Party TransactionsStockholders Agreement."
Stockholder Action by Written Consent. Our Second Amended and Restated Certificate of Incorporation provides that for so long as the Legacy Class A Stockholders beneficially own more than
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50% of the outstanding shares of our common stock, any action required to be or that may be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if and only if a consent in writing, setting forth the action so taken, shall be signed by the stockholders having not less than the minimum number of votes necessary to take such action.
Classified Board. Our Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Stockholders Agreement provide that following the Effective Time, our Board will have three classes of directors:
For so long as the Negative Control Condition is satisfied, the number of directors on our Board may be fixed only by Special Board Approval. If the Negative Control Condition is no longer satisfied, the number of directors on our Board may be fixed by a majority of the Board.
Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our Amended and Restated Bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice generally must be delivered to and received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, that, in the event that the date of such meeting is advanced more than 30 days prior to, or delayed by more than 60 days after, the anniversary of the preceding year's annual meeting of our stockholders, a stockholder's notice to be timely must be so delivered not earlier than the close of business on the 120th day prior to such meeting and not later than the close of business on the later of the 90th day prior to such meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made. Our Amended and Restated Bylaws also specify certain requirements as to the form and content of a stockholder's notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.
Special Meetings of Stockholders. Subject to the rights of the Preferred Stock, special meetings of our stockholders may be called only by a majority of the Board pursuant to a resolution approved by the Board and business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice of such special meeting.
Special Board Approval. For so long as the Negative Control Condition is satisfied, certain of our significant business decisions require Special Board Approval, including the issuance of Preferred Stock. See "Certain Relationships and Related Party TransactionsStockholders Agreement" and "Certain Relationships and Related Party TransactionsConsent Rights."
Limitation of Officer and Director Liability and Indemnification Arrangements. Our Second Amended and Restated Certificate of Incorporation limits the liability of our directors to the maximum extent permitted by Delaware law. However, if Delaware law is amended to authorize corporate action
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further limiting or eliminating the personal liability of directors, then the liability of our directors will be limited or eliminated to the fullest extent permitted by Delaware law, as so amended.
Our Second Amended and Restated Certificate of Incorporation provides that we will, from time to time, to the fullest extent permitted by law, indemnify our directors, officers and Board observers against all liabilities and expenses in any suit or proceeding, arising out of their status as an officer or director or their activities in these capacities. We also will indemnify any person who, at our request, is or was serving as a director, officer, trustee, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by us.
The right to be indemnified will include the right of an officer or a director to be paid expenses, including attorneys' fees, in advance of the final disposition of any proceeding, provided that, if required by law, we receive an undertaking to repay such amount if it will be determined that he or she is not entitled to be indemnified.
Our Board may take certain action it deems necessary to carry out these indemnification provisions, including purchasing insurance policies. Neither the amendment nor the repeal of these indemnification provisions, nor the adoption of any provision of our Second Amended and Restated Certificate of Incorporation inconsistent with these indemnification provisions, will eliminate or reduce any rights to indemnification relating to such person's status or any activities prior to such amendment, repeal or adoption.
We may enter into separate indemnification agreements with each of our directors and executive officers, which may be broader than the specific indemnification provisions contained in Delaware law. These indemnification agreements may require us, among other things, to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements may also require us to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified and to obtain directors' and officers' insurance, if available on reasonable terms.
Currently, to our knowledge, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification by us is sought, nor are we aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons under the foregoing provisions or otherwise, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
We believe these provisions will assist in attracting and retaining qualified individuals to serve as directors and officers.
Delaware Anti-Takeover Law
We have elected to be exempt from the restrictions imposed under Section 203 of the DGCL. Section 203 of the DGCL provides that, subject to exception specified therein, an "interested stockholder" of a Delaware corporation shall not engage in any "business combination," including general mergers or consolidations or acquisitions of additional shares of the corporation, with the
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corporation for a three-year period following the time that such stockholder becomes an interested stockholder unless:
Under Section 203, the restrictions described above also do not apply to specified business combinations proposed by an interested stockholder following the announcement or notification of one of specified transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors, if such transaction is approved or not opposed by a majority of the directors who were directors prior to any person becoming an interested stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors.
Except as otherwise specified in Section 203, an "interested stockholder" is defined to include:
Under some circumstances, Section 203 makes it more difficult for a person who is an interested stockholder to effect various business combinations with us for a three-year period.
Amendment of Our Second Amended and Restated Certificate of Incorporation
For so long as the Negative Control Condition is satisfied, the Second Amended and Restated Certificate of Incorporation may be amended with a Special Board Approval and the affirmative vote of holders of at least 80% of the outstanding shares of common stock entitled to vote thereon. If the Negative Control Condition is no longer satisfied, the Second Amended and Restated Certificate of Incorporation may be amended by the affirmative vote of at least 90% of the outstanding shares of common stock entitled to vote thereon and by the vote of the holders of a majority of our Board.
The Stockholders Agreement further provides that each of the Legacy Stockholders will not vote to amend or modify any provision of our Second Amended and Restated Certificate of Incorporation in a manner that would disproportionally and materially adversely affect the interests of any Legacy Stockholder (in relation to any other Legacy Stockholder after taking into account the rights of such Legacy Stockholder) without the written approval of such Legacy Stockholder. Further, the Stockholders Agreement provides that the Legacy Stockholders will vote and take all other necessary actions to ensure that the Second Amended and Restated Certificate of Incorporation does not conflict with the Stockholders Agreement and to give effect to the provisions of the Stockholders Agreement.
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Amendment of Our Amended and Restated Bylaws
For so long as the Negative Control Condition is satisfied, the Amended and Restated Bylaws may be amended with a Special Board Approval and the affirmative vote of holders of at least 80% of the outstanding shares of common stock entitled to vote thereon. If the Negative Control Condition is no longer satisfied, the Amended and Restated Certificate of Bylaws may be amended by the affirmative vote of at least 90% of the outstanding shares of common stock entitled to vote thereon and by the vote of the holders of a majority of our Board.
The Stockholders Agreement further provides that each of the Legacy Stockholders will not vote to amend or modify any provision of our Amended and Restated Bylaws in a manner that would disproportionally and materially adversely affect the interests of any Legacy Stockholder (in relation to any other Legacy Stockholder after taking into account the rights of such Legacy Stockholder) without the written approval of such Legacy Stockholder. Further, the Stockholders Agreement provides that the Legacy Stockholders will vote and take all other necessary actions to ensure that the Amended and Restated Bylaws do not conflict with the Stockholders Agreement and to give effect to the provisions of the Stockholders Agreement.
Corporate Opportunity
Under our Second Amended and Restated Certificate of Incorporation, to the extent permitted by law:
Transfer Agent and Registrar
Computershare Trust Company, N.A. is the transfer agent and registrar for our common stock.
Listing
We intend to apply to list our common stock on the NYSE under the symbol "EPE."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following sets forth a summary of the terms of certain of our indebtedness. This summary is not a complete description of all the terms of the agreements governing the indebtedness and is qualified in its entirety by reference to the complete text of the agreements, copies of which have been filed or incorporated by reference as exhibits to the registration statement of which this prospectus forms a part.
The RBL Facility
General. In connection with the Acquisition, EP Energy LLC, as borrower, entered into a $2,000 million reserve-based borrowing base revolving credit facility (the "RBL Facility") with JPMorgan Chase Bank, N.A. as the administrative agent, which will mature on May 24, 2017. The RBL Facility provides for revolving loans, swing line loans and letters of credit. After completing a borrowing base redetermination in March 2013, the aggregate amount of the RBL Facility was increased to $2,500 million.
In August 2013, EP Energy LLC completed its borrowing base redetermination, maintaining a borrowing base at $2.5 billion.
As of August 31, 2013, we had $175 million of borrowings outstanding under the RBL Facility, which bear interest at LIBOR plus 1.5%. After taking into account outstanding letters of credit, there was $2,318 million of additional borrowing capacity under the RBL Facility. Upon completion of this offering, we will have $2.5 billion available for borrowing under the RBL Facility.
Interest Rates and Fees. Under the RBL Facility, we have a choice of borrowing at an interest rate equal to either an alternate base rate or the then-current LIBOR, in each case, plus an applicable margin. The applicable margin varies depending on the percentage of our borrowing base utilized at a given time and ranges from 150 to 250 basis points per annum for LIBOR based borrowings and ranges from 50 to 150 basis points per annum for base rate borrowings.
In addition to paying interest on outstanding principal under the RBL Facility, we are required to pay a commitment fee to the lenders in respect of the unutilized commitments. The commitment fee rate ranges from 37.5 to 50 basis points per annum based on our borrowing base usage at a given time.
Prepayments and Adjustments of the Borrowing Base. The borrowing base will be redetermined semi-annually on April 30 th and October 31 st of each year. In addition, the borrower may, no more than twice a year, and the lenders may, no more than once a year, elect to cause an interim redetermination of the borrowing base between the semi-annually scheduled redeterminations. If following a scheduled or interim redetermination of the borrowing base the aggregate amount of outstanding revolving loans, swingline loans and letters of credit exceeds the borrowing base, we will be required to elect within 10 business days to (i) within 30 days after such election, provide additional collateral having a borrowing base value sufficient to eliminate the deficiency; (ii) within 30 days after such election, prepay the loans (or cash collateralize the letters of credit) in an amount sufficient to eliminate such deficiency; (iii) prepay such deficiency in six equal monthly installments beginning on the 30th day after our receipt of notice of the deficiency from the administrative agent; or (iv) undertake a combination of clauses (i), (ii) and (iii); provided that any such deficiency must be cured prior to the maturity date of the RBL Facility.
If the borrowing base is reduced as a result of the incurrence of certain debt, early monetization or termination of hedge positions (above a certain agreed-upon threshold) or disposition of borrowing base assets (above a certain agreed-upon threshold) and the aggregate amount of outstanding revolving loans, swingline loans and letters of credit exceeds such reduced borrowing base, we are required to prepay the loans (or cash collateralize letters of credit) in an amount sufficient to eliminate such
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deficiency within two business days following receipt of the RBL Facility administrative agent's written notice of such deficiency.
Guarantees and Security. All obligations under the RBL Facility are fully and unconditionally guaranteed on a joint and several basis by, subject to certain exceptions, all of EP Energy LLC's existing and future direct and indirect wholly owned material domestic restricted subsidiaries, referred to collectively as guarantors (together with EP Energy LLC, referred to as "credit parties"). All obligations under the RBL Facility, and the guarantees of those obligations, are secured:
The obligations under the RBL Facility are also guaranteed by EPE Holdings, LLC ("EPE Holdings"), the direct parent of EP Energy LLC. EPE Holdings' guarantee is limited recourse to the equity interests of EP Energy LLC owned by EPE Holdings.
Restrictive Covenants and Other Matters. The RBL Facility contains restrictive covenants that may limit EP Energy LLC's ability and the ability of its restricted subsidiaries to, among other things, (i) incur additional indebtedness; (ii) create liens; (iii) engage in mergers or consolidations; (iv) change our lines of business; (v) sell or transfer assets; (vi) pay dividends and distributions or repurchase the borrower's capital stock; (vii) amend material agreements governing our subordinated indebtedness; (viii) prepay, repay or repurchase certain junior indebtedness; (ix) engage in transactions with affiliates; (x) make investments, acquisitions, loans and advances; and (xi) enter into certain commodity and other regulated non-commodity hedging agreements. Each of these covenants is subject to customary or agreed-upon exceptions, baskets and thresholds.
In addition, the RBL Facility requires EP Energy LLC to maintain a ratio of its consolidated total debt, net of unrestricted cash and cash equivalents, to consolidated trailing 12-month EBITDAX (as defined in the credit agreement governing the RBL Facility) of not more than 5.0 to 1.0, with a step-down to 4.75 to 1.0 one year after entering into the RBL Facility and a further step down to 4.5 to 1.0 two years after entering into the RBL Facility and thereafter.
The credit agreement governing the RBL Facility also contains certain other customary affirmative covenants and events of default, subject to customary or agreed-upon exceptions, baskets and thresholds (including equity cure provisions).
Senior Secured Term Loans
Overview. In connection with the Acquisition, EP Energy LLC, as borrower, entered into a $750 million aggregate principal amount (the "original term loans") senior secured term loan facility with Citibank, N.A. as the administrative and collateral agent, which will mature on May 24, 2018. In August 2012 and May 2013, EP Energy LLC completed repricing amendments of the term loan facility that reduced the LIBOR floor and applicable margin applicable to the original term loans. In October 2012, EP Energy LLC obtained $400 million aggregate principal amount of incremental term loans (the
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"incremental term loans") under the term loan facility pursuant an incremental facility amendment, which will mature on April 30, 2019. We refer to the original term loans and the incremental term loans as our "senior secured term loans."
On August 16, 2013, we prepaid $250 million aggregate principal amount of the original term loans and $250 million aggregate principal amount of the incremental term loans. As of August 16, 2013, we had $650 million outstanding aggregate principal amount of senior secured term loans.
Interest Rates. The original term loans bear interest, at our option, at a rate equal to the alternate base rate plus an applicable margin of 3.75% or the then-current LIBOR, subject to a 0.75% floor, plus an applicable margin of 2.75%. The incremental term loans bear interest, at our option, at a rate equal to the alternate base rate plus an applicable margin of 4.50% or the then-current LIBOR, subject to a 1.00% floor, plus an applicable margin of 3.50%.
Prepayments. The original term loans are prepayable at any time without premium or penalty; provided that there will be a 1.00% prepayment premium in connection with any repricing of the original term loans that reduces the interest rate prior to November 24, 2013. The incremental terms loans are prepayable at any time without premium or penalty; provided that there will be a 1.00% prepayment premium in connection with any repricing of the incremental term loans that reduces the interest rate prior to October 31, 2013.
We are also required to offer to prepay our senior secured term loans, subject to customary reinvestment rights and other customary exceptions, with (a) the net cash proceeds from any non-ordinary course disposition of any Secured Notes/Term Loan Priority Collateral and (ii) the net cash proceeds from any non-ordinary-course asset sale of RBL Facility Priority Collateral in excess of the amount required to be paid to the lenders under the RBL Facility or the holders of certain other indebtedness. We are also required to offer to prepay our senior secured term loans following the occurrence of a change of control at 101% of the outstanding principal amount thereof, plus accrued and unpaid interest to the date of repayment, on terms consistent with those applicable to the senior secured notes.
Guarantees and Security. All obligations under our senior secured term loans are fully and unconditionally guaranteed on a joint and several basis by each of the guarantors under the RBL Facility, and all such obligations and guarantees are secured (i) on a first-priority basis by a perfected pledge of the capital stock of all first-tier foreign subsidiaries that are directly owned by EP Energy LLC or any guarantor (which pledge will be limited to 65% of the voting capital stock and 100% of the non-voting capital stock of such subsidiary) (referred to as the "Secured Notes/Term Loan Priority Collateral") and (ii) on a second-priority basis by a security interest in the RBL Facility Priority Collateral. The senior secured term loans share equally with our senior secured notes in the liens on the Secured Notes/Term Loan Priority Collateral and the RBL Facility Priority Collateral. The agent for the senior secured term loan and the trustee for the senior secured notes have entered into an intercreditor agreement governing the relationship between the lenders of the senior secured term loan and holders of the senior secured notes as well as holders of any other indebtedness that is secured on a pari passu basis with the senior secured notes.
Restrictive Covenants and Other Matters. The loan agreement governing our senior secured term loans contains restrictive covenants that may restrict EP Energy LLC's ability and the ability of its restricted subsidiaries to, among other things, (i) incur additional indebtedness, (ii) make certain investments, loan, and advances, (iii) consolidate, merge, sell or otherwise dispose of all or any part of its assets or to purchase, lease or otherwise acquire all or any substantial part of assets of any other person, (iv) prepay subordinated indebtedness, pay dividends or make distributions or other restricted payments, (v) create liens on certain assets and (vi) enter into certain transactions with affiliates, in each case, consistent with comparable provisions applicable to the senior secured notes. Each of these
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covenants is subject to customary or agreed-upon exceptions, baskets and thresholds. The loan agreement governing our senior secured term loans does not contain any financial maintenance covenant.
The loan agreement governing our senior secured term loans also contains certain other customary affirmative covenants and events of default, subject to customary or agreed-upon exceptions, baskets and thresholds.
Senior Secured Notes and Senior Notes
EP Energy LLC and Everest Acquisition Finance Inc., as issuers, have $750 million outstanding aggregate principal amount of 6.875% senior secured notes due 2019 (the "senior secured notes"), $2,000 million outstanding aggregate principal amount of 9.375% senior notes due 2020 (the "2020 senior notes") and $350 million outstanding aggregate principal amount of 7.750% senior notes due 2022 (the "2022 senior notes" and, together with the 2020 senior notes, the "senior notes"). The senior secured notes and 2020 senior notes were issued in connection with the financing of the Acquisition and the 2022 senior notes were issued on August 8, 2012 to repay a portion of the borrowings under the RBL Facility, as well as for other general corporate purposes.
Maturity and Interest Payment Dates. The senior secured notes will mature on May 1, 2019. The 2020 senior notes will mature on May 1, 2020. The 2022 senior notes will mature on September 1, 2022. Interest on the senior notes is payable semi-annually on May 1 and November 1 of each year in the case of the senior secured notes, May 1 and November of each year in the case of the 2020 senior notes and March 1 and September 1 of each year in the case of the 2022 senior notes.
Guarantee and Security. All of the senior secured notes and senior notes are fully and unconditionally guaranteed on a joint and several basis by each of the guarantors under the RBL Facility.
The obligations and guarantees under the senior secured notes are secured (i) on a first-priority basis by a security interest in the Secured Notes/Term Loan Priority Collateral and (ii) on a second-priority basis by a security interest in the RBL Facility Priority Collateral, that is in each case pari passu with the security interests securing our senior secured term loans.
Restrictive Covenants and Other Matters. The indentures governing the senior secured notes and senior notes contain restrictive covenants that may restrict EP Energy LLC's ability and the ability of its restricted subsidiaries to, among other things, (i) incur additional indebtedness, (ii) make certain investments, loan, and advances, (iii) consolidate, merge, sell or otherwise dispose of all or any part of its assets or to purchase, lease or otherwise acquire all or any substantial part of assets of any other person, (iv) prepay subordinated indebtedness, pay dividends or make distributions or other restricted payments, (v) create liens on certain assets and (vi) enter into certain transactions with affiliates. Each of these covenants is subject to customary or agreed-upon exceptions, baskets and thresholds.
The indentures governing the senior secured notes and senior notes also contain customary events of default, subject to customary or agreed-upon exceptions, baskets and thresholds.
Upon the occurrence of a change of control, as defined in each of the applicable indentures, each holder has the right to require the issuers to repurchase some or all of such holder's senior notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.
Optional Redemption. The issuers may redeem some or all of the senior secured notes at any time on or prior to May 1, 2015, at a redemption price equal to 100% of the aggregate principal amount of the senior secured notes to be redeemed, plus a make-whole premium and accrued and unpaid interest, if any, to the redemption date. On or after May 1, 2015, the issuers may also redeem some or all of the
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senior secured notes at the redemption prices specified in the indenture relating to the senior secured notes. At any time on or prior to May 1, 2015, the issuers may also redeem up to 35% of the original aggregate principal amount of the senior secured notes with the net cash proceeds of this offering and other equity offerings that are contributed to the issuers, at a redemption price equal to 106.875% of the aggregate principal amount of the senior secured notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.
The issuers may redeem some or all of the 2020 senior notes at any time on or prior to May 1, 2016, at a redemption price equal to 100% of the aggregate principal amount of the 2020 senior notes to be redeemed, plus a make-whole premium and accrued and unpaid interest, if any, to the redemption date. On or after May 1, 2016, the issuers may also redeem some or all of the 2020 senior notes at the redemption prices specified in the indenture relating to the 2020 senior notes. At any time on or prior to May 1, 2016, the issuers may also redeem up to 35% of the original aggregate principal amount of the 2020 senior notes with the net cash proceeds of this offering and other equity offerings that are contributed to the issuers, at a redemption price equal to 109.375% of the aggregate principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.
The issuers may redeem some or all of the 2022 senior notes at any time on or prior to September 1, 2017, at a redemption price equal to 100% of the aggregate principal amount of the 2022 senior notes to be redeemed, plus a make-whole premium and accrued and unpaid interest, if any, to the redemption date. On or after September 1, 2017, the issuers may also redeem some or all of the 2022 senior notes at the redemption prices specified in the indenture relating to the 2022 senior notes. At any time on or prior to September 1, 2017, the issuers may also redeem up to 35% of the original aggregate principal amount of the 2022 senior notes with the net cash proceeds of this offering and other equity offerings that are contributed to the issuers, at a redemption price equal to 107.750% of the aggregate principal amount of the 2022 senior notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.
Senior PIK Toggle Notes
EPE Holdings and EP Energy BondCo Inc., as issuers, issued $350 million aggregate principal amount of 8.125%/8.875% Senior PIK Toggle Notes due 2017 (the "PIK notes"). The PIK notes were issued on December 21, 2012 and will mature on December 15, 2017. The net proceeds from the PIK notes were used to pay a distribution to the EPE Acquisition equity holders. The issuers may elect to pay interest on the PIK notes in one of the following three manners: (i) entirely in cash, (ii) entirely by increasing the principal amount of the outstanding notes or issuing new notes ("PIK interest"), or (iii) in cash on 50% of the outstanding principal amount of the notes and in PIK Interest on the remaining 50% of the outstanding principal amount of the notes. Cash interest on the PIK notes accrues at a rate of 8.125% per annum and PIK interest accrues at a rate of 8.875% per annum and is payable semi-annually on December 15 and June 15 of each year. As of August 31, 2013, the outstanding aggregate principal amount of PIK notes was $372 million.
The PIK notes are unsecured obligations of the issuers and are not guaranteed by EP Energy Corporation or any of its other subsidiaries.
The indenture governing the PIK notes contains restrictive covenants that may restrict EPE Holdings' ability and the ability of its restricted subsidiaries to, among other things, (i) incur additional indebtedness, (ii) make certain investments, loan, and advances, (iii) consolidate, merge, sell or otherwise dispose of all or any part of its assets or to purchase, lease or otherwise acquire all or any substantial part of assets of any other person, (iv) prepay subordinated indebtedness, pay dividends or make distributions or other restricted payments, (v) create liens on certain assets and (vi) enter into certain transactions with affiliates. Each of these covenants is subject to customary or agreed-upon exceptions, baskets and thresholds.
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The indenture governing the PIK notes also contain customary events of default, subject to customary or agreed-upon exceptions, baskets and thresholds.
Upon the occurrence of a change of control, as defined in the PIK note indenture, each holder has the right to require the issuers to repurchase some or all of such holder's PIK notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.
The issuers may redeem some or all of the PIK notes at any time on or prior to December 15, 2013, at a redemption price equal to 100% of the aggregate principal amount of the PIK notes to be redeemed, plus a make-whole premium and accrued and unpaid interest, if any, to the redemption date. On or after December 15, 2013, the issuers may also redeem some or all of the PIK notes at the redemption prices specified in the indenture relating to the PIK notes. At any time on or prior to December 15, 2013, the issuers may also redeem some or all of the PIK notes with the net cash proceeds of this offering and other equity offerings that are contributed to the issuers, at a redemption price equal to 102.000% of the aggregate principal amount of the PIK notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.
As described under "Use of Proceeds," we intend to use a portion the proceeds from this offering to redeem all of the PIK notes.
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SHARES ELIGIBLE FOR FUTURE SALE
There has not been a public market for our common stock prior to this offering. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the common stock will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. See "Underwriting." Consequently, you may be unable to sell our common stock at prices equal to or greater than the price you pay in this offering.
Sale of Restricted Shares
Upon completion of this offering, we will have an aggregate of shares of our common stock outstanding. Of these shares, shares of our common stock to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares which may be acquired by any of our "affiliates" as that term is defined in Rule 144 under the Securities Act, which will be subject to the resale limitations of Rule 144. The remaining shares of our common stock outstanding will be restricted securities, as that term is defined in Rule 144, and may in the future be sold pursuant to an effective registration statement or under the Securities Act to the extent permitted by Rule 144 or any other available exemption under the Securities Act.
Omnibus Incentive Plan
Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act with the SEC to register shares of our common stock issued or reserved for issuance under the Omnibus Incentive Plan. Subject to the expiration of any lock-up restrictions as described below and following the completion of any vesting periods, shares of our common stock issued under the Omnibus Incentive Plan, issuable upon the exercise of options granted or to be granted under the plan, will be freely tradable without restriction under the Securities Act, unless such shares are held by any of our affiliates.
Lock-up Agreements
Executive officers, directors and our stockholders have agreed not to sell or transfer any shares of our common stock for a period of days from the date of this prospectus, subject to certain exceptions and extensions. See "Underwriting" for a description of these lock-up provisions.
Rule 144
In general, under Rule 144 under the Securities Act, a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
All of our outstanding common stock before this offering is held by affiliates. A person who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares (when aggregated with sales by certain related parties) that does not exceed the greater of 1% of the then outstanding shares of our common stock ( shares following this offering) or the average weekly trading volume of our common stock reported through the applicable stock exchange during the four calendar weeks preceding such sale. Such sales are also subject to
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certain manner of sale provisions, notice requirements and the availability of current public information about us.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirement of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus.
Registration Rights
Pursuant to the Registration Rights Agreement, we have granted the Legacy Class A Stockholders demand registration rights and/or incidental registration rights, in each case, with respect to certain shares of common stock owned by them. See "Certain Relationships and Related Party TransactionsRegistration Rights Agreement."
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the purchase, ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or foreign tax laws are not discussed. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated thereunder, judicial decisions and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the "IRS") in effect as of the date of this offering. These authorities may change or be subject to differing interpretations. Any such change may be applied retroactively in a manner that could adversely affect a non-U.S. holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position regarding the tax consequences of the purchase, ownership and disposition of our common stock.
This discussion is limited to non-U.S. holders that hold our common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a non-U.S. holder's particular circumstances, including the impact of the unearned income Medicare contribution tax. In addition, it does not address consequences relevant to non-U.S. holders subject to special rules, including, without limitation:
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
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APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a "non-U.S. holder" is any beneficial owner of our common stock that is neither a "U.S. holder' nor a partnership for U.S. federal income tax purposes. A U.S. holder is any of the following:
Distributions
We do not anticipate declaring or paying dividends to holders of our common stock in the foreseeable future. However, if we make distributions of cash or property on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a non-U.S. holder's adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below in the section relating to the sale or disposition of our common stock.
Subject to the discussion below on backup withholding and foreign accounts, dividends paid to a non-U.S. holder of our common stock that are not effectively connected with the non-U.S. holder's conduct of a trade or business within the United States will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty).
Non-U.S. holders may be entitled to a reduction in or an exemption from withholding on dividends as a result of either (a) an applicable income tax treaty or (b) the non-U.S. holder holding our common stock in connection with the conduct of a trade or business within the United States and dividends being paid in connection with that trade or business. To claim such a reduction in or exemption from withholding, the non-U.S. holder must provide the applicable withholding agent with a properly executed (a) IRS Form W-8BEN claiming an exemption from or reduction of the withholding tax under the benefit of an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established, or (b) IRS Form W-8ECI stating that the dividends are not subject to withholding tax because they are effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, as may be applicable. These certifications must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may
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obtain a refund of any excess amounts withheld under these rules by timely filing an appropriate claim for refund with the IRS.
Subject to the discussion below on backup withholding and foreign accounts, if dividends paid to a non-U.S. holder are effectively connected with the non-U.S. holder's conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), then, although exempt from U.S. federal withholding tax (provided the non-U.S. holder provides appropriate certification, as described above), the non-U.S. holder will be subject to U.S. federal income tax on such dividends on a net income basis at the regular graduated U.S. federal income tax rates. In addition, a non-U.S. holder that is a corporation may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits for the taxable year (and, if required by an applicable income tax treaty, that are attributable to a permanent establishment maintained by the corporate non-U.S. holder in the United States), as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
Sale or Other Taxable Disposition
Subject to the discussions below on backup withholding and foreign accounts, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:
Gain described in the first bullet point above will generally be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A non-U.S. holder that is a foreign corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) of a portion of its effectively connected earnings and profits for the taxable year, as adjusted for certain items.
A non-U.S. holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any gain derived from the disposition, which may be offset by certain U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States) provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe that we currently are, and expect to remain for the foreseeable future, a USRPHC for U.S. federal income tax purposes. However, so long as our common stock is "regularly traded on an established securities market," a non-U.S. holder will be subject to U.S. federal income tax on any gain from a disposition of our common stock only if the non-U.S. holder actually or constructively holds or held (at any time during the shorter of the five-year period preceding the date of disposition or the holder's holding period) more than 5% of our common stock. If our common stock is not considered to be so traded, all non-U.S. holders would be subject to U.S. federal income tax on any gain from a disposition of our common stock and a 10% withholding tax would apply to the gross proceeds from the sale of our common stock by a non-U.S. holder. If any gain from a disposition is subject to U.S. federal income tax as described above, it will be taxed as if
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the non-U.S. holder were a U.S. resident and the non-U.S. holder would be required to file a U.S. tax return with respect to such gain.
Non-U.S. holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
A non-U.S. holder will not be subject to backup withholding with respect to payments of dividends on our common stock, provided the applicable withholding agent does not have actual knowledge or reason to know such holder is a United States person and the holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN or W-8ECI, or other applicable certification. However, information returns will be filed with the IRS in connection with any dividends on our common stock paid to the non-U.S. holder, regardless of whether any tax was actually withheld. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides or is established.
Information reporting and backup withholding may apply to the proceeds of a sale of our common stock within the United States, and information reporting may (although backup withholding generally will not) apply to the proceeds of a sale of our common stock outside the United States conducted through certain U.S.-related financial intermediaries, in each case, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder on IRS Form W-8BEN or other applicable form (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person) or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Provisions commonly referred to as "FATCA" impose withholding taxes on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any "substantial United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United States owner or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain "specified United States persons" or "United States-owned foreign entities" (each as defined in the Code), annually report certain information about such accounts and withhold 30% on payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations, withholding under FATCA generally will apply to payments of dividends on our common stock made on or after July 1, 2014 and to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2017.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.
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Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below have severally agreed to purchase, and we have agreed to sell to them the number of shares indicated below:
Name
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Number of
Shares |
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Total |
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The underwriters and the representatives are collectively referred to as the "underwriters" and the "representatives," respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' option to purchase additional shares, as described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions and the per share amount, if any, of dividends declared by us and payable on the shares purchased by them from us other than by exercise of their option to purchase additional shares but not payable on the shares that are subject to that option.
To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional shares of common stock.
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Total | ||||||||
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Per Share | No Exercise | Full Exercise | |||||||
Public offering price |
$ | $ | $ | |||||||
Underwriting discounts and commissions to be paid by us |
$ | $ | $ | |||||||
Proceeds, before expenses, to us |
$ | $ | $ |
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ million.
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The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.
We intend to apply to have our common stock listed on the NYSE under the trading symbol "EPE."
We and all of our directors and officers have agreed that, without the prior written consent of the underwriters, we and they will not, during the period ending days after the date of this prospectus:
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and each such person agree that, without the prior written consent of the underwriters, it will not, during the period ending days after the date of this prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
The restrictions described in the immediately preceding paragraph do not apply to the sale of shares to the underwriters and are subject to other customary exceptions.
The day restricted period described in the preceding paragraph will be extended if:
in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18 day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under their option to purchase additional shares. The underwriters can close out a covered short sale by exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under their option to purchase additional shares. The underwriters may also sell shares in excess of their option, to purchase additional shares creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of
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facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. We have agreed to indemnify the several underwriters, including their controlling persons, against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Pricing of the Offering
Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State") an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
For the purposes of this provision, (1) the expression an "offer to the public" in relation to any shares of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in
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that Member State, (2) the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and (3) the expression "2010 PD Amending Directive" means Directive 2010/73/EU.
United Kingdom
Each underwriter has represented and agreed that:
Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant
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person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Affiliations
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they have received or may receive customary fees and expenses. Certain of the underwriters or their affiliates may have an indirect ownership interest in us through various private equity funds, including funds affiliated with Apollo.
In the ordinary course of business, the underwriters and their respective affiliates may make or hold a broad array of investments, including serving as counterparties to certain derivative and hedging arrangements and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account or for the accounts of their customers, and such investment and securities activities may involve or relate to assets, securities or instruments of the issuer (directly, as collateral securing other obligations or otherwise) or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also make investment recommendations, market color or trading ideas or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such assets, securities and instruments.
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The validity of the shares of common stock offered hereby will be passed upon for us by Akin Gump Strauss Hauer & Feld LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP, Houston, Texas.
Independent registered public accounting firms
The consolidated financial statements of EPE Acquisition, LLC as of December 31, 2012 (successor) and December 31, 2011 (predecessor), the period from February 14, 2012 through December 31, 2012 (successor), the period from January 1, 2012 through May 24, 2012 (predecessor) and each of the two years in the period ended December 31, 2011 (predecessor) appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing herein. Such consolidated financial statements, except as they relate to Four Star Oil & Gas Company, have been so included in reliance on the report of such independent registered public accounting firm given on the authority of said firm as experts in accounting and auditing.
The audited consolidated financial statements of Four Star Oil & Gas Company as of December 31, 2011 and for the year ended December 31, 2011, not separately presented in this prospectus, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report (which contains an emphasis of matter paragraph regarding the company's significant transactions with affiliated companies) thereon appears herein. The audited consolidated financial statements of EPE Acquisition, LLC, to the extent they relate to Four Star Oil & Gas Company, have been so included in reliance on the report of such independent registered public accounting firm given on the authority of said firm as experts in auditing and accounting.
Independent Petroleum Engineering Consultants
Estimates of our oil, NGLs and natural gas reserves, related future net cash flows and the present values thereof as of June 30, 2013 and as of December 31, 2012, included in this prospectus were based in part upon reserve information that was audited by independent petroleum engineering consultants, Ryder Scott Company, L.P. We have included these estimates in reliance on the authority of Ryder Scott Company, L.P. as experts in such matters.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities Act, with respect to the shares of our common stock offered by this prospectus. This prospectus, filed as a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules thereto as permitted by the rules and regulations of the SEC. For further information about us and our common stock, you should refer to the registration statement. This prospectus summarizes provisions that we consider material of certain contracts and other documents to which we refer you. You should review the full text of those documents. We have included copies of those documents as exhibits to the registration statement.
The registration statement and the exhibits thereto filed with the SEC may be inspected, without charge, and copies may be obtained at prescribed rates, at the public reference facility maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may request copies of the documents, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC. Please call 1-800-SEC-0330 for further information on the public reference rooms. Our filings with the SEC are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov.
Our website address is www.epenergy.com. We expect to make available our periodic reports and other information filed with or furnished to the SEC, free of charge through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this prospectus.
As a result of the offering, we and certain of our stockholders will also become subject to the proxy solicitation rules, annual and periodic reporting requirements and other requirements of the Exchange Act. These periodic reports, proxy statements and other information will be available for inspection and copying at the regional offices, public reference facilities and web site of the SEC referred to above. We will furnish our stockholders with annual reports containing audited financial statements certified by an independent registered public accounting firm and quarterly reports containing unaudited financial statements for the first three quarters of each fiscal year.
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GLOSSARY OF OIL AND NATURAL GAS TERMS
The terms defined in this section are used throughout this prospectus:
"/d." per day.
"Basin." A large natural depression on the earth's surface in which sediments generally brought by water accumulate.
"Bbl." One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate or natural gas liquids.
"Bcf." One billion cubic feet of natural gas.
"Bcfe." One billion cubic feet of natural gas equivalent, determined by using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas.
"Boe." Barrel of oil equivalent, a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of 6.0 Mcf of gas to 1.0 Bbl of oil or NGLs.
"Btu." British Thermal units, a measure of heating value.
"CBM." Coal bed methane.
"Completion." The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
"Developed acreage." The number of acres that are allocated or assignable to productive wells or wells capable of production.
"Development well." A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Drilling locations." Future locations specifically identified by management as an estimation of our multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves data on contiguous acreage and geologic formations. Unless otherwise indicated in this prospectus, references to drilling locations are gross for operated properties and net for non-operated properties.
"Dry hole." Exploratory or development well that does not produce oil or natural gas in economically producible quantities.
"Estimated ultimate recovery (EUR)." The sum of reserves remaining as of a given date and cumulative production as of that date.
"Exploratory well." A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.
"Farm-in or farm-out." An agreement under which the owner of a working interest in an oil or natural gas lease assigns the working interest or a portion of the working interest to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its working interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The working interest received by an assignee is a "farm-in" while the working interest transferred by the assignor is a "farm-out."
A-1
"Field." An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature and/or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
"Formation." A layer of rock which has distinct characteristics that differ from nearby rock.
"Gross acreage or gross wells." The total acres or wells, as the case may be, in which a working interest is owned.
"Horizontal drilling." A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.
"MBbl." One thousand barrels of crude oil, condensate or NGLs.
"MBoe." One thousand Boes.
"Mcf." One thousand cubic feet of natural gas.
"Mcfe." One thousand cubic feet equivalent, determined by using a ratio of six Mcf of natural gas to one bbl of crude oil, condensate or NGLs.
"MMBbl." One million barrels of crude oil, condensate or NGLs.
"MMBtu." One million British thermal units.
"MMcfe." One million cubic feet of natural gas equivalent, determined by using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs.
"Net Revenue Interest." The interest in and to all hydrocarbons produced, saved and sold from or allocated to an oil and/or gas property after giving effect to all royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests and other burdens upon, measured by or payable out of such hydrocarbon production.
"NGLs." Natural gas liquids. Hydrocarbons found in natural gas that may be extracted as liquefied petroleum gas and natural gasoline.
"NYMEX." The New York Mercantile Exchange.
"Net acres." The percentage of total acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres has 50 net acres.
"Productive well." A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.
"Proved developed reserves." Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well and through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
"Proved reserves." The estimated quantities of oil, natural gas and NGLs which geoscience and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.
A-2
"Proved undeveloped ("PUD") reserves." Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.
"Recompletion." The process of re-entering an existing wellbore that is either producing or not producing and completing new reservoirs in an attempt to establish or increase existing production.
"Reservoir." A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.
"Spacing." The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory agencies.
"Standardized measure." Discounted future net cash inflows estimated by applying year-end prices to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period-end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.
"Tcfe." One trillion cubic feet of natural gas equivalent, determined by using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas.
"Undeveloped acreage." Acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether such acreage contains proved reserves.
"Unit." The joining of all or substantially all property interests in a particular spacing or development area tract or section, to provide for development and operation of all such separate property interests. Also, the area covered by a unitization agreement or pooling order.
"Wellbore." The hole drilled by the bit that is equipped for natural gas production on a completed well. Also called well or borehole.
"Well cost." The cost of drilling, completing and equipping a well.
"Working interest." The right granted to the lessee of a property to explore for and to produce and own oil, natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.
A-3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial data of EP Energy Corporation (the "Company") give effect to the following transactions that are not fully reflected in our historical consolidated successor and predecessor financial statements:
The above transactions are reflected in the pro forma financial statements as of and for the six months ended June 30, 2013, and for the year ended December 31, 2012. We are providing pro forma financial data for the years ended December 31, 2011 and December 31, 2010 only to reflect the anticipated divestiture of our Brazil operations, which will be treated as discontinued operations beginning with the third quarter of 2013.
The unaudited pro forma condensed consolidated balance sheet gives effect to all of the transactions above as if they had occurred on June 30, 2013. The unaudited pro forma condensed consolidated income statements (i) for the six months ended June 30, 2013 and year ended December 31, 2012, give effect to all of the transactions above as if they had occurred on January 1, 2012 and (ii) for the years ended December 31, 2011 and 2010, give effect to the anticipated divestiture of our Brazil operations as if it had occurred on January 1, 2010. The unaudited pro forma condensed consolidated financial data should be read together with the audited consolidated financial statements of EPE Acquisition, LLC as of December 31, 2012 (successor) and December 31, 2011 (predecessor) and for the periods from February 14, 2012 (inception) to December 31, 2012 (successor), January 1, 2012 through May 24, 2012 (predecessor), and each of the two years in the period ended December 31, 2011 (predecessor) and the unaudited condensed consolidated financial statements of EPE Acquisition, LLC as of and for the six months ended June 30, 2013, included elsewhere in this prospectus. The pro forma adjustments above are based on currently available information and certain estimates and assumptions. Therefore, the actual effect of the transactions above may differ from the pro forma adjustments included herein. Management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the effects of such adjustments and the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma financial statements.
The unaudited pro forma condensed financial statements and related notes are presented for illustrative purposes only. If the above transactions had occurred in the past, the Company's operating results might have been materially different from those presented in these unaudited pro forma financial statements. The unaudited pro forma financial statements should not be relied upon as an indication of operating results that the Company would have achieved if the above transactions had taken place on the specified date. In addition, future results may vary significantly from those reflected in the unaudited pro forma income statement and should not be relied on as an indication of the future results the Company will have after the completion of the above transactions.
F-2
EP ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2013
(In millions)
|
EPE
Acquisition, LLC Historical |
Divestitures/
Other Adjustments |
Corporate
Reorganization Adjustments |
Initial Public
Offering Adjustments |
Pro Forma
as adjusted |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current assets |
||||||||||||||||
Cash and cash equivalents |
$ | 283 | $ | 1,248 | (a) | $ | | $ | $ | |||||||
|
(785 | )(a) | ||||||||||||||
|
20 | (b) | ||||||||||||||
|
(500 | )(c) | ||||||||||||||
|
(200 | )(c) | ||||||||||||||
Accounts receivable |
||||||||||||||||
Customer, net of allowance of less than $1 |
196 | (15 | )(d) | | ||||||||||||
Other, net of allowance of less than $1 |
21 | | | |||||||||||||
Derivative instruments |
77 | | | |||||||||||||
Restricted cash |
41 | (41 | )(d) | | ||||||||||||
Assets of discontinued operations |
964 | (964 | )(e) | | ||||||||||||
Other |
55 | (8 | )(d) | | ||||||||||||
Total current assets |
1,637 | (1,245 | ) | | ||||||||||||
Property, plant and equipment, net |
7,069 | (74 | ) | | ||||||||||||
Other assets |
||||||||||||||||
Investments in unconsolidated affiliates |
209 | | | |||||||||||||
Unamortized debt issue cost |
131 | (41 | )(a) | | ||||||||||||
|
(6 | )(c) | ||||||||||||||
Other |
135 | (10 | )(d) | | ||||||||||||
|
475 | (57 | ) | | ||||||||||||
Total assets |
9,181 | (1,376 | ) | | ||||||||||||
Current liabilities |
||||||||||||||||
Accounts payable |
||||||||||||||||
Trade |
$ | 128 | $ | | | |||||||||||
Other |
399 | (42 | )(d) | | ||||||||||||
Accrued interest |
55 | | | |||||||||||||
Liabilities of discontinued operations |
171 | (171 | )(e) | | ||||||||||||
Other |
100 | (48 | )(d) | 31 | (n) | |||||||||||
Total current liabilities |
853 | (261 | ) | 31 | ||||||||||||
Long-term debt |
5,392 | (785 | )(a) | |||||||||||||
|
(500 | )(c) | ||||||||||||||
Other long-term liabilities |
94 | (38 | )(d) | 202 | (n) | |||||||||||
|
5,486 | (1,584 | ) | |||||||||||||
Equity |
||||||||||||||||
Members' equity |
2,842 | 455 | (e) | (3,050 | )(m) | | | |||||||||
|
(200 | )(c) | ||||||||||||||
|
(47 | )(a)(c) | ||||||||||||||
Stockholders' equity |
| | (233 | )(n) | ||||||||||||
|
| | 3,050 | (m) | | | ||||||||||
Total equity |
2,842 | 208 | (233 | ) | ||||||||||||
Total liabilities and equity |
$ | 9,181 | $ | (1,376 | ) | $ | | $ | $ | |||||||
F-3
EP ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Six Months Ended June 30, 2013
(In millions)
|
EPE
Acquisition, LLC Historical |
Divestitures/
Other Adjustments |
Corporate
Reorganization Adjustments |
Initial Public
Offering Adjustments |
Pro Forma
as adjusted |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating revenues |
||||||||||||||||
Physical sales |
$ | 815 | $ | (44 | )(d) | $ | | $ | $ | |||||||
Financial derivatives |
35 | | | |||||||||||||
|
850 | (44 | ) | |||||||||||||
Operating expenses |
||||||||||||||||
Natural gas purchases |
10 | | | |||||||||||||
Transportation costs |
46 | | | |||||||||||||
Lease operating expense |
98 | (20 | )(d) | | ||||||||||||
General and administrative |
118 | (5 | )(d) | | (13 | )(r) | ||||||||||
Depreciation, depletion and amortization |
277 | (5 | )(d) | | ||||||||||||
Impairments |
10 | (10 | )(d) | | ||||||||||||
Exploration expense |
27 | | | |||||||||||||
Taxes, other than income taxes |
43 | (6 | )(d) | | ||||||||||||
Total operating expenses |
629 | (46 | ) | (13 | ) | |||||||||||
Operating income |
221 |
2 |
|
13 |
||||||||||||
Earnings from unconsolidated affiliates |
6 | | | |||||||||||||
Other expense |
(1 | ) | 2 | (d) | | |||||||||||
Loss on extinguishment of debt |
(3 | ) | | | ||||||||||||
Interest expense |
(178 | ) | 24 | (j) | | |||||||||||
Income from continuing operations before income taxes |
45 | 28 | | 13 | ||||||||||||
Income tax expense |
2 | (2 | )(d) | 23 | (o) | 5 | ||||||||||
Income from continuing operations |
$ | 43 | $ | 30 | $ | (23 | ) | $ | 8 | $ | ||||||
Net income per common share(p): |
||||||||||||||||
Basic |
$ | |||||||||||||||
Diluted |
$ | |||||||||||||||
Weighted average common shares outstanding(p): |
||||||||||||||||
Basic |
$ | |||||||||||||||
Diluted |
$ |
F-4
EP ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2012
(In
millions)
|
EPE Acquisition, LLC
Historical |
|
|
|
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Successor |
|
Predecessor |
|
|
|
|
||||||||||||||
|
February 14
(inception), to December 31, 2012 |
|
January 1
to May 24, 2012 |
Divestitures/
Other Adjustments |
Corporate
Reorganization Adjustments |
Initial Public
Offering Adjustments |
Pro Forma
as adjusted |
||||||||||||||
Operating revenues |
|||||||||||||||||||||
Physical sales |
$ | 865 | $ | 613 | $ | (264 | )(d) | $ | | $ | $ | ||||||||||
Financial derivatives |
(62 | ) | 365 | | | ||||||||||||||||
Total operating revenues |
803 | 978 | (264 | ) | | ||||||||||||||||
Operating expenses |
|||||||||||||||||||||
Natural gas purchases |
19 | | | | |||||||||||||||||
Transportation costs |
51 | 45 | (19 | )(d) | | ||||||||||||||||
Lease operating expense |
96 | 96 | (80 | )(d) | | ||||||||||||||||
General and administrative |
371 | 75 | (24 | )(d) | | (16 | )(r) | ||||||||||||||
Depreciation, depletion and amortization |
217 | 319 | (138 | )(d) | | ||||||||||||||||
|
(190 | )(f) | | ||||||||||||||||||
Ceiling test charges |
| 62 | (62 | )(d) | | ||||||||||||||||
Impairments |
1 | | (1 | )(d) | | ||||||||||||||||
Exploration expense |
50 | | 99 | (g) | | ||||||||||||||||
|
(7 | )(d) | |||||||||||||||||||
Taxes, other than income taxes |
51 | 45 | (33 | )(d) | | ||||||||||||||||
Total operating expenses |
856 | 642 | (455 | ) | | (16 | ) | ||||||||||||||
Operating (loss) income |
(53 | ) | 336 | 191 | | 16 | |||||||||||||||
Loss from unconsolidated affiliates |
(1 | ) | (5 | ) | 6 | (h) | | ||||||||||||||
Other income (expense) |
3 | (3 | ) | 2 | (d) | | |||||||||||||||
Loss on extinguishment of debt |
(14 | ) | | | | ||||||||||||||||
Interest expense |
(219 | ) | (14 | ) | (77 | )(i) | | ||||||||||||||
|
39 | (j) | |||||||||||||||||||
(Loss) income from continuing operations before income taxes |
(284 | ) | 314 | 161 | | 16 | |||||||||||||||
Income tax expense |
2 | 136 | (138 | )(k) | 62 | (o) | 6 | ||||||||||||||
(Loss) income from continuing operations |
$ | (286 | ) | $ | 178 | $ | 299 | $ | (62 | ) | $ | 10 | $ | ||||||||
Net income per common share(p): |
|||||||||||||||||||||
Basic |
$ | ||||||||||||||||||||
Diluted |
$ | ||||||||||||||||||||
Weighted average common shares outstanding(p): |
|||||||||||||||||||||
Basic |
$ | ||||||||||||||||||||
Diluted |
$ |
F-5
EP ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2011
(In
millions)
|
EPE
Acquisition, LLC Historical Predecessor |
Brazil
Divestiture(d) |
Pro Forma
as adjusted |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Operating revenues |
||||||||||
Physical sales |
$ | 1,582 | $ | (111 | ) | $ | 1,471 | |||
Financial derivatives |
284 | | 284 | |||||||
Other |
1 | (1 | ) | | ||||||
Total operating revenues |
1,867 | (112 | ) | 1,755 | ||||||
Operating expenses |
||||||||||
Transportation costs |
85 | | 85 | |||||||
Lease operating expense |
217 | (41 | ) | 176 | ||||||
General and administrative |
201 | (16 | ) | 185 | ||||||
Depreciation, depletion and amortization |
612 | (33 | ) | 579 | ||||||
Ceiling test charges |
158 | (152 | ) | 6 | ||||||
Taxes, other than income taxes |
91 | (15 | ) | 76 | ||||||
Total operating expenses |
1,364 | (257 | ) | 1,107 | ||||||
Operating income |
503 | 145 | 648 | |||||||
Loss from unconsolidated affiliates |
(7 |
) |
|
(7 |
) |
|||||
Other expense |
(2 | ) | 3 | 1 | ||||||
Interest expense |
(12 | ) | | (12 | ) | |||||
Income before income taxes |
482 | 148 | 630 | |||||||
Income tax expense |
220 | 24 | 244 | |||||||
Net income |
$ | 262 | $ | 124 | $ | 386 | ||||
Net income per common share(p): |
||||||||||
Basic |
$ | |||||||||
Diluted |
$ | |||||||||
Weighted average common shares outstanding(p): |
||||||||||
Basic |
$ | |||||||||
Diluted |
$ |
F-6
EP ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2010
(In
millions)
|
EPE
Acquisition, LLC Historical Predecessor |
Brazil
Divestiture(d) |
Pro Forma
as adjusted |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Operating revenues |
||||||||||
Physical sales |
$ | 1,380 | $ | (85 | ) | $ | 1,295 | |||
Financial derivatives |
390 | | 390 | |||||||
Other |
19 | | 19 | |||||||
Total operating revenues |
1,789 | (85 | ) | 1,704 | ||||||
Operating expenses |
||||||||||
Transportation costs |
73 | | 73 | |||||||
Lease operating expense |
193 | (37 | ) | 156 | ||||||
General and administrative |
190 | (14 | ) | 176 | ||||||
Depreciation, depletion and amortization |
477 | (29 | ) | 448 | ||||||
Ceiling test charges |
25 | | 25 | |||||||
Taxes, other than income taxes |
85 | (12 | ) | 73 | ||||||
Other |
15 | | 15 | |||||||
Total operating expenses |
1,058 | (92 | ) | 966 | ||||||
Operating income |
731 | 7 | 738 | |||||||
Loss from unconsolidated affiliates |
(7 | ) | | (7 | ) | |||||
Other income |
3 | (2 | ) | 1 | ||||||
Interest expense |
(21 | ) | | (21 | ) | |||||
Income before income taxes |
706 | 5 | 711 | |||||||
Income tax expense |
263 | (4 | ) | 259 | ||||||
Net income |
$ | 443 | $ | 9 | $ | 452 | ||||
Net income per common share(p): |
||||||||||
Basic |
$ | |||||||||
Diluted |
$ | |||||||||
Weighted average common shares outstanding(p): |
||||||||||
Basic |
$ | |||||||||
Diluted |
$ |
F-7
EP ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company made the following adjustments and assumptions in the preparation of the unaudited pro forma condensed consolidated financial statements:
Divestiture and Other Adjustments / Brazil Divestiture
F-8
EP ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Corporate Reorganization Adjustments
Initial Public Offering Adjustments
We have not reflected in the unaudited pro forma income statements (i) $ million fee under the transaction fee agreement with certain affiliates of our Sponsors to be paid upon completion of the offering and (ii) the estimated gain on the sale of our CBM, South Texas, and Arklatex natural gas assets using June 30, 2013 carrying values as such amounts are non-recurring.
The unaudited pro forma condensed consolidated financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See "Risk Factors" and "Cautionary Note Concerning Forward-Looking Statements."
F-9
EPE ACQUISITION, LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions)
(Unaudited)
|
Successor |
|
Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Six months
ended June 30, 2013 |
February 14
(inception) to June 30, 2012 |
|
January 1 to
May 24, 2012 |
||||||||
Operating revenues |
||||||||||||
Oil and condensate |
$ | 568 | $ | 74 | $ | 322 | ||||||
Natural gas |
215 | 46 | 262 | |||||||||
NGL |
32 | 4 | 29 | |||||||||
Financial derivatives |
35 | 57 | 365 | |||||||||
Total operating revenues |
850 | 181 | 978 | |||||||||
Operating expenses |
||||||||||||
Natural gas purchases |
10 | 4 | | |||||||||
Transportation costs |
46 | 9 | 45 | |||||||||
Lease operating expense |
98 | 15 | 96 | |||||||||
General and administrative |
118 | 208 | 75 | |||||||||
Depreciation, depletion and amortization |
277 | 26 | 319 | |||||||||
Ceiling test charges |
| | 62 | |||||||||
Impairments |
10 | 1 | | |||||||||
Exploration expense |
27 | 6 | | |||||||||
Taxes, other than income taxes |
43 | 10 | 45 | |||||||||
Total operating expenses |
629 | 279 | 642 | |||||||||
Operating income (loss) |
221 | (98 | ) | 336 | ||||||||
Earnings (loss) from unconsolidated affiliate |
6 | (1 | ) | (5 | ) | |||||||
Other (expense) income |
(1 | ) | 1 | (3 | ) | |||||||
Loss on extinguishment of debt |
(3 | ) | | | ||||||||
Interest expense |
(178 | ) | (53 | ) | (14 | ) | ||||||
Income (loss) from continuing operations before income taxes |
45 | (151 | ) | 314 | ||||||||
Income tax expense |
2 | | 136 | |||||||||
Income (loss) from continuing operations |
43 | (151 | ) | 178 | ||||||||
Income from discontinued operations |
44 | 1 | | |||||||||
Net income (loss) |
$ | 87 | $ | (150 | ) | $ | 178 | |||||
See accompanying notes.
F-10
EPE ACQUISITION, LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
|
Successor |
|
Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Six months
ended June 30, 2013 |
February 14
(inception) to June 30, 2012 |
|
January 1 to
May 24, 2012 |
||||||||
Net income (loss) |
$ | 87 | $ | (150 | ) | $ | 178 | |||||
Cash flow hedging activities: |
||||||||||||
Reclassification adjustment(1) |
| | 3 | |||||||||
Comprehensive income (loss) |
$ | 87 | $ | (150 | ) | $ | 181 | |||||
See accompanying notes.
F-11
EPE ACQUISITION, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
|
June 30, 2013 | December 31, 2012 | |||||
---|---|---|---|---|---|---|---|
ASSETS |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
$ | 283 | $ | 69 | |||
Accounts receivable |
|||||||
Customer, net of allowance of less than $1 in 2013 and 2012 |
196 | 185 | |||||
Other, net of allowance of $1 for 2013 and 2012 |
21 | 15 | |||||
Materials and supplies |
20 | 16 | |||||
Derivative instruments |
77 | 108 | |||||
Restricted cash |
41 | | |||||
Assets of discontinued operations |
964 | 994 | |||||
Prepaid assets |
33 | 18 | |||||
Other |
2 | 4 | |||||
Total current assets |
1,637 | 1,409 | |||||
Property, plant and equipment, at cost |
|||||||
Oil and natural gas properties |
7,506 | 6,605 | |||||
Other property, plant and equipment |
66 | 53 | |||||
|
7,572 | 6,658 | |||||
Less accumulated depreciation, depletion and amortization |
503 | 220 | |||||
Total property, plant and equipment, net |
7,069 | 6,438 | |||||
Other assets |
|||||||
Investment in unconsolidated affiliate |
209 | 220 | |||||
Derivative instruments |
116 | 88 | |||||
Deferred income taxes |
6 | 6 | |||||
Unamortized debt issue cost |
131 | 140 | |||||
Other |
13 | 5 | |||||
|
475 | 459 | |||||
Total assets |
$ | 9,181 | $ | 8,306 | |||
See accompanying notes.
F-12
EPE ACQUISITION, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In millions)
(Unaudited)
|
June 30, 2013 | December 31, 2012 | |||||
---|---|---|---|---|---|---|---|
LIABILITIES AND EQUITY |
|||||||
Current liabilities |
|||||||
Accounts payable |
|||||||
Trade |
$ | 128 | $ | 98 | |||
Other |
399 | 347 | |||||
Derivative instruments |
5 | 17 | |||||
Accrued taxes other than income |
31 | 21 | |||||
Accrued interest |
55 | 57 | |||||
Accrued taxes |
1 | 19 | |||||
Asset retirement obligations |
3 | 4 | |||||
Liabilities of discontinued operations |
171 | 156 | |||||
Other accrued liabilities |
60 | 45 | |||||
Total current liabilities |
853 | 764 | |||||
Long-term debt |
5,392 | 4,695 | |||||
Other long-term liabilities |
|||||||
Derivative instruments |
2 | 14 | |||||
Asset retirement obligations |
83 | 76 | |||||
Other |
9 | 9 | |||||
Total non-current liabilities |
5,486 | 4,794 | |||||
Commitments and contingencies (Note 8) |
|||||||
Members' equity |
2,842 | 2,748 | |||||
Total liabilities and equity |
$ | 9,181 | $ | 8,306 | |||
See accompanying notes.
F-13
EPE ACQUISITION, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
Successor |
|
Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Six Months
ended June 30, 2013 |
February 14
(Inception) to June 30, 2012 |
|
January 1
to May 24, 2012 |
||||||||
Cash flows from operating activities |
||||||||||||
Net income (loss) |
$ | 87 | $ | (150 | ) | $ | 178 | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
||||||||||||
Depreciation, depletion and amortization |
318 | 34 | 319 | |||||||||
Deferred income tax expense |
| 1 | 199 | |||||||||
Loss from unconsolidated affiliate, net of cash distributions |
11 | 2 | 12 | |||||||||
Ceiling test charges |
| | 62 | |||||||||
Impairments |
10 | 1 | | |||||||||
Loss on extinguishment of debt |
3 | | | |||||||||
Amortization of equity compensation expense |
13 | 8 | | |||||||||
Non-cash portion of exploration expense |
24 | | | |||||||||
Amortization of debt issuance cost |
12 | 3 | 7 | |||||||||
Asset and liability changes |
||||||||||||
Accounts receivable |
(23 | ) | (18 | ) | 132 | |||||||
Accounts payable |
61 | (6 | ) | (56 | ) | |||||||
Derivative instruments |
(21 | ) | (15 | ) | (201 | ) | ||||||
Accrued interest |
(2 | ) | 52 | (1 | ) | |||||||
Other asset changes |
(15 | ) | (26 | ) | (7 | ) | ||||||
Other liability changes |
(28 | ) | 22 | (64 | ) | |||||||
Net cash provided by (used in) operating activities |
450 | (92 | ) | 580 | ||||||||
Cash flows from investing activities |
||||||||||||
Capital expenditures |
(914 | ) | (150 | ) | (636 | ) | ||||||
Net proceeds from the sale of assets |
10 | 22 | 9 | |||||||||
Cash paid for acquisitions, net of cash acquired |
(2 | ) | (7,126 | ) | (1 | ) | ||||||
Net cash used in investing activities |
(906 | ) | (7,254 | ) | (628 | ) | ||||||
Cash flows from financing activities |
||||||||||||
Proceeds from long-term debt |
985 | 4,323 | 215 | |||||||||
Repayment of long-term debt |
(305 | ) | (80 | ) | (1,065 | ) | ||||||
Contributed member equity |
| 3,300 | | |||||||||
Contribution from parent |
| | 960 | |||||||||
Member distribution |
(5 | ) | | | ||||||||
Debt issuance costs |
(5 | ) | (142 | ) | | |||||||
Net cash provided by financing activities |
670 | 7,401 | 110 | |||||||||
Change in cash and cash equivalents |
214 | 55 | 62 | |||||||||
Cash and cash equivalents |
||||||||||||
Beginning of period |
69 | | 25 | |||||||||
End of period |
$ | 283 | $ | 55 | $ | 87 | ||||||
See accompanying notes
F-14
EPE ACQUISITION, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
(Unaudited)
|
Total Members'
Equity |
|||
---|---|---|---|---|
Balance at December 31, 2012 |
$ | 2,748 | ||
Compensation expense |
12 | |||
Member distributions |
(5 | ) | ||
Net income |
87 | |||
Balance at June 30, 2013 |
$ | 2,842 | ||
See accompanying notes.
F-15
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
EPE Acquisition, LLC (the successor) was formed as a Delaware limited liability company on February 14, 2012 by investment funds affiliated with and managed by Apollo Global Management LLC (Apollo) and other private equity investors (collectively, the Sponsors) as a company with no independent operations. EPE Acquisition, LLC, through its wholly-owned subsidiaries, owns the common stock of EP Energy Bondco Inc. and units of EP Energy LLC (which owns 100 percent of EP Energy Global LLC). On May 24, 2012, the Sponsors acquired EP Energy Global LLC (formerly known as EP Energy Corporation and EP Energy, L.L.C. after its conversion into a Delaware limited liability company) and subsidiaries for approximately $7.2 billion in cash (the Acquisition) as contemplated by the merger agreement among El Paso Corporation (El Paso) and Kinder Morgan, Inc. (KMI) which is further described in Note 2. The entities acquired are engaged in the exploration for and the acquisition, development, and production of oil, natural gas and NGL primarily in the United States, with international activities in Brazil. Hereinafter, the acquired entities are referred to as the predecessor for financial accounting and reporting purposes.
These condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) as it applies to interim condensed consolidated financial statements. Because this is an interim period report presented using a condensed format, it does not include all of the disclosures required by U.S. GAAP. You should read this quarterly report along with our 2012 audited consolidated financial statements, which contain a summary of significant accounting policies and other disclosures. The condensed consolidated financial statements as of June 30, 2013, and for each of the successor and predecessor periods presented are unaudited. The consolidated balance sheet as of December 31, 2012 has been derived from the audited consolidated balance sheet included in our 2012 audited consolidated financial statements. In our opinion, all adjustments which are of a normal, recurring nature are reflected to fairly present these interim period results. The results for any interim period are not necessarily indicative of the expected results for the entire year. Our disclosures in this set of financial statements are an update to those provided in our 2012 audited consolidated financial statements.
In June 2013, EP Energy LLC, our wholly-owned subsidiary, entered into three separate agreements to sell its CBM properties located in the Raton, Black Warrior and Arkoma basins; its Arklatex conventional natural gas assets located in East Texas and North Louisiana and its legacy South Texas conventional natural gas assets as further described in Note 2. We have classified the assets and liabilities associated with these assets as discontinued operations in our condensed consolidated balance sheets in all periods presented in this set of financial statements. We have classified the results of operations of the assets held for sale as income (loss) from discontinued operations in successor periods subsequent to the Acquisition (May 25, 2012). For periods prior to the Acquisition, the predecessor applied the full cost method of accounting for oil and natural gas properties where capitalized costs were aggregated by country (e.g., U.S.); accordingly, the assets held for sale did not qualify for, and have not been reflected as discontinued operations in the predecessor financial statement periods. Additionally, the predecessor periods also reflect reclassifications to conform to EPE Acquisition, LLC's financial statement presentation.
F-16
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies (Continued)
Significant Accounting Policies
Natural Gas Purchases/Sales. We purchase and sell natural gas on a monthly basis to manage our overall natural gas production and sales. These transactions are undertaken to optimize prices we receive for our natural gas, to physically move gas to its intended sales point, or to manage firm transportation agreements. Revenue related to these transactions is recorded in natural gas sales in operating revenues and associated purchases reflected in natural gas purchases in operating expenses on our consolidated income statement. All historical successor periods have been adjusted to reflect these purchases and sales transactions on a gross basis.
There were no changes in significant accounting policies as described in the 2012 audited consolidated financial statements and no material accounting pronouncements issued but not yet adopted as of June 30, 2013.
2. Acquisitions and Divestitures
Acquisitions. On May 24, 2012, Apollo and other investors acquired all of the equity of our wholly-owned subsidiary, EP Energy Global LLC, for approximately $7.2 billion. The Acquisition was funded with approximately $3.3 billion in equity contributions (which were raised in exchange for the issuance of Class A member units of EPE Acquisition, LLC) and the issuance of approximately $4.25 billion of debt. In conjunction with the Acquisition, a portion of the proceeds was also used to repay approximately $960 million of debt outstanding under the predecessor's revolving credit facility at that time. See Note 7 for an additional discussion of debt.
The purchase transaction was accounted for under the acquisition method of accounting which requires, among other items, that assets and liabilities assumed be recognized on the consolidated balance sheet at their fair values as of the Acquisition date. Our consolidated balance sheet for all periods includes the following purchase price allocation based on available information to specific assets and liabilities assumed based on estimates of fair values and costs. There was no goodwill associated with the transaction.
Allocation of purchase price
|
May 24, 2012 | |||
---|---|---|---|---|
|
(In millions)
|
|||
Current assets |
$ | 587 | ||
Non-current assets |
446 | |||
Property, plant and equipment |
6,897 | |||
Current liabilities |
(420 |
) |
||
Non-current liabilities |
(297 | ) | ||
Total purchase price |
$ | 7,213 | ||
The unaudited pro forma information below for the six months ended June 30, 2012 has been derived from the historical, consolidated financial statements and has been prepared as though the
F-17
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Acquisitions and Divestitures (Continued)
Acquisition occurred on January 1, 2012. The unaudited pro forma information does not purport to represent what our results of operations would have been if the Acquisition had occurred on such date.
|
Six months
ended June 30, 2012 |
|||
---|---|---|---|---|
|
(In millions)
|
|||
Operating revenues |
$ | 1,178 | ||
Net income |
235 |
Discontinued Operations. In June 2013, EP Energy LLC, our wholly-owned subsidiary entered into three separate agreements to sell its CBM properties located in the Raton, Black Warrior and Arkoma basins; its Arklatex conventional natural gas assets located in East Texas and North Louisiana and its legacy South Texas conventional natural gas assets. In conjunction with signing these agreements in June, we received $41 million in deposits related to these sales, which is recorded as restricted cash and as other accrued liabilities in our consolidated balance sheet. In July and August 2013 we closed these sales for total consideration of approximately $1.3 billion. As a result of entry into these agreements, we presented the assets, liabilities and related income as discontinued operations in all successor periods as described in Note 1.
Summarized operating results and financial position data of our discontinued operations were as follows (in millions):
|
Successor | ||||||
---|---|---|---|---|---|---|---|
|
Six months
ended June 30, 2013 |
February 14
(inception) to June 30, 2012 |
|||||
Operating revenues |
$ | 168 | $ | 27 | |||
Operating expenses |
|||||||
Natural gas purchases |
16 | 4 | |||||
Transportation costs |
15 | 5 | |||||
Lease operating expense |
34 | 6 | |||||
Depreciation, depletion and amortization |
41 | 8 | |||||
Other expense |
18 | 3 | |||||
Total operating expenses |
124 | 26 | |||||
Income from discontinued operations |
$ | 44 | $ | 1 | |||
F-18
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Acquisitions and Divestitures (Continued)
|
June 30,
2013 |
December 31,
2012 |
|||||
---|---|---|---|---|---|---|---|
Assets of discontinued operations |
|||||||
Current assets |
$ | 60 | $ | 55 | |||
Property, plant and equipment, net |
898 | 932 | |||||
Other non-current assets |
6 | 7 | |||||
Total assets of discontinued operations |
$ | 964 | $ | 994 | |||
Liabilities of discontinued operations |
|||||||
Accounts payable |
$ | 44 | $ | 40 | |||
Other current liabilities |
10 | 5 | |||||
Asset retirement obligations |
116 | 110 | |||||
Other non-current liabilities |
1 | 1 | |||||
Total liabilities of discontinued operations |
$ | 171 | $ | 156 | |||
Other Divestitures. During the first quarter of 2013, we received approximately $10 million for the sale of domestic oil and natural gas properties. No gain or loss was recorded on this sale. In June 2012, we sold our unevaluated property interests in Egypt for approximately $22 million and did not record a gain or loss on the sale. In addition, the predecessor received approximately $9 million for the sale of domestic oil and natural gas properties that closed in December 2011.
On July 16, 2013, we entered into a Quota Purchase Agreement to sell our Brazil operations which is expected to close by the end of the first quarter of 2014. The sale is subject to Brazilian regulatory approval, as well as certain other customary closing conditions. We recorded a $10 million impairment charge in the second quarter of 2013 based on comparing the fair market value of our Brazil operations to its underlying carrying value. We estimated the fair value of our Brazil operations (representing a Level 3 fair value measurement) based primarily on sales proceeds expected to be received less estimates of retained liabilities. Our Brazil operations will be reflected as discontinued operations in all periods presented beginning with the third quarter of 2013.
3. Ceiling Test Charges
Prior to the Acquisition, the predecessor used the full cost method of accounting. Under this method of accounting, the predecessor conducted quarterly ceiling tests of capitalized costs in each of its full cost pools. During the period from January 1, 2012 to May 24, 2012, the predecessor recorded a non-cash charge of approximately $62 million as a result of the decision to end exploration activities in Egypt. The charge related to unevaluated costs in that country and included approximately $2 million related to equipment.
4. Income Taxes
Effective Tax Rate. For the six months ended June 30, 2013, the effective tax rate applicable to continuing operations was three percent. This is significantly lower than the statutory rate primarily due to our being a limited liability company treated as a partnership for federal and state income tax purposes. We continue to be subject to foreign income taxes on our Brazil operations.
F-19
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Income Taxes (Continued)
Prior to the Acquisition, the predecessor was party to a tax accrual policy with El Paso whereby El Paso filed U.S. and certain state returns on the predecessor's behalf. The effective tax rate for the predecessor period from January 1, 2012 to May 24, 2012, was 43 percent, significantly higher than the statutory rate primarily due to the impact of an Egyptian non-cash charge without a corresponding tax benefit.
5. Financial Instruments
The following table presents the carrying value and fair value of our financial instruments:
|
June 30, 2013 | December 31, 2012 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying
Value |
Fair
Value |
Carrying
Value |
Fair
Value |
|||||||||
|
(In millions)
|
||||||||||||
Long-term debt |
$ | 5,392 | $ | 5,729 | $ | 4,695 | $ | 5,039 | |||||
Derivative instruments |
$ | 186 | $ | 186 | $ | 165 | $ | 165 | |||||
As of June 30, 2013 and December 31, 2012, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable represent fair value because of the short-term nature of these instruments. We hold long-term debt obligations (see Note 7) with various terms. We estimated the fair value of debt (representing a Level 2 fair value measurement) primarily based on quoted market prices for the same or similar issuances, including consideration of our credit risk related to those instruments.
Oil and natural gas derivative instruments. We attempt to mitigate a portion of our commodity price risk and stabilize cash flows associated with forecasted sales of oil and natural gas production through the use of oil and natural gas swaps, basis swaps and option contracts. In June 2013, we entered into offsetting positions on natural gas derivatives of 35 TBtu on anticipated 2013 production and 42 TBtu on anticipated 2014 production due to an expected decline in natural gas volumes following the sale of natural gas assets as described in Note 2. As of June 30, 2013 and December 31, 2012, we had total derivative contracts related to 33 MMBbl and 34 MMBbl of oil and 174 TBtu and 276 TBtu of natural gas, respectively. None of these contracts are designated as accounting hedges. As of August 13, 2013 we added fixed price oil derivatives on 17 MMBbl.
Interest Rate Derivative Instruments. During July 2012, we entered into interest rate swaps with a notional amount of $600 million that are intended to reduce variable interest rate risk related to our LIBOR based loans. These interest rate derivative instruments started in November 2012 and extend through April 2017. For the six months ended June 30, 2013 we recorded income of $7 million in interest expense related to the change in fair market value and cash settlements of our interest rate derivative instruments.
Fair Value Measurements. We use various methods to determine the fair values of our financial instruments. The fair value of a financial instrument depends on a number of factors, including the availability of observable market data over the contractual term of the underlying instrument. We separate the fair values of our financial instruments into three levels (Levels 1, 2 and 3) based on our
F-20
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Financial Instruments (Continued)
assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. As of June 30, 2013 and December 31, 2012, all of our financial instruments were classified as Level 2. Our assessment of an instrument within a level can change over time based on the maturity or liquidity of the instrument, which could result in a change in the classification of our financial instruments between other levels.
Financial Statement Presentation. The following table presents the fair value associated with derivative financial instruments as of June 30, 2013 and December 31, 2012. All of our derivative instruments are subject to master netting arrangements which provide for the unconditional right of offset for all derivative assets and liabilities with a given counterparty in the event of default. We present assets and liabilities related to these instruments in our balance sheets as either current or non-current assets or liabilities based on their anticipated settlement date, net of the impact of master netting agreements. On certain derivative contracts recorded as assets in the table below we are exposed to the risk that our counterparties may not perform.
|
Level 2 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
|
|
|
Balance Sheet
Location |
|
|
Balance Sheet
Location |
|||||||||||||||||||
|
Gross(1)
Fair value |
Impact of
Netting |
Current |
Non-
current |
Gross(1)
Fair value |
Impact of
Netting |
Current |
Non-
current |
|||||||||||||||||
|
|
(In millions)
|
|
|
(In millions)
|
|
|||||||||||||||||||
June 30, 2013 |
|||||||||||||||||||||||||
Derivatives |
$ | 254 | $ | (61 | ) | $ | 77 | $ | 116 | $ | (68 | ) | $ | 61 | $ | (5 | ) | $ | (2 | ) | |||||
December 31, 2012 |
|||||||||||||||||||||||||
Derivatives |
$ | 235 | $ | (39 | ) | $ | 108 | $ | 88 | $ | (70 | ) | $ | 39 | $ | (17 | ) | $ | (14 | ) | |||||
The following table presents realized and unrealized net gains and losses on financial oil and gas derivative instruments presented in operating revenues and dedesignated cash flow hedges of the predecessor included in accumulated other comprehensive income (in millions):
|
Successor |
|
Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Six Months
ended June 30, 2013 |
February 14
(inception) to June 30, 2012 |
|
January 1 to
May 24, 2012 |
||||||||
Realized and unrealized gains |
$ | 35 | $ | 57 | $ | 365 | ||||||
Accumulated other comprehensive income |
| | 5 |
F-21
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Property, Plant and Equipment
Unproved oil and natural gas properties. As of June 30, 2013 and December 31, 2012, we had $1.8 billion and $2.3 billion of unproved oil and natural gas properties on our consolidated balance sheet. The reduction is largely attributable to transferring approximately $0.5 billion from unproved properties to proved properties. For six months ended June 30, 2013, we recorded $23 million of amortization of unproved leasehold costs in exploration expense in our condensed consolidated income statement. Suspended well costs were not material as of June 30, 2013.
Impairments Assessment. Subsequent to the Acquisition, we applied the successful efforts method of accounting and evaluate capitalized costs related to proved properties at least annually or upon a triggering event to determine if impairment of such properties is necessary. During the second quarter of 2013, we recorded an impairment of approximately $10 million related to our Brazil operations as further described in Note 2. Forward commodity prices can play a significant role in determining impairments. Due to the current forecast of future natural gas prices and considering the significant amount of fair value allocated to our oil and natural gas properties in conjunction with the Acquisition, sustained lower oil and natural gas prices from present levels could result in an impairment of the carrying value of our proved properties in the future.
Asset Retirement Obligations. We have legal asset retirement obligations associated with the retirement, replacement, or removal of our oil and natural gas wells and related infrastructure. We incur these obligations when production on those wells is exhausted, when we no longer plan to use them or when we abandon them. We accrue these obligations when we can estimate the timing and amount of their settlement. In estimating our liability, we utilize several assumptions, including a credit-adjusted risk-free rate of 7 percent and a projected inflation rate of 2.5 percent. The net asset retirement liability is reported on our consolidated balance sheet in other current and non-current liabilities. Changes in the net liability from January 1 through June 30, 2013 related to our continuing operations were as follows:
|
2013 | |||
---|---|---|---|---|
|
(In millions)
|
|||
Net asset retirement liability at January 1 |
$ | 80 | ||
Property sales |
(1 | ) | ||
Accretion expense |
3 | |||
Liabilities incurred |
6 | |||
Changes in estimate |
(2 | ) | ||
Net asset retirement liability at June 30(1) |
$ | 86 | ||
Capitalized Interest. Interest expense is reflected in our financial statements net of capitalized interest. Capitalized interest for the six months ended June 30, 2013 was $8 million. Capitalized interest for the successor period from February 14 (inception) to June 30, 2012 and for the predecessor period from January 1 to May 24, 2012 was $2 million and $4 million, respectively.
F-22
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Long-Term Debt
Listed below are our debt obligations:
|
Interest Rate | June 30, 2013 | ||||
---|---|---|---|---|---|---|
|
|
(In millions)
|
||||
EP Energy LLC |
||||||
$2.5 billion RBL credit facilitydue May 24, 2017 |
Variable | $ | 785 | |||
$750 million term loandue May 24, 2018(1)(3) |
Variable | 743 | ||||
$400 million senior secured term loandue April 30, 2019(2)(3) |
Variable | 399 | ||||
$750 million senior secured notesdue May 1, 2019(3) |
6.875% | 750 | ||||
$2.0 billion senior unsecured notesdue May 1, 2020 |
9.375% | 2,000 | ||||
$350 million senior unsecured notesdue September 1, 2022 |
7.75% | 350 | ||||
EPE Holdings LLC |
||||||
$350 million senior PIK toggle notedue December 21, 2017(4) |
8.125%/8.875% | 365 | ||||
Total |
$ | 5,392 | ||||
During the six months ended June 30, 2013, we amortized $11 million of deferred financing costs. During the period from February 14 (inception) to June 30, 2012, we amortized $3 million of deferred financing costs. During the predecessor period from January 1 to May 24, 2012, we amortized $7 million of deferred financing costs. These costs are included in interest expense. As of June 30, 2013, we had $131 million remaining of unamortized debt issue costs. During the six months ended June 30, 2013, we recorded a $3 million loss on extinguishment of debt in our consolidated income statement for the portion of deferred financing costs written off in conjuction with our $750 million term loan repricing in May 2013 and the first semi-annual redetermination of our RBL in March 2013.
$2.5 Billion Reserve-based Loan (RBL). In March 2013, we completed our first semi-annual redetermination increasing the borrowing base of our RBL Facility from $1.8 billion to $2.5 billion. Under this facility, we can borrow funds or issue letters of credit (LCs). During the six months ended
F-23
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Long-Term Debt (Continued)
June 30, 2013, we borrowed $680 million. As of June 30, 2013, we had $785 million of outstanding borrowings and approximately $9 million of letters of credit issued, leaving $1.71 billion of remaining capacity available under the facility. As of August 13, 2013, we had no outstanding borrowings under the facility.
The RBL Facility is collateralized by certain of our oil and natural gas properties and as noted has a borrowing base subject to semi-annual redetermination if there is a downward revision or a reduction of our oil and natural gas reserves due to future declines in commodity prices, performance revisions, sales of assets or otherwise, if certain other additional debt is incurred. A reduction in our borrowing base could negatively impact our ability to borrow funds under the RBL Facility in the future. On June 7, 2013, we received consents from the lenders and entered into an agreement that provides that the current borrowing base remain in effect, notwithstanding the consummation of potential asset dispositions until the earlier of (i) 30 days after providing a June 30, 2013 reserve report or (ii) September 1, 2013.
Guarantees. Our obligations under the RBL, term loan, secured and unsecured notes are fully and unconditionally guaranteed, jointly and severally, by the present and future direct and indirect wholly-owned material domestic subsidiaries of our subsidiary, EP Energy LLC. Our foreign wholly-owned subsidiaries are not guarantors. As of June 30, 2013, foreign subsidiaries that do not guarantee the unsecured notes held approximately 1% of our consolidated assets and had no outstanding indebtedness, excluding intercompany obligations. For the six months ended June 30, 2013, and for the period from February 14 (inception) to June 30, 2012, these non-guarantor subsidiaries generated between 3% and 8% of our revenue including the impacts of financial derivative instruments.
Restrictive Provisions/Covenants. The availability of borrowings under our credit agreements and our ability to incur additional indebtedness is subject to various financial and non-financial covenants and restrictions. There have been no significant changes to our restrictive covenants, and as of June 30, 2013, we were in compliance with all of our debt covenants. For a further discussion of our credit facilities and restrictive covenants, see our 2012 audited consolidated financial statements.
8. Commitments and Contingencies
Legal Proceedings and Other Contingencies
We and our subsidiaries and affiliates are named defendants in numerous legal proceedings that arise in the ordinary course of our business. There are also other regulatory rules and orders in various stages of adoption, review and/or implementation. For each of these matters, we evaluate the merits of the case or claim, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be estimated, we establish the necessary accruals. While the outcome of these matters cannot be predicted with certainty and there are still uncertainties related to the costs we may incur, based upon our evaluation and experience to date, we believe we have established appropriate reserves. It is possible, however, that new information or future developments could require us to reassess our potential exposure related to these matters and adjust our accruals accordingly, and these adjustments could be material. As of June 30, 2013, we had approximately $2 million accrued for all outstanding legal proceedings and other contingent matters.
F-24
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Commitments and Contingencies (Continued)
Brazil Labor Claim. In Brazil, one of our subsidiaries as well as a formerly affiliated party have been named in a lawsuit by a former contractor of the former affiliated party claiming entitlement to certain employee benefits under Brazilian law. In May 2013, an evidentiary hearing was held in this matter before the administrative judge of the 42nd Labor Court of the State of Rio de Janeiro and on July 19, 2013, a first-level decision was issued finding some liability for a social contribution to the government and that labor benefits are owed to the former contractor only for the period from August 1, 2009 to July 31, 2010. Based on our current analysis of factors surrounding this claim and the above referenced decision, we believe our exposure to this claim, if any, will not be material to our financial statements.
Southeast Louisiana Flood Protection Authority v. EP Energy Management, L.L.C. The levee authority for New Orleans and surrounds have filed suit against 97 oil, gas and pipeline companies, seeking among other relief restoration of wetlands allegedly lost due to historic industry operations in those areas. The suit is filed in Louisiana state court in New Orleans and the amount of damages is unspecified. Our subsidiary, EP Energy Management, L.L.C., is one of the named defendants as successor to Colorado Oil Company, Inc. and Gas Producing Enterprises as operators of five to seven wells from the mid-1960s to 1980. The validity of the causes of action as well as our costs and legal exposure, if any, related to the lawsuit are not currently determinable.
Sales Tax Audits. As a result of sales and use tax audits during 2010, the state of Texas asserted additional taxes plus penalties and interest for the audit period 2001-2008 for two of our operating entities. During the quarter ended June 30, 2013, we settled the last of these audits for approximately $3 million, including penalties and fees. As a result of the settlement, we recorded a reduction in taxes, other than income taxes in our consolidated income statement of approximately $13 million.
Environmental Matters
We are subject to existing federal, state and local laws and regulations governing environmental air, land and water quality. The environmental laws and regulations to which we are subject also require us to remove or remedy the effect on the environment of the disposal or release of specified substances at current and former operating sites. As of June 30, 2013, we had accrued less than $1 million for related environmental remediation costs associated with onsite, offsite and groundwater technical studies and for related environmental legal costs. Our accrual represents a combination of two estimation methodologies. First, where the most likely outcome can be reasonably estimated, that cost has been accrued. Second, where the most likely outcome cannot be estimated, a range of costs is established and if no one amount in that range is more likely than any other, the lower end of the expected range has been accrued. Our exposure is estimated to be as high as $1 million. Our environmental remediation projects are in various stages of completion. The liabilities we have recorded reflect our current estimates of amounts that we will expend to remediate these sites. However, depending on the stage of completion or assessment, the ultimate extent of contamination or remediation required may not be known. As additional assessments occur or remediation efforts continue, we may incur additional liabilities.
Climate Change and other Emissions. The EPA and several state environmental agencies have adopted regulations to regulate greenhouse gas (GHG) emissions. Although the EPA has adopted a
F-25
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Commitments and Contingencies (Continued)
"tailoring" rule to regulate GHG emissions, at this time we do not expect a material impact to our existing operations. There have also been various legislative and regulatory proposals and final rules at the federal and state levels to address emissions from power plants and industrial boilers. Although such rules and proposals will generally favor the use of natural gas over other fossil fuels such as coal, it remains uncertain what regulations will ultimately be adopted and when they will be adopted. In addition, any regulations regulating GHG emissions would likely increase our costs of compliance by potentially delaying the receipt of permits and other regulatory approvals; requiring us to monitor emissions, install additional equipment or modify facilities to reduce GHG and other emissions; purchase emission credits; and utilize electric-driven compression at facilities to obtain regulatory permits and approvals in a timely manner.
Air Quality Regulations. In August 2010, the EPA finalized a rule that mandates emission reductions of hazardous air pollutants from reciprocating internal combustion engines that requires us to install emission controls on engines across our operations. Certain amendments to this rule were finalized in January 2013. Engines subject to the regulations must comply by October 2013. We currently estimate to incur capital expenditures in 2013 to complete the required modifications and testing of less than $1 million.
In August 2012, the EPA finalized New Source Performance Standard regulations to reduce various air pollutants from the oil and natural gas industry. These regulations will limit emissions from the hydraulic fracturing of certain natural gas wells and equipment including compressors, storage vessels and natural gas processing plants. The EPA has recently proposed amendments to this rule, in part phasing in emission controls for storage vessels past current deadlines. We do not anticipate a material impact associated with compliance to these new requirements.
In the State of Utah we are currently obtaining or amending air quality permits for a number of small oil and natural gas production facilities. As part of this permitting process, we anticipate we will incur capital expenditures totaling $2 million in 2013 and 2014 related to the installation of tank emission controls.
Hydraulic Fracturing Regulations. We use hydraulic fracturing extensively in our operations. Various regulations have been adopted and proposed at the federal, state and local levels to regulate hydraulic fracturing operations. These regulations range from banning or substantially limiting hydraulic fracturing operations, requiring disclosure of the hydraulic fracturing fluids and requiring additional permits for the use, recycling and disposal of water used in such operations. In addition, various agencies, including the EPA, the Department of Interior and the Department of Energy, are reviewing changes in their regulations to address the environmental impacts of hydraulic fracturing operations. Until such regulations are implemented, it is uncertain what impact they might have on our operations.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Matters. As part of our environmental remediation projects, we have received notice that we could be designated, or have been asked for information to determine whether we could be designated as a Potentially Responsible Party (PRP) with respect to the Casmalia Remediation site located in California under the CERCLA or state equivalents. As of June 30, 2013, we have estimated our share of the remediation costs at this site to be less than $1 million. Because the clean-up costs are estimates and are subject to revision as more information becomes available about the extent of remediation required, and in some
F-26
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Commitments and Contingencies (Continued)
cases we have asserted a defense to any liability, our estimates could change. Moreover, liability under the federal CERCLA statute may be joint and several, meaning that we could be required to pay in excess of our pro rata share of remediation costs. Our understanding of the financial strength of other PRPs has been considered, where appropriate, in estimating our liabilities. Accruals for these matters are included in the environmental reserve discussed above.
It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws, regulations, and orders of regulatory agencies, as well as claims for damages to property and the environment or injuries to employees and other persons resulting from our current or past operations, could result in substantial costs and liabilities in the future. As this information becomes available, or other relevant developments occur, we will adjust our accrual amounts accordingly. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we believe our reserves are adequate.
9. Long-Term Incentive Compensation
Our long-term incentive (LTI) programs currently include a cash-based incentive program and certain equity based programs established in conjunction with the Acquisition including Class A "matching units," and management incentive units. In April 2013, we granted additional cash-based LTI awards with a fair value of $21 million on the grant date that are being amortized on an accelerated basis over a three-year vesting period. Each of these awards are further described in our 2012 audited consolidated financial statements.
Compensation expense (recorded as general and administrative expense on our income statement) related to all of our long-term incentive awards was approximately $24 million during the six months ended June 30, 2013 and approximately $11 million for the period from February 14 (inception) to June 30, 2012. As of June 30, 2013, we had unrecognized compensation expense of $56 million related to our cash based long-term incentive awards, Class A "matching units," and management incentive units. We will recognize an additional $16 million related to our outstanding awards during the rest of 2013 and the remainder over the requisite service periods.
10. Investment in Unconsolidated Affiliate
Our investment in Four Star Oil & Gas Company (Four Star), an unconsolidated affiliate, is accounted for using the equity method of accounting. Our condensed consolidated income statement reflects (i) our share of net earnings directly attributable to Four Star, and (ii) the amortization of the excess of the carrying value of our investment relative to the underlying equity in the net assets of the entity. As of June 30, 2013 and December 31, 2012, our investment in Four Star was $209 million and $220 million, respectively. Included in these amounts was approximately $119 million and $125 million, respectively, related to the excess of the carrying value of our investment in Four Star relative to the underlying equity in its net assets.
F-27
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
10. Investment in Unconsolidated Affiliate (Continued)
Below is summarized financial information of the operating results of our unconsolidated affiliate (in millions).
|
Successor |
|
Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Six Months
ended June 30, 2013 |
February 14
(inception) to June 30, 2012 |
|
January 1 to
May 24, 2012 |
||||||||
|
|
(In millions)
|
|
|
||||||||
Operating revenues |
$ | 102 | $ | 8 | $ | 75 | ||||||
Operating expenses |
67 | 12 | 58 | |||||||||
Net income (loss) |
22 | (2 | ) | 11 |
We amortize the excess of our investment in Four Star over the underlying equity in its net assets using the unit-of-production method over the life of our estimate of Four Star's oil and natural gas reserves which are predominantly natural gas reserves. Amortization of our investment for the successor periods related to the six months ended June 30, 2013 and the period from February 14 (inception) to June 30, 2012 was $6 million and $1 million, respectively. Amortization of our investment for the predecessor period from January 1 to May 24, 2012 was $12 million. Changes in natural gas prices impact the fair value of our investment in Four Star, and sustained declines in natural gas prices could cause the fair value of our investment to decline which could require us to record an impairment of the carrying value of our investment in the future if that loss is determined to be other than temporary.
For the six months ended June 30, 2013 and the predecessor period from January 1, 2012 to May 24, 2012, we received dividends from Four Star of approximately $17 million and $8 million, respectively. We did not receive dividends from Four Star for the successor period from February 14, 2012 (inception) to June 30, 2012.
11. Related Party Transactions
Members' Distribution. In August 2013, we made a leveraged distribution of approximately $200 million to our Sponsors.
Management Fee Agreement. We are subject to a management fee agreement with certain of our Sponsors for the provision of certain management consulting and advisory services which terminates on the twelve-year anniversary of the Acquisition date (May 24, 2012) if not terminated earlier by mutual agreement of the parties, or upon a change in control or a specified initial public offering transaction. Under the agreement, we pay a non-refundable annual management fee of $25 million. We recorded management fees within general and administrative expense for the six months ended June 30, 2013 of approximately $13 million and for the period from February 14 (inception) to June 30, 2012 of approximately $2 million.
Affiliate Supply Agreement. In November 2012, we entered into a supply agreement with an Apollo affiliate through October 2014 to provide certain fracturing materials for our Eagle Ford drilling operations. As of June 30, 2013, we recorded approximately $59 million as capital expenditures for amounts provided under this agreement.
F-28
EPE ACQUISITION, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
11. Related Party Transactions (Continued)
Related Party Transactions Prior to the Acquisition. Prior to the completion of the Acquisition, the predecessor entered into transactions during the ordinary course of conducting its business with affiliates of El Paso, primarily related to the sale, transportation and hedging of its oil, natural gas and NGL production. Additionally, El Paso billed the predecessor directly for certain general and administrative costs and allocated a portion of its general and administrative costs. The allocation was based on the estimated level of resources devoted to its operations and the relative size of its earnings before interest and taxes, gross property and payroll. These expenses were primarily related to management, legal, financial, tax, consultative, administrative and other services, including employee benefits, pension benefits, annual incentive bonuses, rent, insurance, and information technology. Prior to the Acquisition, El Paso also (i) billed the predecessor directly for compensation expense related to certain stock-based compensation awards granted directly to the predecessor's employees, and allocated to the predecessor a proportionate share of El Paso's corporate compensation expense (ii) filed consolidated U.S. federal and certain state tax returns which included the predecessor's taxable income and (iii) matched short-term cash surpluses and needs of its participating affiliates to minimize total borrowing from outside sources through its cash management program.. All agreements ceased on the date of the Acquisition. The following table shows revenues and charges to/from affiliates for the following predecessor period:
|
January 1 to
May 24, 2012 |
|||
---|---|---|---|---|
|
(In millions)
|
|||
Operating revenues |
$ | 143 | ||
Operating expenses |
44 |
F-29
Report of Independent Registered Public Accounting Firm
The
Audit Committee of the Board of Managers of
EPE Acquisition, LLC
We have audited the accompanying consolidated financial statements of EPE Acquisition, LLC (and subsidiaries), which comprise the consolidated balance sheets as of December 31, 2012 (Successor) and December 31, 2011 (Predecessor), and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the period from February 14, 2012 to December 31, 2012 (Successor), the period from January 1, 2012 to May 24, 2012 (Predecessor), and each of the two years in the period ended December 31, 2011 (Predecessor). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of Four Star Oil & Gas Company (a corporation in which the Company has an 49% interest), which statements reflect approximately $70 million in investments in unconsolidated affiliates from Four Star Oil & Gas Company as of December 31, 2011 (Predecessor), and approximately $29 million in earnings from unconsolidated affiliates for the year ended December 31, 2011 (Predecessor), from Four Star Oil & Gas Company. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Four Star Oil & Gas Company, is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of EPE Acquisition, LLC at December 31, 2012 (Successor) and December 31, 2011 (Predecessor), and the consolidated results of its operations and its cash flows for the period from February 14, 2012 to December 31, 2012 (Successor), the period from January 1, 2012 to May 24, 2012 (Predecessor), and for each of the two years in the period ended December 31, 2011 (Predecessor) in conformity with U.S. generally accepted accounting principles.
|
/s/ Ernst & Young LLP |
Houston, Texas
June 28, 2013
Except for Notes 1 and 2, as to which that date is
August 14, 2013
F-30
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and the Stockholders of
Four Star Oil & Gas Company:
In our opinion, the consolidated balance sheet and the related consolidated statements of income, of stockholders' equity and of cash flows (not presented separately herein) present fairly, in all material respects, the financial position of Four Star Oil & Gas Company and its subsidiary (the "Company") at December 31, 2011, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As described in Notes 4 and 5 to the consolidated financial statements, the Company has significant transactions with affiliated companies. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.
/s/PricewaterhouseCoopers LLP
|
||
February 24, 2012 Houston, Texas |
|
|
F-31
EPE ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF INCOME
(In millions)
|
Successor |
|
Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
February 14
(inception) to December 31, 2012 |
|
January 1 to
May 24, 2012 |
Year Ended
December 31, 2011 |
Year Ended
December 31, 2010 |
||||||||||
Operating revenues |
|||||||||||||||
Oil and condensate |
$ | 555 | $ | 322 | $ | 552 | $ | 346 | |||||||
Natural gas |
278 | 262 | 973 | 974 | |||||||||||
NGL |
32 | 29 | 57 | 60 | |||||||||||
Financial derivatives |
(62 | ) | 365 | 284 | 390 | ||||||||||
Other |
| | 1 | 19 | |||||||||||
Total operating revenues |
803 | 978 | 1,867 | 1,789 | |||||||||||
Operating expenses |
|||||||||||||||
Natural gas purchases |
19 | | | | |||||||||||
Transportation costs |
51 | 45 | 85 | 73 | |||||||||||
Lease operating expense |
96 | 96 | 217 | 193 | |||||||||||
General and administrative |
371 | 75 | 201 | 190 | |||||||||||
Depreciation, depletion and amortization |
217 | 319 | 612 | 477 | |||||||||||
Ceiling test charges |
| 62 | 158 | 25 | |||||||||||
Impairments |
1 | | | | |||||||||||
Exploration expense |
50 | | | | |||||||||||
Taxes, other than income taxes |
51 | 45 | 91 | 85 | |||||||||||
Other |
| | | 15 | |||||||||||
Total operating expenses |
856 | 642 | 1,364 | 1,058 | |||||||||||
Operating (loss) income |
(53 | ) | 336 | 503 | 731 | ||||||||||
Loss from unconsolidated affiliate |
(1 | ) | (5 | ) | (7 | ) | (7 | ) | |||||||
Other income (expense) |
3 | (3 | ) | (2 | ) | 3 | |||||||||
Loss on extinguishment of debt |
(14 | ) | | | | ||||||||||
Interest expense |
|||||||||||||||
Third party |
(219 | ) | (14 | ) | (9 | ) | (16 | ) | |||||||
Affiliated |
| | (3 | ) | (5 | ) | |||||||||
(Loss) income from continuing operations before income taxes |
(284 | ) | 314 | 482 | 706 | ||||||||||
Income tax expense |
2 | 136 | 220 | 263 | |||||||||||
(Loss) income from continuing operations |
(286 | ) | 178 | 262 | 443 | ||||||||||
Income from discontinued operations |
30 | | | | |||||||||||
Net (loss) income |
$ | (256 | ) | $ | 178 | $ | 262 | $ | 443 | ||||||
See accompanying notes.
F-32
EPE ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
|
|
|
|
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Successor |
|
Predecessor | ||||||||||||
|
February 14
(inception) to December 31, 2012 |
|
January 1 to
May 24, 2012 |
Year Ended
December 31, 2011 |
Year Ended
December 31, 2010 |
||||||||||
Net (loss) income |
$ | (256 | ) | $ | 178 | $ | 262 | $ | 443 | ||||||
Cash flow hedging activities: |
|||||||||||||||
Reclassification adjustment(1) |
| 3 | 7 | 7 | |||||||||||
Comprehensive (loss) income |
$ | (256 | ) | $ | 181 | $ | 269 | $ | 450 | ||||||
See accompanying notes.
F-33
EPE ACQUISITION, LLC
CONSOLIDATED BALANCE SHEETS
(In millions)
|
Successor
December 31, 2012 |
|
Predecessor
December 31, 2011 |
||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS |
|||||||||
Current assets |
|||||||||
Cash and cash equivalents |
$ | 69 | $ | 25 | |||||
Accounts receivable |
|||||||||
Customer, net of allowance of less than $1 in 2012 and 2011 |
185 | 135 | |||||||
Affiliates |
| 132 | |||||||
Other, net of allowance of $1 for 2012 and $7 for 2011 |
15 | 39 | |||||||
Materials and supplies |
16 | 28 | |||||||
Derivatives |
108 | 272 | |||||||
Assets of discontinued operations |
994 | | |||||||
Prepaid assets |
18 | 12 | |||||||
Other |
4 | 15 | |||||||
Total current assets |
1,409 | 658 | |||||||
Property, plant and equipment, at cost |
|||||||||
Oil and natural gas properties, of which $481 was excluded from amortization for 2011 |
6,605 | 21,923 | |||||||
Other property, plant and equipment |
53 | 147 | |||||||
|
6,658 | 22,070 | |||||||
Less accumulated depreciation, depletion and amortization |
220 | 18,003 | |||||||
Total property, plant and equipment, net |
6,438 | 4,067 | |||||||
Other assets |
|||||||||
Investment in unconsolidated affiliate |
220 | 346 | |||||||
Derivatives |
88 | 9 | |||||||
Deferred income taxes |
6 | 7 | |||||||
Unamortized debt issue cost |
140 | 8 | |||||||
Other |
5 | 4 | |||||||
|
459 | 374 | |||||||
Total assets |
$ | 8,306 | $ | 5,099 | |||||
See accompanying notes.
F-34
EPE ACQUISITION, LLC
CONSOLIDATED BALANCE SHEETS (Continued)
(In millions)
|
Successor
December 31, 2012 |
|
Predecessor
December 31, 2011 |
||||||
---|---|---|---|---|---|---|---|---|---|
LIABILITIES AND EQUITY |
|||||||||
Current liabilities |
|||||||||
Accounts payable |
|||||||||
Trade |
$ | 98 | $ | 140 | |||||
Affiliates |
| 47 | |||||||
Other |
347 | 258 | |||||||
Derivatives |
17 | 7 | |||||||
Accrued taxes other than income |
21 | 33 | |||||||
Accrued interest |
57 | | |||||||
Deferred income taxes |
| 91 | |||||||
Accrued taxes |
19 | | |||||||
Asset retirement obligations |
4 | 5 | |||||||
Liabilities of discontinued operations |
156 | | |||||||
Other accrued liabilities |
45 | 8 | |||||||
Total current liabilities |
764 | 589 | |||||||
Long-term debt |
4,695 | 851 | |||||||
Other long-term liabilities |
|||||||||
Derivatives |
14 | 73 | |||||||
Asset retirement obligations |
76 | 148 | |||||||
Deferred income taxes |
| 291 | |||||||
Other |
9 | 47 | |||||||
Total non-current liabilities |
4,794 | 1,410 | |||||||
Commitments and contingencies (Note 8) |
|||||||||
Members'/Stockholder's equity |
|||||||||
Common stock, par value $1 per share; 1,000 shares authorized and outstanding at December 31, 2011 |
| | |||||||
Additional paid-in capital |
| 4,580 | |||||||
Accumulated deficit |
| (1,476 | ) | ||||||
Accumulated other comprehensive loss |
| (4 | ) | ||||||
Members' equity |
2,748 | | |||||||
Total members'/stockholder's equity |
2,748 | 3,100 | |||||||
Total liabilities and equity |
$ | 8,306 | $ | 5,099 | |||||
See accompanying notes.
F-35
EPE ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
Successor |
|
Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
February 14
(inception) to December 31, 2012 |
|
January 1 to
May 24, 2012 |
Year Ended
December 31, 2011 |
Year Ended
December 31, 2010 |
||||||||||
Cash flows from operating activities |
|||||||||||||||
Net (loss) income |
$ | (256 | ) | $ | 178 | $ | 262 | $ | 443 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities |
|||||||||||||||
Depreciation, depletion and amortization |
268 | 319 | 612 | 477 | |||||||||||
Deferred income tax expense |
1 | 199 | 304 | 320 | |||||||||||
Loss from unconsolidated affiliates, net of cash distributions |
15 | 12 | 53 | 57 | |||||||||||
Impairments/Ceiling test charges |
1 | 62 | 158 | 25 | |||||||||||
Loss on extinguishment of debt |
14 | | | | |||||||||||
Amortization of equity compensation expense |
17 | | | | |||||||||||
Non-cash portion of exploration expense |
23 | | | | |||||||||||
Amortization of debt issuance cost |
13 | 7 | 3 | 5 | |||||||||||
Other non-cash income items |
| | 1 | | |||||||||||
Asset and liability changes |
|||||||||||||||
Accounts receivable |
(73 | ) | 132 | (20 | ) | (17 | ) | ||||||||
Accounts payable |
66 | (56 | ) | (67 | ) | 90 | |||||||||
Affiliate income taxes |
| 4 | 83 | (172 | ) | ||||||||||
Derivatives |
281 | (201 | ) | 47 | (99 | ) | |||||||||
Accrued interest |
57 | (1 | ) | (1 | ) | 1 | |||||||||
Other asset changes |
(18 | ) | (3 | ) | 12 | 16 | |||||||||
Other liability changes |
40 | (72 | ) | (21 | ) | (79 | ) | ||||||||
Net cash provided by operating activities |
449 | 580 | 1,426 | 1,067 | |||||||||||
Cash flows from investing activities |
|||||||||||||||
Capital expenditures |
(877 | ) | (636 | ) | (1,591 | ) | (1,238 | ) | |||||||
Net proceeds from the sale of assets |
110 | 9 | 612 | 155 | |||||||||||
Cash paid for acquisitions, net of cash acquired |
(7,126 | ) | (1 | ) | (22 | ) | (51 | ) | |||||||
Increase in note receivable with parent |
| | (236 | ) | | ||||||||||
Other |
| | | 4 | |||||||||||
Net cash used in investing activities |
(7,893 | ) | (628 | ) | (1,237 | ) | (1,130 | ) | |||||||
Cash flows from financing activities |
|||||||||||||||
Proceeds from long-term debt |
5,825 | 215 | 2,030 | 500 | |||||||||||
Repayment of long-term debt |
(1,139 | ) | (1,065 | ) | (1,480 | ) | (1,034 | ) | |||||||
Contributed member equity |
3,323 | | | | |||||||||||
Contribution from parent |
| 960 | | | |||||||||||
Distributions to members |
(337 | ) | | | | ||||||||||
Change in note payable with parent |
| | (781 | ) | 489 | ||||||||||
Debt issuance costs |
(159 | ) | | (7 | ) | (1 | ) | ||||||||
Net cash provided by (used in) financing activities |
7,513 | 110 | (238 | ) | (46 | ) | |||||||||
Change in cash and cash equivalents |
69 | 62 | (49 | ) | (109 | ) | |||||||||
Cash and cash equivalents |
|||||||||||||||
Beginning of period |
| 25 | 74 | 183 | |||||||||||
End of period |
$ | 69 | $ | 87 | $ | 25 | $ | 74 | |||||||
Supplemental cash flow information |
|||||||||||||||
Interest paid, net of amounts capitalized |
$ | 145 | $ | 7 | $ | 9 | $ | 7 | |||||||
Income tax (refunds) payments |
2 | 2 | (158 | ) | 105 |
See accompanying notes.
F-36
EPE ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
|
Shares |
Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings (Accumulated deficit) |
Accumulated
Other Comprehensive Income |
Total
Stockholder's / Members' Equity |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Predecessor |
|||||||||||||||||||
Balance at January 1, 2010 |
1.000 | $ | | $ | 4,725 | $ | (2,178 | ) | $ | (18 | ) | $ | 2,529 | ||||||
Contribution from parent |
| 91 | | | 91 | ||||||||||||||
Other |
| | (3 | ) | 7 | 4 | |||||||||||||
Net income |
| | 443 | | 443 | ||||||||||||||
Balance at December 31, 2010 |
1,000 | $ | | $ | 4,816 | $ | (1,738 | ) | $ | (11 | ) | $ | 3,067 | ||||||
Distribution to parent |
| (236 | ) | | | (236 | ) | ||||||||||||
Other |
| | | 7 | 7 | ||||||||||||||
Net income |
| | 262 | | 262 | ||||||||||||||
Balance at December 31, 2011 |
1,000 | $ | | $ | 4,580 | $ | (1,476 | ) | $ | (4 | ) | $ | 3,100 | ||||||
Contribution from parent |
| 1,481 | | | 1,481 | ||||||||||||||
Other |
| 12 | | 3 | 15 | ||||||||||||||
Net income |
| | 178 | | 178 | ||||||||||||||
Elimination of predecessor parent stockholder's equity |
(1,000 | ) | | (6,073 | ) | 1,298 | 1 | (4,774 | ) | ||||||||||
Balance at May 24, 2012 |
| $ | | $ | | $ | | $ | | $ | | ||||||||
Successor |
|||||||||||||||||||
Balance at February 14, 2012 (inception) |
$ | | |||||||||||||||||
Member contributions |
3,324 | ||||||||||||||||||
Member distributions |
(337 | ) | |||||||||||||||||
Equity compensation expense |
17 | ||||||||||||||||||
Net loss |
(256 | ) | |||||||||||||||||
Balance at December 31, 2012 |
$ | 2,748 | |||||||||||||||||
See accompanying notes.
F-37
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Significant Accounting Policies and Subsequent Events
Basis of Presentation and Consolidation
EPE Acquisition, LLC (the successor) was formed as a Delaware limited liability company on February 14, 2012 by investment funds affiliated with and managed by Apollo Global Management LLC (Apollo) and other private equity investors (collectively, the Sponsors) as a company with no independent operations. EPE Acquisition, LLC, through its wholly-owned subsidiaries, owns the common stock of EP Energy Bondco Inc. and the units of EP Energy LLC (which owns 100 percent of EP Energy Global LLC). On May 24, 2012, the Sponsors acquired EP Energy Global LLC (formerly known as EP Energy Corporation and EP Energy, L.L.C. after its conversion into a Delaware limited liability company) and subsidiaries for approximately $7.2 billion in cash (the Acquisition) as contemplated by the merger agreement among El Paso Corporation (El Paso) and Kinder Morgan, Inc. (KMI) which is further described in Note 2. The entities acquired are engaged in the exploration for and the acquisition, development, and production of oil, natural gas and NGLs primarily in the United States, with international activities in Brazil. Hereinafter, the acquired entities are referred to as the predecessor for financial accounting and reporting purposes.
Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles and include the accounts of all consolidated subsidiaries after the elimination of all significant intercompany accounts and transactions. Predecessor periods reflect reclassifications to conform to EPE Acquisition, LLC's financial statement presentation.
We consolidate entities when we have the ability to control the operating and financial decisions of the entity or when we have a significant interest in the entity that gives us the ability to direct the activities that are significant to that entity. The determination of our ability to control, direct or exert significant influence over an entity involves the use of judgment. We apply the equity method of accounting where we can exert significant influence over, but do not control or direct the policies, decisions and activities of an entity. We use the cost method of accounting where we are unable to exert significant influence over the entity.
Our oil and natural gas properties are managed as a whole in one operating segment rather than through discrete operating segments or business units. We track basic operational data by area and allocate capital resources on a project-by-project basis across our entire asset base without regard to individual areas. We assess financial performance as a single enterprise and not on a geographical area basis.
Use of Estimates
The preparation of our financial statements requires the use of estimates and assumptions that affect the amounts we report as assets, liabilities, revenues and expenses and our disclosures in these financial statements. Actual results can, and often do, differ from those estimates.
Revenue Recognition
Our revenues are generated primarily through the physical sale of oil, condensate, natural gas and NGLs. Revenues from sales of these products are recorded upon delivery and the passage of title using the sales method, net of any royalty interests or other profit interests in the produced product. Revenues related to products delivered, but not yet billed, are estimated each month. These estimates are based on contract data, commodity prices and preliminary throughput and allocation measurements.
F-38
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation, Significant Accounting Policies and Subsequent Events (Continued)
When actual sales volumes exceed our entitled share of sales volumes, an overproduced imbalance occurs. To the extent the overproduced imbalance exceeds our share of the remaining estimated proved natural gas reserves for a given property, we record a liability. Costs associated with the transportation and delivery of production are included in transportation costs. We also purchase and sell natural gas on a monthly basis to manage our overall natural gas production and sales. These transactions are undertaken to optimize prices we receive for our natural gas, to physically move gas to its intended sales point, or to manage firm transportation agreements. Revenue related to these transactions are recorded in natural gas sales in operating revenues and associated purchases reflected in natural gas purchases in operating expenses on our consolidated income statement. We present these purchases and sales transactions on a gross basis in the successor period. As of December 31, 2012, we had one customer that accounted for 10 percent or more of our total revenues. The predecessor period in 2012 had three customers, and for the years ended December 31, 2011 and 2010, had one customer that accounted for 10 percent or more of total revenues. The loss of any one customer would not have an adverse effect on our ability to sell our oil, natural gas and NGL production.
Cash and Cash Equivalents
We consider short-term investments with an original maturity of less than three months to be cash equivalents. As of December 31, 2012 and 2011, we had less than $1 million, respectively, of restricted cash in other current assets to cover escrow amounts required for leasehold agreements in our domestic operations.
Allowance for Doubtful Accounts
We establish provisions for losses on accounts receivable and for natural gas imbalances with other parties if we determine that we will not collect all or part of the outstanding balance. We regularly review collectibility and establish or adjust our allowance as necessary using the specific identification method.
Oil and Natural Gas Properties
Successful Efforts (Successor). In conjunction with the Acquisition, we began applying the successful efforts method of accounting for oil and natural gas exploration and development activities.
Under the successful efforts method, (i) lease acquisition costs and all development costs are capitalized and exploratory drilling costs are capitalized until results are determined, (ii) other non-drilling exploratory costs, including certain geological and geophysical costs such as seismic costs and delay rentals, are expensed as incurred, (iii) certain internal costs directly identified with the acquisition, successful drilling of exploratory wells and development activities are capitalized, and (iv) interest costs related to financing oil and natural gas projects actively being developed are capitalized until the projects are evaluated or substantially complete and ready for their intended use if the projects were evaluated as successful.
The provision for depreciation, depletion, and amortization is determined on a basis identified by common geological structure or stratigraphic conditions applied to total capitalized costs, plus future abandonment costs net of salvage value, using the unit of production method. Lease acquisition costs are amortized over total proved reserves, and other exploratory drilling and all developmental costs are amortized over total proved developed reserves.
F-39
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation, Significant Accounting Policies and Subsequent Events (Continued)
We evaluate capitalized costs related to proved properties at least annually or upon a triggering event to determine if impairment of such properties is necessary. Our evaluation is made based on common geological structure or stratigraphic conditions and considers estimated future cash flows for all proved developed (producing and non-producing) and proved undeveloped reserves in comparison to the carrying amount of the proved properties to determine recoverability. If the carrying amount of a property exceeds the estimated undiscounted future cash flows, the carrying amount is reduced to estimated fair value through a charge to income. Fair value is calculated by discounting the future cash flows based on estimates of future oil and gas production, commodity prices based on published forward commodity price curves as of the date of the estimate, adjusted for geographical location and quality differentials, estimates of future operating and development costs, and a risk-adjusted discount rate. The discount rate is based on rates utilized by market participants that are commensurate with the risks inherent in the development and production of the underlying natural gas and crude oil.
Full Cost (Predecessor). Prior to the Acquisition, the predecessor used the full cost method to account for their oil and natural gas properties. Under the full cost method, substantially all costs incurred in connection with the acquisition, development and exploration of oil and natural gas reserves were capitalized on a country-by-country basis. These capitalized amounts included the costs of unproved properties, internal costs directly related to acquisition, development and exploration activities, asset retirement costs and capitalized interest. Under the full cost method, both dry hole costs and geological and geophysical costs were capitalized into the full cost pool, which was subject to amortization and was periodically assessed for impairment through a ceiling test calculation.
Under full cost accounting, capitalized costs associated with proved reserves were amortized over the life of the proved reserves using the unit of production method. Conversely, capitalized costs associated with unproved properties were excluded from the amortizable base until these properties were evaluated or determined that the costs were impaired. On a quarterly basis, unproved property costs were transferred into the amortizable base when properties were determined to have proved reserves. If costs were determined to be impaired, the amount of any impairment was transferred to the full cost pool if an oil or natural gas reserve base exists, or was expensed if a reserve base has not yet been created. The amortizable base included future development costs; dismantlement, restoration and abandonment costs, net of estimated salvage values; and geological and geophysical costs incurred that could not be associated with specific unevaluated properties or prospects in which we owned a direct interest.
Under full cost accounting, capitalized costs in each country, net of related deferred income taxes, were limited to a ceiling based on the present value of future net revenues from proved reserves less estimated future capital expenditures, discounted at 10 percent, plus the cost of unproved oil and natural gas properties not being amortized, less related income tax effects. Prior to the Acquisition, this ceiling test calculation was performed each quarter. The prices used when performing the ceiling test were based on the unweighted arithmetic average of the price on the first day of each month within the 12-month period prior to the end of the reporting period. These prices were required to be held constant over the life of the reserves, even though actual prices of oil and natural gas changed from period to period. If total capitalized costs exceeded the ceiling, a writedown of capitalized costs to the ceiling was required. Any required write-down was included as a ceiling test charge in the consolidated income statement and as an increase to accumulated depreciation, depletion and amortization on the consolidated balance sheet. The present value of future net revenues used for these ceiling test
F-40
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation, Significant Accounting Policies and Subsequent Events (Continued)
calculations excludes the impact of derivatives and the estimated future cash outflows associated with asset retirement liabilities related to proved developed reserves.
Property, Plant and Equipment (Other than Oil and Natural Gas Properties)
Our property, plant and equipment, other than our assets accounted for under the successful efforts method, are recorded at their original cost of construction or, upon acquisition, at the fair value of the assets acquired. We capitalize the major units of property replacements or improvements and expense minor items. We depreciate our non-oil and natural gas property, plant and equipment using the straight-line method over the useful lives of the assets which range from three to 15 years.
Accounting for Asset Retirement Obligations
We record a liability for legal obligations associated with the replacement, removal or retirement of our long-lived assets in the period the obligation is incurred and estimable. Our asset retirement liabilities are initially recorded at their estimated fair value with a corresponding increase to property, plant and equipment. This increase in property, plant and equipment is then depreciated over the useful life of the asset to which that liability relates. An ongoing expense is recognized for changes in the value of the liability as a result of the passage of time, which we record as depreciation, depletion and amortization expense in our consolidated income statement.
Accounting for Long-Term Incentive Compensation
We measure the cost of long-term incentive compensation based on the grant date fair value of the award. Awards issued under these programs are recognized as either equity awards or liability awards based on their characteristics. Cost is recognized in our consolidated financial statements as general and administrative expense over the requisite service period, net of estimated forfeitures. See Note 9.
Environmental Costs and Other Contingencies
Environmental Costs. We record environmental liabilities at their undiscounted amounts on our consolidated balance sheet in other current and long-term liabilities when our environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of our environmental liabilities are based on current available facts, existing technology and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites, other companies' clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations. Our estimates are subject to revision in future periods based on actual costs or new circumstances. We capitalize costs that benefit future periods and we recognize a current period charge in general and administrative expense when clean-up efforts do not benefit future periods.
We evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements of remediation costs from third parties, including insurance coverage, separately from our liability. Recovery is evaluated based on the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and report an asset separately from the associated liability on our consolidated balance sheet.
F-41
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation, Significant Accounting Policies and Subsequent Events (Continued)
Other Contingencies. We recognize liabilities for other contingencies when we have an exposure that indicates it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Where the most likely outcome of a contingency can be reasonably estimated, we accrue a liability for that amount. Where the most likely outcome cannot be estimated, a range of potential losses is established and if no one amount in that range is more likely than any other to occur, the low end of the range is accrued.
Derivatives
We enter into derivative contracts on our oil and natural gas products primarily to stabilize cash flows and reduce the risk and financial impact of downward commodity price movements on commodity sales. We also use derivatives to reduce the risk of variable interest rates.
Our derivatives are reflected on our consolidated balance sheet at their fair value as assets and liabilities. We classify our derivatives as either current or non-current assets or liabilities based on their anticipated settlement date. We net derivative assets and liabilities on counterparties where we have a legal right of offset.
All of our derivatives are marked-to-market each period and changes in the fair value of our commodity based derivatives, as well as any realized amounts, are reflected as operating revenues. Changes in the fair value of our interest rate derivatives are reflected as interest expense.
We enter into derivative contracts for the purpose of economically hedging the price of our anticipated oil and natural gas production even though we do not designate the derivatives as hedges for accounting purposes. We classify cash flows related to derivative contracts based on the nature and purpose of the derivative. As the derivative cash flows are considered an integral part of our oil and natural gas operations, they are classified as cash flows from operating activities. In our consolidated balance sheet, receivables and payables resulting from the settlement of our derivative instruments are reported as trade receivables and payables. See Note 5 for a further discussion of our derivatives.
Income Taxes
We are a limited liability company, treated as a partnership for federal and state income tax purposes, with income tax liabilities and/or benefits passed through to our members. Our subsidiary, EP Energy LLC is, however subject to the Texas margin tax and pays any liability directly to the state of Texas. The aggregate difference in the basis of net assets for financial and tax reporting purposes cannot be readily determined as we do not have access to information about each member's tax attributes.
Our Brazil operations are corporate entities for Brazil purposes. For Brazil, we record current income taxes based on our current taxable income and provide for deferred income taxes to reflect estimated future tax payments and receipts. We also record deferred tax assets and liabilities, which represent the tax impacts of differences between the financial statement and tax bases of assets and liabilities and carryovers at each year end. We account for tax credits in Brazil under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available.
The realization of our deferred tax assets related to our Brazilian operations depends on recognition of sufficient future taxable income in Brazil during periods in which those temporary differences are deductible. We reduce deferred tax assets by a valuation allowance when, based on our
F-42
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation, Significant Accounting Policies and Subsequent Events (Continued)
estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances. In evaluating our valuation allowances, we consider the reversal of existing temporary differences, the existence of taxable income in prior carryback years, tax-planning strategies and future taxable income, the latter two of which involve the exercise of significant judgment. Changes to our valuation allowances could materially impact our results of operations.
Prior to the Acquisition, the predecessor's taxable income or loss was included in El Paso's U.S. federal and certain state returns and we recorded income taxes on a separate return basis in our financial statements as if we had filed separate income tax returns under our then existing structure for the periods presented in accordance with a tax sharing agreement between us and El Paso. Under that agreement El Paso paid all consolidated U.S. federal and state income tax directly to the appropriate taxing jurisdictions and, under a separate tax billing agreement, El Paso billed or refunded for their portion of these income taxes. In certain states, the predecessor filed and paid taxes directly to the state taxing authorities.
Subsequent Events
In June 2013, EP Energy LLC, our wholly-owned subsidiary, entered into three separate agreements to sell its CBM properties located in the Raton, Black Warrior and Arkoma basins; its Arklatex conventional natural gas assets located in East Texas and North Louisiana and its legacy South Texas conventional natural gas assets as further described in Note 2. Additionally, we entered into offsetting positions on natural gas derivatives of 35 TBtu on anticipated 2013 production and 42 TBtu on anticipated 2014 production due to an expected decline in natural gas volumes following the sale of these natural gas assets.
On July 16, 2013, we entered into a Quota Purchase Agreement to sell our Brazil operations which is expected to close by the end of the first quarter of 2014. The sale is subject to Brazilian regulatory approval, as well as certain other customary closing conditions.
In August 2013, we made a leveraged distribution of approximately $200 million to our Sponsors.
2. Acquisitions and Divestitures
Acquisitions. On May 24, 2012, Apollo and other investors acquired all of the equity of our wholly owned subsidiary, EP Energy Global LLC for approximately $7.2 billion. The Acquisition was funded with approximately $3.3 billion in equity contributions (which were raised in exchange for the issuance of Class A member units of EPE Acquisition, LLC) and the issuance of approximately $4.25 billion of debt. In conjunction with the sale, a portion of the proceeds were also used to repay approximately $960 million outstanding under EP Energy Global LLC's revolving credit facility at that time. See Note 7 for additional discussion of debt.
The purchase transaction was accounted for under the acquisition method of accounting which requires, among other items, that assets and liabilities assumed be recognized on the consolidated balance sheet at their fair values as of the Acquisition date. Our consolidated balance sheet presented as of December 31, 2012, reflects our purchase price allocation based on available information to
F-43
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Acquisitions and Divestitures (Continued)
specific assets and liabilities assumed based on estimates of fair values and costs. There was no goodwill associated with the transaction.
Allocation of purchase price
|
May 24, 2012 | |||
---|---|---|---|---|
|
(In millions)
|
|||
Current assets |
$ | 587 | ||
Non-current assets |
446 | |||
Property, plant and equipment |
6,897 | |||
Current liabilities |
(420 |
) |
||
Non-current liabilities |
(297 | ) | ||
Total purchase price |
$ | 7,213 | ||
The unaudited pro forma information below for the year ended December 31, 2012, has been derived from the consolidated financial statements and has been prepared as though the Acquisition occurred as of the beginning of January 1, 2011. The unaudited pro forma information does not purport to represent what our results of operations would have been if such transactions had occurred on such date.
|
Year ended
December 31, 2012 |
Year ended
December 31, 2011 |
|||||
---|---|---|---|---|---|---|---|
|
(In millions)
|
||||||
Operating revenues |
$ | 1,925 | $ | 1,867 | |||
Net income |
143 | 454 |
Divestitures. In 2012, our divestitures primarily related to the sale of our Egypt interests for approximately $22 million and the sale of oil and natural gas properties located in the Gulf of Mexico for a gross purchase price of approximately $103 million. Proceeds from the Gulf of Mexico sale net of purchase price adjustments were approximately $79 million. We did not record a gain or loss on any of these sales as the purchase price allocated to the assets sold was reflective of the estimated sales price of these properties and the relationship between capitalized costs and proved reserves was not altered. During 2011, the predecessor sold non-core oil and natural gas properties located in the Eagle Ford, Southern and Central divisions in several transactions from which they received proceeds that totaled approximately $612 million. During 2010, the predecessor sold processing plants and related gathering systems for cash proceeds of approximately $126 million. The predecessor did not record a gain or loss on any of these sales.
Discontinued Operations. In June 2013, we entered into three separate agreements to sell certain of our domestic natural gas assets, including CBM properties located in the Raton, Arkoma, and the Black Warrior basins; natural gas properties in South Texas; and the majority of our Arklatex natural gas properties. In July and August 2013 we closed these sales for total consideration of approximately $1.3 billion. As a result of entry into these agreements, we have classified the assets and liabilities associated with these assets as discontinued operations in our consolidated balance sheet as of December 31, 2012. We have classified the results of operations of the assets held for sale as income (loss) from discontinued operations in the successor period subsequent to the Acquisition (May 25, 2012). For periods prior to the Acquisition, the predecessor applied the full cost method of accounting
F-44
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Acquisitions and Divestitures (Continued)
for oil and natural gas properties where capitalized costs were aggregated by country (e.g. U.S.); accordingly, the assets held for sale did not qualify for, and have not been reflected as discontinued operations in the predecessor financial statement periods. We have also updated financial information and certain related disclosures in these consolidated financial statements for the successor period from inception (February 14, 2012) to December 31, 2012 to reflect the presentation of assets sold in July and August of 2013 as discontinued operations.
Summarized operating results and financial position data of our discontinued operations were as follows (in millions):
|
Successor | |||
---|---|---|---|---|
|
February 14
(inception) to December 31, 2012 |
|||
Operating revenues |
$ | 187 | ||
Operating expenses |
||||
Natural gas purchases |
24 | |||
Transportation costs |
22 | |||
Lease operating expense |
40 | |||
Depreciation, depletion and amortization |
51 | |||
Other expense |
20 | |||
Total operating expenses |
157 | |||
Income from discontinued operations |
$ | 30 | ||
|
December 31,
2012 |
|||
---|---|---|---|---|
Assets of discontinued operations |
||||
Current assets |
$ | 55 | ||
Property, plant and equipment, net |
932 | |||
Other non-current assets |
7 | |||
Total assets of discontinued operations |
$ | 994 | ||
Liabilities of discontinued operations |
||||
Accounts payable |
$ | 40 | ||
Other current liabilities |
5 | |||
Asset retirement obligations |
110 | |||
Other non-current liabilities |
1 | |||
Total liabilities of discontinued operations |
$ | 156 | ||
Other. In conjunction with the Acquisition, approximately $330 million in transaction, advisory, and other fees were incurred, of which $142 million were capitalized as debt issue costs and $15 million were capitalized as prepaid costs in other assets on our consolidated balance sheet. The remaining $173 million in fees were reflected in general and administrative expense in our consolidated income statement. Additionally, during 2012 we recorded approximately $48 million related to transition and
F-45
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Acquisitions and Divestitures (Continued)
restructuring costs, including severance charges totaling approximately $17 million ($4 million related to divested assets). These amounts, substantially all of which had been paid as of December 31, 2012, were included as general and administrative expenses in our consolidated income statement.
3. Ceiling Test Charges
Under the full cost method of accounting, the predecessor recorded ceiling test charges of capitalized costs in each of the U.S. and Brazil full cost pools as well as a non-cash charge of unevaluated costs related to Egypt as noted in the table below.
|
Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
January 1 to
May 24, 2012 |
Year Ended
December 31, 2011 |
Year Ended
December 31, 2010 |
|||||||
|
(In millions)
|
|||||||||
U.S. |
$ | | $ | 6 | $ | | ||||
Brazil |
| 152 | | |||||||
Egypt |
62 | | 25 | |||||||
Total |
$ | 62 | $ | 158 | $ | 25 | ||||
During the first quarter of 2012, the predecessor recorded a non-cash charge of approximately $62 million as a result of the decision to exit exploration activities in Egypt. The charge related to unevaluated costs in that country and included approximately $2 million related to equipment. Forward commodity prices can play a significant role in determining impairments. Due to the current forecast of future natural gas prices and considering the significant amount of fair value allocated to our natural gas and oil properties in conjunction with the Acquisition, sustained lower natural gas and oil prices from present levels could result in an impairment of the carrying value of our proved properties in the future. For the predecessor period ended December 31, 2011, ceiling test charges of approximately $152 million related to Brazil oil and natural gas operations were recorded and an impairment of certain oil field related materials and supplies of $6 million was recorded.
F-46
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Income Taxes
Pretax (Loss) Income and Income Tax Expense (Benefit). The tables below show the pretax income (loss) from continuing operations and the components of income tax expense from continuing operations for the following periods:
|
Successor |
|
Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
February 14
(inception) to December 31, 2012 |
|
January 1 to
May 24, 2012 |
Year ended
December 31, 2011 |
Year ended
December 31, 2010 |
||||||||||
|
|
|
(In millions)
|
||||||||||||
Pretax (Loss) Income |
|||||||||||||||
U.S. |
$ | (300 | ) | $ | 387 | $ | 635 | $ | 736 | ||||||
Foreign |
16 | (73 | ) | (153 | ) | (30 | ) | ||||||||
|
$ | (284 | ) | $ | 314 | $ | 482 | $ | 706 | ||||||
Components of Income Tax Expense (Benefit) |
|||||||||||||||
Current |
|||||||||||||||
Federal |
$ | | $ | (61 | ) | $ | (77 | ) | $ | (71 | ) | ||||
State |
| (3 | ) | 1 | 3 | ||||||||||
Foreign |
1 | 1 | (8 | ) | 11 | ||||||||||
|
1 | (63 | ) | (84 | ) | (57 | ) | ||||||||
Deferred |
|||||||||||||||
Federal |
| 188 | 284 | 314 | |||||||||||
State |
| 11 | 19 | 12 | |||||||||||
Foreign |
1 | | 1 | (6 | ) | ||||||||||
|
1 | 199 | 304 | 320 | |||||||||||
Total income tax expense |
$ | 2 | $ | 136 | $ | 220 | $ | 263 | |||||||
F-47
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Income Taxes (Continued)
Effective Tax Rate Reconciliation. Income taxes included in net income differs from the amount computed by applying the statutory federal income tax rate of 35 percent for the following reasons for the following periods:
|
Successor |
|
Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
February 14
(inception) to December 31, 2012 |
|
January 1 to
May 24, 2012 |
Year ended
December 31, 2011 |
Year ended
December 31, 2010 |
||||||||||
|
|
|
(In millions, except rates)
|
||||||||||||
Income taxes at the statutory federal rate of 35% |
$ | (89 | ) | $ | 110 | $ | 169 | $ | 247 | ||||||
Increase (decrease) |
|||||||||||||||
State income taxes, net of federal income tax effect |
| 5 | 12 | 10 | |||||||||||
Partnership earnings not subject to tax |
89 | | | | |||||||||||
Earnings from unconsolidated affiliates where we received or will receive dividends |
| (2 | ) | (8 | ) | (9 | ) | ||||||||
Valuation allowances |
| | 23 | 6 | |||||||||||
Foreign income (loss) taxed at different rates |
2 | 27 | 24 | 9 | |||||||||||
Other |
| (4 | ) | | | ||||||||||
Income tax expense (benefit) |
$ | 2 | $ | 136 | $ | 220 | $ | 263 | |||||||
Effective tax rate |
1 | % | 43 | % | 46 | % | 37 | % | |||||||
The effective tax rate for the successor period from February 14 (inception) to December 31, 2012 was significantly lower than the statutory rate as we are a limited liability company, treated as a partnership for federal and state income tax purposes, with income tax liabilities and/or benefits passed through to our members. The effective tax rate for the predecessor period from January 1, 2012 to May 24, 2012 was significantly higher than the statutory rate primarily due to the impact of an Egyptian non-cash charge without a corresponding tax benefit. For the year ended December 31, 2011, the effective tax rate was higher than the statutory rate primarily due to the impact of the Brazilian ceiling test charge without a corresponding U.S. or Brazilian tax benefit (deferred tax benefits related to the Brazilian ceiling test charge were offset by an equal valuation allowance) offset by dividend exclusions on earnings from unconsolidated affiliates where the predecessor anticipated receiving dividends and the favorable resolution of certain tax matters related to the first half of 2011.
F-48
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Income Taxes (Continued)
Deferred Tax Assets and Liabilities. The following are the components of net deferred tax assets and liabilities:
|
Successor
December 31, 2012 |
|
Predecessor
December 31, 2011 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
(In millions)
|
||||||||
Deferred tax liabilities |
|||||||||
Property, plant and equipment |
$ | | $ | (495 | ) | ||||
Investments in unconsolidated affiliates |
| (67 | ) | ||||||
Derivatives |
| (73 | ) | ||||||
Other |
(5 | ) | | ||||||
Total deferred tax liabilities |
(5 | ) | (635 | ) | |||||
Deferred tax assets |
|||||||||
Net operating loss and tax credit carryovers |
116 | 458 | |||||||
Property, plant and equipment |
167 | 112 | |||||||
Other |
| 3 | |||||||
Valuation allowance |
(272 | ) | (313 | ) | |||||
Total deferred tax assets |
11 | 260 | |||||||
Net deferred tax assets (liabilities) |
$ | 6 | $ | (375 | ) | ||||
As a partnership, for U.S. federal and state income tax purposes, we do not recognize differences between the underlying tax and book basis of our assets and liabilities as deferred taxes. Thus, the deferred balances in the table above relate solely to Brazil. In conjunction with the Acquisition, U.S. deferred taxes of the predecessor were settled with El Paso through a non-cash contribution.
Unrecognized Tax Benefits. We are not currently subject to any U.S. or state income tax audits. Furthermore, pursuant to the Acquisition agreement, KMI indemnified us for any liability due to most of our entities having been members of the El Paso federal and state returns for any adjustments through the Acquisition date. In Brazil, we continue to have a number of years in which our Brazilian returns are subject to review. The following table shows the balance of unrecognized tax benefits and changes therein:
|
Successor
February 14, 2012 (inception) to December 31. 2012 |
|
Predecessor
Year ended December 31. 2011 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
(In millions)
|
||||||||
Amount at beginning of period |
$ | | $ | 30 | |||||
Amount at Acquisition date |
7 | | |||||||
Foreign currency fluctuations |
(1 | ) | (1 | ) | |||||
Settlements with taxing authorities |
| (1 | ) | ||||||
Amount at December 31 |
$ | 6 | $ | 28 | |||||
As of December 31, 2012 unrecognized tax benefits and any associated interest and penalties would not affect our recorded income tax expense or our effective income tax rate if recognized in
F-49
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Income Taxes (Continued)
future periods since our 2012 deferred tax assets as of December 31, 2012 are fully offset by a valuation allowance. Unrecognized tax benefits for the predecessor were transferred to KMI as part of the Acquisition.
We classify interest and penalties related to unrecognized tax benefits as income taxes in our financial statements. We did not recognize interest and penalties in our consolidated income statements in 2012, nor do we have any accrued interest and penalties on our consolidated balance sheet as of December 31, 2012. As of December 31, 2011, the predecessor had $2 million of accrued interest and penalties on the consolidated balance sheet, and recognized $7 million in interest and penalties related to unrecognized tax benefits.
Net Operating Loss and Tax Credit Carryovers. As of December 31, 2012 we have foreign net operating loss carryovers of $258 million and capital loss carryovers of $82 million. The losses related to Brazil are carried over indefinitely and can be utilized to offset up to 30 percent of Brazilian taxable income annually. As of December 31, 2011, the predecessor had $816 million of federal net operating loss and $340 million of state net operating loss that were transferred to KMI as part of the Acquisition.
Valuation Allowances. As of December 31, 2012, our valuation allowance relates to deferred tax assets recorded on foreign net operating losses and temporary differences. We believe it is more likely than not that we will realize the benefit of our deferred tax assets, net of existing valuation allowances. Changes to the valuation allowance are shown in the table below:
|
Successor
February 14, 2012 (inception) to December 31. 2012 |
|
Predecessor
Year ended December 31. 2011 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
(In millions)
|
||||||||
Amount at beginning of period |
$ | | $ | 291 | |||||
Amount at Acquisition date(1) |
323 | | |||||||
Temporary differences for local differences, impairments, depreciation, depletion and amortization and foreign currency translation |
(19 | ) | 28 | ||||||
Net operating losses |
(2 | ) | (6 | ) | |||||
Transfer on sale of Egypt |
(30 | ) | | ||||||
Amount at December 31 |
$ | 272 | $ | 313 | |||||
F-50
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Financial Instruments
The following table presents the carrying amounts and estimated fair values of the financial instruments:
|
Successor
December 31, 2012 |
|
Predecessor
December 31. 2011 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying
Amount |
Fair Value |
|
Carrying
Amount |
Fair Value | ||||||||||
|
(In millions)
|
||||||||||||||
Long-term debt |
$ | 4,695 | $ | 5,039 | $ | 851 | $ | 765 | |||||||
Derivatives |
$ | 165 | $ | 165 | $ | 201 | $ | 201 | |||||||
For the year ended December 31, 2012 and 2011, the carrying amount of cash and cash equivalents, accounts receivable and accounts payable represent fair value because of the short-term nature of these instruments. We hold long term debt obligations (see Note 7) with various terms. We estimated the fair value of debt (representing a Level 2 fair value measurement) primarily based on quoted market prices for the same or similar issuances, including consideration of our credit risk related to these instruments.
Oil and Natural Gas Derivatives. We attempt to mitigate a portion of our commodity price risk and stabilize cash flows associated with forecasted sales of oil and natural gas production through the use of oil and natural gas swaps, basis swaps and option contracts. As of December 31, 2012 and 2011, 34,232 MBbl and 14,530 MBbl of oil and 276 TBtu and 105 TBtu of natural gas, respectively, are hedged through derivatives. None of these contracts are designated as accounting hedges. Subsequent to December 31, 2012 and as of June 28, 2013, we added fixed price oil derivatives of 5,623 MBbl and fixed price natural gas derivatives of 59 TBtu, and we added oil basis swaps of 9,320 MBbl related to a portion of our crude differential exposure. In addition, in June 2013 we unwound fixed price natural gas derivatives of 35 TBtu on anticipated 2013 production and 38 TBtu on anticipated 2014 production due to an expected decline in natural gas volumes pursuant to entering into purchase and sale agreements on certain natural gas assets as further described in Note 2.
Interest Rate Derivatives. During July 2012, we entered into interest rate swaps with a notional amount of $600 million that are intended to reduce variable interest rate risk. These interest rate derivatives started in November 2012 and extend through April 2017. As of December 31, 2012, we have a $2 million net liability related to interest rate derivatives listed in our consolidated balance sheet. For the period of February 14, 2012 (inception) to December 31, 2012 we recorded an increase of $3 million in interest expense related to our interest rate derivatives.
Fair Value Measurements. We use various methods to determine the fair values of our financial instruments. The fair value of a financial instrument depends on a number of factors, including the availability of observable market data over the contractual term of the underlying instrument. We separate the fair values of our financial instruments into three levels (Levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. Each of the levels are described below:
F-51
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Financial Instruments (Continued)
As of December 31, 2012 and 2011, all financial instruments were classified as Level 2. Our assessment of an instrument within a level can change over time based on the maturity or liquidity of the instrument, which could result in a change in the classification of our financial instruments between other levels.
Financial Statement Presentation. The following table presents the fair value of derivative financial instruments at December 31, 2012 and 2011. Derivative assets and liabilities are netted with counterparties where we have a legal right of offset and derivatives are classified as either current or non-current assets or liabilities based on their anticipated settlement date. On certain derivative contracts recorded as assets in the table below we are exposed to the risk that our counterparties may not perform or post the required collateral.
|
Level 2 | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
Successor
December 31. 2012 |
|
Predecessor
December 31. 2011 |
||||||
|
(In millions)
|
||||||||
Assets |
|||||||||
Oil and natural gas derivatives |
$ | 231 | $ | 304 | |||||
Interest rate derivatives |
4 | | |||||||
Impact of master netting arrangements |
(39 | ) | (23 | ) | |||||
Total net assets |
196 | 281 | |||||||
Liabilities |
|||||||||
Oil and natural gas derivatives |
(64 | ) | (103 | ) | |||||
Interest rate derivatives |
(6 | ) | | ||||||
Impact of master netting arrangements |
39 | 23 | |||||||
Total net liabilities |
(31 | ) | (80 | ) | |||||
Total |
$ | 165 | $ | 201 | |||||
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Financial Instruments (Continued)
The following table presents realized and unrealized net losses on financial oil and natural gas derivatives presented in operating revenues and dedesignated cash flow hedges of the predecessor included in accumulated other comprehensive income (in millions):
Credit Risk. We are subject to the risk of loss on our financial instruments that we would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. We maintain credit policies with regard to our counterparties to minimize our overall credit risk. These policies require (i) the evaluation of potential counterparties' financial condition to determine their credit worthiness; (ii) the daily monitoring of our oil, natural gas and NGL counterparties' credit exposures; (iii) comprehensive credit reviews on significant counterparties from physical and financial transactions on an ongoing basis; (iv) the utilization of contractual language that affords us netting or set off opportunities to mitigate exposure risk; and (v) requiring counterparties to post cash collateral, parent guarantees or letters of credit to minimize credit risk. Our assets from derivatives at December 31, 2012 represent derivative instruments from nine counterparties; all of which are financial institutions that have an "investment grade" (minimum Standard & Poor's rating of A- or better) credit rating. We enter into derivatives directly with third parties and are not currently required to post collateral or other security for credit risk. Subject to the terms of our $2 billion RBL credit facility, collateral or other securities are not exchanged in relation to derivatives activities with the parties in the RBL credit facility.
6. Property, Plant and Equipment
Unproved Oil and Natural Gas Properties (Successor). As of the Acquisition date and December 31, 2012, we had $3.0 billion and $2.3 billion, respectively, of unproved oil and natural gas properties on our consolidated balance sheet primarily a result of the allocation of the purchase price in conjunction with the Acquisition. The reduction is largely attributable to transferring approximately $0.7 billion from unproved properties to proved properties. In addition, we recorded $23 million of amortization of unproved leasehold costs in exploration expense in our consolidated income statement. Suspended well costs were not material as of December 31, 2012.
Unevaluated Capitalized Costs (Predecessor). As of December 31, 2011 unevaluated capitalized costs related to oil and natural gas properties were $399 million in the U.S. and $82 million in Egypt and Brazil. The predecessor excluded capitalized costs of oil and natural gas properties from amortization that were in various stages of evaluation or were part of a major development project.
F-53
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property, Plant and Equipment (Continued)
Presented below is an analysis of the capitalized costs of oil and natural gas properties by year of expenditure that were not being amortized as of December 31, 2011 pending determination of proved reserves (in millions):
|
|
Costs Excluded
for Years Ended December 31(1) |
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Cumulative
Balance December 31, 2011 |
Cumulative
Balance January 1, 2010 |
|||||||||||
|
2011 | 2010 | |||||||||||
U.S. |
|||||||||||||
Acquisition |
$ | 301 | $ | 20 | $ | 206 | $ | 75 | |||||
Exploration |
98 | 80 | 4 | 14 | |||||||||
Total U.S.(2) |
399 | 100 | 210 | 89 | |||||||||
Egypt & Brazil |
|||||||||||||
Acquisition |
36 | 1 | | 35 | |||||||||
Exploration |
46 | 8 | 20 | 18 | |||||||||
Total Egypt & Brazil(3) |
82 | 9 | 20 | 53 | |||||||||
Worldwide |
$ | 481 | $ | 109 | $ | 230 | $ | 142 | |||||
Asset Retirement Obligations. We have legal obligations associated with the retirement of our oil and natural gas wells and related infrastructure. We have obligations to plug wells when production on those wells is exhausted, when we no longer plan to use them or when we abandon them. We accrue a liability on those legal obligations when we can estimate the timing and amount of their settlement and include obligations where we will be legally required to replace, remove or retire the associated assets.
In estimating the liability associated with our asset retirement obligations, we utilize several assumptions, including a credit-adjusted risk-free rate of 7 percent and a projected inflation rate of 2.5 percent. Changes in estimate in the table below represent changes to the expected amount and timing of payments to settle our asset retirement obligations. Typically, these changes primarily result from obtaining new information about the timing of our obligations to plug and abandon oil and natural gas wells and the costs to do so. The net asset retirement liability as of December 31 on our
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property, Plant and Equipment (Continued)
consolidated balance sheet in other current and non-current liabilities, and the changes in that liability for the periods ended December 31 were as follows:
|
Successor
February 14 (inception) to December 31. 2012 |
|
Predecessor
January 1 to December 31. 2011 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
(In millions)
|
||||||||
Net asset retirement liability at beginning of period |
$ | | $ | 135 | |||||
Fair value of asset retirement liability at Acquisition date(1) |
136 | | |||||||
Liabilities settled |
(2 | ) | (16 | ) | |||||
Property sale(2) |
(64 | ) | (9 | ) | |||||
Accretion expense |
4 | 13 | |||||||
Liabilities incurred |
6 | 3 | |||||||
Changes in estimate |
| 27 | |||||||
Net asset retirement liability at December 31 |
$ | 80 | $ | 153 | |||||
Capitalized Interest. Interest expense is reflected in our financial statements net of capitalized interest. We capitalize interest primarily on the costs associated with drilling and completing wells until production begins. The interest rate used is the weighted average interest rate of our outstanding borrowings. Capitalized interest for the period from February 14, 2012 (inception) to December 31, 2012 was $12 million. Capitalized interest for the predecessor periods from January 1, 2012 to May 24, 2012, the years ended December 31, 2011 and 2010 was $4 million, $13 million and $9 million, respectively.
7. Long Term Debt
In conjunction with the Acquisition, we issued or obtained approximately $4.25 billion of debt and repaid EP Energy Global LLC's amounts outstanding with an equity contribution from its then existing parent El Paso. During 2012, EP Energy LLC also re-priced its $750 million term loan at an effective interest rate of 5.0% from 6.5%, issued an additional $350 million of senior unsecured notes, and obtained an additional $400 million through a senior secured term loan. Proceeds were primarily used to paydown amounts outstanding under our RBL credit facility. In December 2012, EPE Holdings LLC (our subsidiary) issued $350 million in senior PIK (pay in kind) toggle notes and used the net proceeds primarily for distributions. We may elect to pay interest on the notes in cash, by increasing the principal amount of the notes by issuing new notes for the entire amount of the interest payment or by paying interest on half of the principal amount of the notes in cash and half in interest. Interest on the notes is payable on December 15 and June 15 of each year. As of December 31, 2012 and as of March 31, 2013 we elected to increase the principal amount of the notes by $1 million and $8 million, respectively, related to interest owed on the notes.
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Long Term Debt (Continued)
Listed below are additional details related to each of our debt obligations and their book values as of the periods presented:
|
Interest Rate |
Successor
December 31, 2012 |
|
Predecessor
December 31, 2011 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(In millions)
|
|||||||||
EP Energy LLC |
|||||||||||
$1 billion revolving credit facilitydue June 2, 2016 |
Variable | $ | | $ | 850 | ||||||
Senior notesdue June 1, 2013 |
7.75% | | 1 | ||||||||
$2 billion RBL credit facilitydue May 24, 2017 |
Variable | 105 | | ||||||||
$750 million term loandue April 24, 2018(1)(3) |
Variable | 742 | | ||||||||
$400 million senior secured term loandue April 30, 2019(2)(3) |
Variable | 399 | | ||||||||
$750 million senior secured notedue May 1, 2019(3) |
6.875% | 750 | | ||||||||
$2.0 billion senior unsecured notedue May 1, 2020 |
9.375% | 2,000 | | ||||||||
$350 million senior unsecured notedue September 1, 2022 |
7.75% | 350 | | ||||||||
EPE Holdings LLC |
|||||||||||
$350 million senior PIK toggle notedue December 21, 2017(4) |
8.125%/8.875% | 349 | | ||||||||
Total |
$ | 4,695 | $ | 851 | |||||||
As of December 31, 2012 we have $140 million in deferred financing costs on our consolidated balance sheet as a result of these financings. During 2012 we recorded amortization of $13 million of deferred financing costs included in interest expense in our consolidated income statement. We also recorded a $14 million loss on debt extinguishment in our consolidated income statement reflecting the pro-rata portion of deferred financing costs written off, debt discount and call premiums paid related to lenders who exited or reduced their loan commitments in conjunction with our $750 million term loan repricing.
$2.0 Billion Reserve-based Loan (RBL). We have a $2.0 billion credit facility in place which allows us to borrow funds or issue letters of credit (LCs). This credit facility is collateralized by certain of our oil and natural gas properties and has a borrowing base subject to redetermination semi-annually beginning in April 2013. A downward revision of oil and natural gas reserves due to future declines in commodity prices, performance revisions or otherwise, could require a redetermination of the
F-56
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Long Term Debt (Continued)
borrowing base and could negatively impact our ability to borrow funds from such facilities in the future. The borrowing base is also impacted if certain other additional debt is incurred. As of December 31, 2012, under the credit facility we had a $1.8 billion RBL borrowing base, $1.7 billion of remaining capacity, $105 million of outstanding borrowings, and approximately $9 million of letters of credit issued. In March 2013, we completed our first semi-annual redetermination increasing the borrowing base of our RBL to $2.5 billion. On June 7, 2013, EP Energy LLC received consents from the lenders under its RBL facility and entered into an agreement to provide that the current borrowing base will remain in effect notwithstanding the consummation of potential asset dispositions until the earlier of (i) 30 days after providing a June 30, 2013 reserve report or (ii) September 1, 2013. As of June 28, 2013, we had $785 million of outstanding borrowings under the RBL Facility. Listed below is a further description of the RBL credit facility as of December 31, 2012:
Credit Facility
|
Maturity Date | Interest Rate | Commitment fees | |||
---|---|---|---|---|---|---|
$2.0 billion RBL |
May 24, 2017 |
LIBOR + 1.50%(1)
1.50% for LCs |
0.375% commitment fee on unused capacity |
Guarantees. Our obligations under the RBL, term loan, secured and unsecured notes are fully and unconditionally guaranteed, jointly and severally, by the present and future direct and indirect wholly-owned material domestic subsidiaries of our subsidiary, EP Energy LLC. Our foreign wholly-owned subsidiaries are not parties to the guarantees. As of December 31, 2012, foreign subsidiaries that will not guarantee the notes held approximately 2% of consolidated assets and had no outstanding indebtedness, excluding intercompany obligations. For the period from February 14, 2012 (inception) to December 31, 2012, non-guarantor subsidiaries generated approximately 7% of our revenue including the impacts of financial derivatives.
Restrictive Provisions/Covenants. The availability of borrowings under our credit agreements and our ability to incur additional indebtedness is subject to various financial and non-financial covenants and restrictions. Our most restrictive financial covenant requires that our debt to EBITDAX ratio, as defined in the credit agreement, must not exceed 5.0 to 1.0 during the current period. Certain other covenants and restrictions, among other things, also limit our and our subsidiaries' ability to incur or guarantee additional indebtedness; make any restricted payments or pay any dividends on equity interests or redeem, repurchase or retire parent entities' equity interests or subordinated indebtedness; sell assets; make investments; create certain liens; prepay debt obligations; engage in transactions with affiliates; and enter into certain hedge agreements. As of December 31, 2012, we and our subsidiaries were in compliance with debt covenants.
8. Commitments and Contingencies
Legal Proceedings and Other Contingencies
We and our subsidiaries and affiliates are named defendants in numerous legal proceedings that arise in the ordinary course of our business. There are also other regulatory rules and orders in various
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies (Continued)
stages of adoption, review and/or implementation. For each of these matters, we evaluate the merits of the case or claim, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. We disclose matters that are reasonably possible of negative outcome and material to our financial statements. If we determine that an unfavorable outcome is probable and can be estimated, we establish the necessary accruals. While the outcome of our current matters cannot be predicted with certainty and there are still uncertainties related to the costs we may incur, based upon our evaluation and experience to date, we believe we have established appropriate reserves. It is possible, however, that new information or future developments could require us to reassess our potential exposure related to these matters and adjust our accruals accordingly, and these adjustments could be material. As of December 31, 2012, we had approximately $20 million accrued for all outstanding legal proceedings and other contingent matters, including a reserve related to an audit of sales and use taxes in the State of Texas.
Brazil Labor Claim. In Brazil, one of EP Energy LLC's subsidiaries as well as a formerly affiliated party have been named in a lawsuit by a former contractor of the former affiliated party claiming entitlement to certain employee benefits under Brazilian law. The case is currently pending before the 42 nd Labor Court of the State of Rio de Janeiro. We are currently unable to estimate a range of reasonably possible loss, if any, primarily due to the novelty of the legal claims being presented.
Sales Tax Audits. As a result of sales and use tax audits during 2010, the state of Texas asserted additional taxes plus penalties and interest for the audit period 2001-2008 for two of our operating entities. We are indemnified by KMI if and to the extent the ultimate outcome exceeds our reserves. During 2012 we settled one of our Texas sales and use tax audits for $3 million, including fees. We are currently contesting the remaining assessment and the ultimate outcome is still uncertain. We believe amounts reserved are adequate.
Environmental Matters
We are subject to existing federal, state and local laws and regulations governing environmental air, land and water quality. The environmental laws and regulations to which we are subject also require us to remove or remedy the effect on the environment of the disposal or release of specified substances at current and former operating sites. As of December 31, 2012, we had accrued less than $1 million for related environmental remediation costs associated with onsite, offsite and groundwater technical studies and for related environmental legal costs. Our accrual represents a combination of two estimation methodologies. First, where the most likely outcome can be reasonably estimated, that cost has been accrued. Second, where the most likely outcome cannot be estimated, a range of costs is established and if no one amount in that range is more likely than any other, the lower end of the expected range has been accrued. Our exposure could be as high as $1 million. Our environmental remediation projects are in various stages of completion. The liabilities we have recorded reflect our current estimates of amounts that we will expend to remediate these sites. However, depending on the stage of completion or assessment, the ultimate extent of contamination or remediation required may not be known. As additional assessments occur or remediation efforts continue, we may incur additional liabilities.
Climate Change and other Emissions. The EPA and several state environmental agencies have adopted regulations to regulate greenhouse gas (GHG) emissions. Although the EPA has adopted a
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies (Continued)
"tailoring" rule to regulate GHG emissions, at this time we do not expect a material impact to our existing operations. There have also been various legislative and regulatory proposals and final rules at the federal and state levels to address emissions from power plants and industrial boilers. Although such rules and proposals will generally favor the use of natural gas over other fossil fuels such as coal, it remains uncertain what regulations will ultimately be adopted and when they will be adopted. In addition, any regulations regulating GHG emissions would likely increase our costs of compliance by potentially delaying the receipt of permits and other regulatory approvals; requiring us to monitor emissions, install additional equipment or modify facilities to reduce GHG and other emissions; purchase emission credits; and utilize electric-driven compression at facilities to obtain regulatory permits and approvals in a timely manner.
Air Quality Regulations. In August 2010, the EPA finalized a rule that impacts emissions of hazardous air pollutants from reciprocating internal combustion engines and requires us to install emission controls on engines across our operations. Engines subject to the regulations have to be in compliance by October 2013. We currently estimate we will incur capital expenditures in 2013 to complete the required modifications and testing of less than $1 million.
In August 2012, the EPA finalized New Source Performance Standard regulations to reduce various air pollutants from the oil and natural gas industry. These regulations will limit emissions from the hydraulic fracturing of certain natural gas wells and equipment including compressors, storage vessels and natural gas processing plants. We do not anticipate a material impact associated with compliance to these new requirements.
In the State of Utah we are currently obtaining or amending air quality permits for a number of small oil and natural gas production facilities. As part of this permitting process we anticipate the installation of tank emission controls that will require approximately $3 million capital expenditures starting in 2013 and extending through 2014.
Hydraulic Fracturing Regulations. We use hydraulic fracturing extensively in our operations. Various regulations have been adopted and proposed at the federal, state and local levels to regulate hydraulic fracturing operations. These regulations range from banning or substantially limiting hydraulic fracturing operations, requiring disclosure of the hydraulic fracturing fluids and requiring additional permits for the use, recycling and disposal of water used in such operations. In addition, various agencies, including the EPA, the Department of Interior and the Department of Energy, are reviewing changes in their regulations to address the environmental impacts of hydraulic fracturing operations. Until such regulations are implemented, it is uncertain what impact they might have on our operations.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Matters. As part of our environmental remediation projects, we have received notice that we could be designated, or have been asked for information to determine whether we could be designated as a Potentially Responsible Party (PRP) with respect to the Casmalia Remediation site located in California under the CERCLA or state equivalents. As of December 31, 2012, we have estimated our share of the remediation costs at this site to be less than $1 million. Because the clean-up costs are estimates and are subject to revision as more information becomes available about the extent of remediation required, and in some cases we have asserted a defense to any liability, our estimates could change. Moreover, liability under the federal CERCLA statute may be joint and several, meaning that we could be required to pay in excess of our pro rata share of remediation costs. Our understanding of the financial
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies (Continued)
strength of other PRPs has been considered, where appropriate, in estimating our liabilities. Accruals for these matters are included in the environmental reserve discussed above.
It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws, regulations, and orders of regulatory agencies, as well as claims for damages to property and the environment or injuries to employees and other persons resulting from our current or past operations, could result in substantial costs and liabilities in the future. As this information becomes available, or other relevant developments occur, we will adjust our accrual amounts accordingly. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we believe our reserves are adequate.
Lease Obligations
We maintain operating leases in the ordinary course of our business activities. These leases include those for office space and various equipment. The terms of the agreements vary from 2012 until 2017. Future minimum annual rental commitments under non-cancelable future operating lease commitments at December 31, 2012, were as follows:
Year Ending December 31,
|
Operating
Leases |
|||
---|---|---|---|---|
|
(In millions)
|
|||
2013 |
$ | 14 | ||
2014 |
13 | |||
2015 |
14 | |||
2016 |
13 | |||
2017 |
8 | |||
Total |
$ | 62 | ||
Rental expense for the period from February 14, 2012 (inception) to December 31, 2012 was $10 million.
Other Commercial Commitments
At December 31, 2012, we have various commercial commitments totaling $1,074 million primarily related to commitments and contracts associated with volume and transportation, drilling rigs, completion activities, seismic activities and management fees. Our annual obligations under these arrangements are $161 million in 2013, $134 million in 2014, $108 million in 2015, $114 million in 2016, $104 million in 2017 and $453 million thereafter.
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-Term Incentive Compensation / Retirement 401(k) Plan
EP Energy LLC Long Term Incentive Compensation Programs. Upon the closing of the Acquisition, we adopted new long term incentive (LTI) programs, including an annual performance-based cash incentive payment program and certain long-term equity based programs:
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EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-Term Incentive Compensation / Retirement 401(k) Plan (Continued)
represents a share in any future appreciation of the company after the date of grant, subject to certain limitations, and once certain shareholder returns have been achieved. The MIPs are scheduled to vest ratably over 5 years subject to certain forfeiture provisions based on continued employment with the company, although 25% of any vested awards are forfeitable in the event of certain termination events. The MIPs become payable based on the achievement of certain predetermined performance measures, including, without limitation, the occurrence of certain specified capital transactions. The MIPs were issued at no cost and have value only to the extent the value of the company increases. For accounting purposes, these profits interests were treated as compensatory equity awards. The grant date fair value of this award was determined using a non-controlling, non-marketable option pricing model which valued these management incentive units assuming a 0.77% risk free rate, a 5 year time to expiration, and a 73 percent volatility rate. Based on these factors, we determined a grant date fair value of $74 million. For the period from February 14, 2012 (inception) to December 31, 2012, we recognized approximately $15 million related to these awards. As of December 31, 2012, we had unrecognized compensation expense of $59 million. Of this amount, $40 million of the unrecognized compensation expense, net of forfeitures, will continue to be recognized on an accelerated basis for each tranche of the award, over the remainder of the five year requisite service period. The remaining $19 million will be recognized upon a specified capital transaction when the right to such amounts become nonforfeitable.
Retirement 401(k) Plan. We sponsor a tax-qualified defined contribution retirement plan for a broad-based group of employees. We make matching contributions (dollar for dollar up to 6% of eligible compensation) and non-elective employer contributions (5% of eligible compensation) to the plan, and individual employees are also eligible to contribute to the defined contribution plan. As of December 31, 2012, we had contributed $7 million of matching contributions.
Equity Awards Outstanding Prior to Acquisition. Prior to the merger between KMI and El Paso, certain of our employees held vested and unvested stock options, restricted shares and performance shares granted under El Paso's equity plan. Pursuant to the terms of the merger agreement between El Paso and KMI, each outstanding El Paso stock option, restricted share and performance share automatically vested upon completion of the merger. In the case of outstanding performance shares, performance was deemed to be attained at target. On the merger date, each outstanding stock option, restricted share and performance share was converted into the right to receive either cash or a mixture of cash and shares of KMI common stock for all shares subject to such awards (in the case of stock options, less the aggregate exercise price), pursuant to the terms of the El Paso/KMI merger agreement. Each holder also received warrants as part of the merger consideration in respect of such equity awards. Through the merger date, the predecessor recorded as general and administrative expense in the consolidated income statements, amounts billed directly by El Paso for compensation expense related to these stock-based compensation awards granted directly to its employees, as well as its proportionate share of El Paso's corporate compensation expense. However, compensation cost associated with the acceleration of vesting as a result of the merger between El Paso and KMI was assumed by El Paso and KMI and is not reflected in the predecessor consolidated financial statements.
F-62
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Investment in Unconsolidated Affiliate
Our investment in Four Star Oil & Gas Company (Four Star), an unconsolidated affiliate, is accounted for using the equity method of accounting. Our consolidated income statement reflects (i) our share of net earnings directly attributable to the unconsolidated affiliate, and (ii) other adjustments, such as the amortization of the excess of the carrying value of our investment relative to the underlying equity in the net assets of the entity. As of December 31, 2012 and December 31, 2011, our total investment in unconsolidated affiliate was $220 million and $346 million ($281 million net of related deferred income taxes). Included in these amounts was approximately $125 million and $272 million ($207 million net of related deferred income taxes) related to the excess of the carrying value of our investment in Four Star relative to the underlying equity in its net assets.
Below is summarized financial information of the operating results and financial position of our unconsolidated affiliate.
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Successor |
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Predecessor | ||||||||||||
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February 14
(inception) to December 31, 2012 |
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January 1
to May 24, 2012 |
2011 | 2010 | ||||||||||
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(In millions)
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(In millions)
|
||||||||||||
Operating results |
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Operating revenues |
$ | 105 | $ | 75 | $ | 257 | $ | 249 | |||||||
Operating expenses |
87 | 58 | 167 | 151 | |||||||||||
Net income |
11 | 11 | 60 | 63 |
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Successor
As of December 31, 2012 |
|
Predecessor
As of December 31, 2011 |
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(In millions)
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Financial position data |
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Current assets |
$ | 64 | $ | 77 | |||||
Non-current assets |
241 | 290 | |||||||
Current liabilities |
51 | 64 | |||||||
Non-current liabilities |
133 | 148 | |||||||
Equity in net assets |
121 | 155 |
We hold an approximate 49 percent ownership investment in Four Star. In conjunction with the Acquisition and purchase price allocation, we adjusted our basis in Four Star to approximately $235 million.
We amortize the excess of our investment in Four Star over the underlying equity in its net assets using the unit-of-production method over the life of our estimate of Four Star's oil and natural gas reserves which are predominantly natural gas reserves. Amortization of our investment for the successor period from February 14, 2012 (inception) to December 31, 2012 was $7 million. Amortization for the predecessor period from January 1, 2012 to May 24, 2012 and for the years ended December 31, 2011 and 2010 was $12 million, $34 million and $38 million, respectively. Based on changes in the outlook for natural gas prices, the fair value of our investment in Four Star could decline which may require us to record an impairment of the carrying value of our investment in the future if that loss is determined to be other than temporary.
F-63
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Investment in Unconsolidated Affiliate (Continued)
We received dividends from Four Star for the period from February 14, 2012 (inception) to December 31, 2012 of approximately $13 million. For the predecessor periods from January 1, 2012 to May 24, 2012 and years ended December 31, 2011 and 2010, we received dividends of $8 million, $46 million and $50 million.
11. Related Party Transactions
Transaction Fee Agreement. In connection with the Acquisition, we were subject to a transaction fee agreement with certain of our Sponsors (the "Service Providers") for the provision of certain structuring, financial, investment banking and other similar advisory services. At the time of the Acquisition, we paid one-time transaction fees of $71.5 million (recorded as general and administrative expense in our consolidated income statement) to the Service Providers in the aggregate in exchange for services rendered in connection with structuring, arranging the financing and performing other services. In the event of any future transactions (including any merger, consolidation, recapitalization or sale of assets or equity interests resulting in a change of control of the equity and voting securities, or sale of all or substantially all of the assets or which is in connection with one or more public offerings, each as further defined in the Transaction Fee Agreement), we would pay an additional transaction fee equal to the lesser of (i) 1% of the aggregate enterprise value paid or provided and (ii) $100 million.
Management Fee Agreement. We entered into a management fee agreement with certain of our Sponsors for the provision of certain management consulting and advisory services which terminates on the twelve-year anniversary of the Acquisition date (May 24, 2012) if not terminated earlier by mutual agreement of the parties, or upon a change in control or specified initial public offering transaction. Under the agreement, we pay a non-refundable annual management fee of $25 million. For the period from February 14, 2012 (inception) to December 31, 2012, we recognized approximately $16 million in general and administrative expense related to management fees.
Affiliate Supply Agreement. In November 2012, we entered into a supply agreement with an Apollo affiliate through October 2014 to provide certain fracturing materials for our Eagle Ford drilling operations. As of December 31, 2012, we recorded approximately $21 million as capital expenditures for amounts provided under this agreement.
Related Party Transactions Prior to the Acquisition. At the time of the Acquisition, El Paso made total contributions of approximately $1.5 billion to the predecessor including a non-cash contribution of approximately $0.5 billion to satisfy its then current and deferred income tax balances and a cash contribution to facilitate repayment of approximately $960 million of then outstanding debt of the predecessor under its revolving credit facility. Additionally, prior to the completion of the Acquisition, the predecessor entered into transactions during the ordinary course of conducting its business with affiliates of El Paso, primarily related to the sale, transportation and hedging of its oil, natural gas and NGL production.
Other than continuing transition services agreements with KMI, the agreements noted below ceased on the date of Acquisition and included the following services:
F-64
EPE ACQUISITION, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Related Party Transactions (Continued)
management, legal, financial, tax, consultative, administrative and other services, including employee benefits, pension benefits, annual incentive bonuses, rent, insurance, and information technology. El Paso also billed the predecessor directly for compensation expense related to certain stock-based compensation awards granted directly to the predecessor's employees, and allocated to the predecessor a proportionate share of El Paso's corporate compensation expense.
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Predecessor | |||||||||
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Years ended
December 31, |
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January 1,
2012 to May 24, 2012 |
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2011 | 2010 | ||||||||
Operating revenues |
$ | 143 | $ | 634 | $ | 746 | ||||
Operating expenses |
44 | 138 | 132 | |||||||
Reimbursements of operating expenses |
| 3 | 2 |
F-65
Supplemental Selected Quarterly Financial Information (Unaudited)
Financial information by quarter is summarized below.
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Predecessor |
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Successor | |||||||||||||||
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Quarters Ended(1) | |||||||||||||||||
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June 30 |
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2012
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March 31 |
April 1 to
May 24 |
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April 1 to
June 30 |
September 30 | December 31 | ||||||||||||
Operating revenues |
$ | 484 | $ | 494 | $ | 181 | $ | 172 | $ | 450 | ||||||||
Operating income (loss) |
62 | 274 | (98 | ) | (102 | ) | 147 | |||||||||||
Net income (loss) |
15 | 163 | (150 | ) | (196 | ) | 90 |
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Predecessor | ||||||||||||
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2011
|
March 31 | June 30 | September 30 | December 31 | |||||||||
Operating revenues |
$ | 250 | $ | 535 | $ | 653 | $ | 429 | |||||
Operating (loss) income |
(30 | ) | 250 | 190 | 93 | ||||||||
Net income (loss) |
(18 | ) | 170 | 61 | 49 |
Below are significant items affecting comparability of amounts reported in the respective periods of 2012 and 2011:
December 31, 2012. We recorded $62 million of gains related to changes in fair value of our derivatives.
September 30, 2012. We recorded $181 million of losses related to changes in fair value of our derivatives.
June 30, 2012. For the successor period from April 1 to June 30 we recorded $57 million of gains related to changes in the fair value of our derivatives and $173 million of transaction costs related to the Acquisition. For the predecessor period from April 1 to May 24, we recorded $289 million or gains related to changes in the fair value of our derivatives.
March 31, 2012. We recorded $76 million of gains related to changes in the fair value of our derivatives and a $62 million non-cash charge related to the predecessor's unevaluated costs in Egypt.
December 31, 2011. We recorded $10 million of gains related to changes in fair value of our derivatives.
September 30, 2011. We recorded $251 million of gains related to changes in fair value of our derivatives and a $152 million non-cash Brazilian ceiling test charge.
June 30, 2011. We recorded $132 million of gains related to changes in the fair value of our derivatives.
March 31, 2011. We recorded $109 million of losses related to changes in the fair value of our derivatives.
F-66
Supplemental Oil and Natural Gas Operations (Unaudited)
We are engaged in the exploration for, and the acquisition, development and production of oil, natural gas and NGL, in the United States (U.S.) and Brazil.
Capitalized Costs. Capitalized costs relating to oil and natural gas producing activities and related accumulated depreciation, depletion and amortization were as follows at December 31 (in millions):
|
U.S. |
Brazil and
Egypt(1) |
Worldwide | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2012 Consolidated(2): |
||||||||||
Oil and natural gas properties |
$ | 7,441 | $ | 92 | $ | 7,533 | ||||
Less accumulated depreciation, depletion and amortization |
249 | 6 | 255 | |||||||
Net capitalized costs |
$ | 7,192 | $ | 86 | $ | 7,278 | ||||
2012 Unconsolidated AffiliateFour Star(3): |
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Oil and natural gas properties |
$ | 627 | $ | | $ | 627 | ||||
Less accumulated depreciation, depletion and amortization |
510 | | 510 | |||||||
Net capitalized costs |
$ | 117 | $ | | $ | 117 | ||||
2011 Consolidated: |
||||||||||
Oil and natural gas properties: |
||||||||||
Costs subject to amortization |
$ | 20,156 | $ | 1,284 | $ | 21,440 | ||||
Costs not subject to amortization |
399 | 82 | 481 | |||||||
|
20,555 | 1,366 | 21,921 | |||||||
Less accumulated depreciation, depletion and amortization |
16,837 | 1,087 | 17,924 | |||||||
Net capitalized costs |
$ | 3,718 | $ | 279 | $ | 3,997 | ||||
2011 Unconsolidated AffiliateFour Star(3): |
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Oil and natural gas properties |
$ | 628 | $ | | $ | 628 | ||||
Less accumulated depreciation, depletion and amortization |
489 | | 489 | |||||||
Net capitalized costs |
$ | 139 | $ | | $ | 139 | ||||
F-67
Total Costs Incurred. Costs incurred in oil and natural gas producing activities, whether capitalized or expensed, were as follows for the successor period from February 14, 2012 (inception) to December 31, 2012 and the predecessor periods from January 1, 2012 to May 24, 2012 and the years ended December 31, 2011 and 2010 (in millions):
|
U.S. |
Brazil
and Egypt(1) |
Worldwide | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Successor |
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Consolidated from February 14, 2012 (inception) to December 31, 2012: |
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Property acquisition costs |
||||||||||
Proved properties |
$ | | $ | | $ | | ||||
Unproved properties |
20 | | 20 | |||||||
Exploration costs (capitalized and expensed) |
120 | 6 | 126 | |||||||
Development costs |
787 | 3 | 790 | |||||||
Costs expended |
927 | 9 | 936 | |||||||
Asset retirement obligation costs |
28 | 3 | 31 | |||||||
Total costs incurred |
$ | 955 | $ | 12 | $ | 967 | ||||
Unconsolidated Affiliate from February 14, 2012 (inception) to December 31, 2012: |
||||||||||
Development costs expended |
$ | 2 | $ | | $ | 2 | ||||
Predecessor |
||||||||||
Consolidated from January 1, 2012 to May 24, 2012: |
||||||||||
Property acquisition costs |
||||||||||
Proved properties |
$ | | $ | | $ | | ||||
Unproved properties |
31 | | 31 | |||||||
Exploration costs |
79 | 3 | 82 | |||||||
Development costs |
503 | | 503 | |||||||
Costs expended |
613 | 3 | 616 | |||||||
Asset retirement obligation costs |
21 | 10 | 31 | |||||||
Total costs incurred |
$ | 634 | $ | 13 | $ | 647 | ||||
Unconsolidated Affiliate from January 1, 2012 to May 24, 2012: |
||||||||||
Development costs expended |
$ | 3 | $ | | $ | 3 | ||||
2011 Consolidated: |
||||||||||
Property acquisition costs |
||||||||||
Proved properties |
$ | | $ | | $ | | ||||
Unproved properties |
45 | | 45 | |||||||
Exploration costs |
858 | 15 | 873 | |||||||
Development costs |
694 | 12 | 706 | |||||||
Costs expended |
1,597 | 27 | 1,624 | |||||||
Asset retirement obligation costs |
25 | | 25 | |||||||
Total costs incurred |
$ | 1,622 | $ | 27 | $ | 1,649 | ||||
2011 Unconsolidated Affiliate: |
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Development costs expended |
$ | 12 | $ | | $ | 12 | ||||
2010 Consolidated: |
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Property acquisition costs |
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Proved properties |
$ | 51 | $ | | $ | 51 | ||||
Unproved properties |
269 | | 269 | |||||||
Exploration costs |
600 | 58 | 658 | |||||||
Development costs |
276 | 28 | 304 | |||||||
Costs expended |
1,196 | 86 | 1,282 | |||||||
Asset retirement obligation costs |
7 | | 7 | |||||||
Total costs incurred |
$ | 1,203 | $ | 86 | $ | 1,289 | ||||
2010 Unconsolidated Affiliate: |
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Development costs expended |
$ | 20 | $ | | $ | 20 | ||||
F-68
We capitalize salaries and benefits that we determine are directly attributable to our oil and natural gas activities. The table above includes capitalized labor costs of $25 million for the period from February 14, 2012 (inception) to December 31, 2012, and capitalized interest of $12 million for the same period.
Pursuant to the full cost method of accounting, the predecessor capitalized certain general and administrative expenses directly related to property acquisition, exploration and development activities and interest costs incurred and attributable to unproved oil and natural gas properties and major development projects of oil and natural gas properties. The table above includes capitalized internal general and administrative costs incurred in connection with the acquisition, development and exploration of oil and natural gas reserves of $31 million for the period from January 1, 2012 to May 24, 2012 and $81 million for each of the years ended December 31, 2011 and 2010. The predecessor also capitalized interest of $4 million, $13 million and $9 million for the period from January 1, 2012 to May 24, 2012 and the years ended December 31, 2011 and 2010, respectively.
During 2011 the predecessor was informed that its environmental permit request for the Pinauna Field in the Camamu Basin was denied. As a result, $94 million of unevaluated capitalized costs related to this field were released into the Brazilian full cost pool. Additionally, during 2011, approximately $86 million of unevaluated capitalized costs were released into the Brazilian full cost pool related to the Espirito Santo Basin upon completion of the evaluation of exploratory wells drilled in 2009 and 2010 without any additions to proved reserves.
Oil and Natural Gas Reserves. Net quantities of proved developed and undeveloped reserves of natural gas, oil and condensate and NGLs and changes in these reserves at December 31, 2012 presented in the tables below are based on our internal reserve report. Net proved reserves exclude royalties and interests owned by others and reflect contractual arrangements and royalty obligations in effect at the time of the estimate. Our 2012 consolidated proved reserves were consistent with estimates of proved reserves filed with other federal agencies in 2012 except for differences of less than five percent resulting from actual production, acquisitions, property sales, necessary reserve revisions and additions to reflect actual experience.
Ryder Scott Company, L.P. (Ryder Scott), conducted an audit of the estimates of the proved reserves prepared by us as of December 31, 2012. In connection with its audit, Ryder Scott reviewed 81% (by value) of the total proved reserves on a natural gas equivalent basis representing 90% of the total discounted future net cash flows of these proved reserves. Ryder Scott also conducted an audit of the estimates we prepared of the proved reserves of Four Star as of December 31, 2012. In connection with the audit of these proved reserves, Ryder Scott reviewed 85% of the properties associated with Four Star's total proved reserves on a natural gas equivalent basis, representing 92% of the total discounted future net cash flows. For the reviewed properties, 97% of our total proved undeveloped
F-69
reserves were evaluated and our overall proved reserves estimates are within 10% of Ryder Scott's estimates.
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Oil and Condensate
(in MBbls) |
NGL
(in MBbls) |
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Natural Gas (in Bcf) |
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Equivalent
Volumes (in Bcfe) |
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U.S. | Brazil | Worldwide | U.S. | Brazil | Worldwide | U.S. | ||||||||||||||||||
Consolidated: |
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January 1, 2010 |
2,052 | 105 | 2,157 | 60,849 | 4,196 | 65,045 | 304 | 2,549 | |||||||||||||||||
Revisions due to prices |
108 | 3 | 111 | 8,719 | 88 | 8,807 | 105 | 164 | |||||||||||||||||
Revisions other than price |
(58 | ) | (13 | ) | (71 | ) | 7,873 | (1,246 | ) | 6,627 | 6,977 | 11 | |||||||||||||
Extensions and discoveries(1) |
506 | | 506 | 28,141 | | 28,141 | 3,088 | 693 | |||||||||||||||||
Purchases of reserves in place |
25 | | 25 | 3,045 | | 3,045 | | 43 | |||||||||||||||||
Sales of reserves in place |
(21 | ) | | (21 | ) | (1,024 | ) | | (1,024 | ) | | (27 | ) | ||||||||||||
Production |
(216 | ) | (10 | ) | (226 | ) | (4,363 | ) | (384 | ) | (4,747 | ) | (1,423 | ) | (263 | ) | |||||||||
December 31, 2010 |
2,396 | 85 | 2,481 | 103,240 | 2,654 | 105,894 | 9,051 | 3,170 | |||||||||||||||||
Revisions due to prices |
(9 | ) | | (9 | ) | 713 | 3 | 716 | | (5 | ) | ||||||||||||||
Revisions other than price |
44 | 6 | 50 | (1,630 | ) | (34 | ) | (1,664 | ) | (1,124 | ) | 34 | |||||||||||||
Extensions and discoveries(2) |
519 | | 519 | 90,128 | | 90,128 | 7,525 | 1,105 | |||||||||||||||||
Purchases of reserves in place |
| | | 13 | | 13 | | | |||||||||||||||||
Sales of reserves in place |
(153 | ) | | (153 | ) | (8,983 | ) | | (8,983 | ) | (139 | ) | (207 | ) | |||||||||||
Production |
(231 | ) | (10 | ) | (241 | ) | (5,680 | ) | (354 | ) | (6,034 | ) | (1,068 | ) | (284 | ) | |||||||||
December 31, 2011 |
2,566 | 81 | 2,647 | 177,801 | 2,269 | 180,070 | 14,245 | 3,813 | |||||||||||||||||
Revisions due to prices |
(718 | ) | | (718 | ) | (604 | ) | 1 | (603 | ) | (371 | ) | (724 | ) | |||||||||||
Revisions other than price |
55 | (3 | ) | 52 | (18,451 | ) | 288 | (18,163 | ) | 10,267 | 5 | ||||||||||||||
Extensions and discoveries(3) |
119 | | 119 | 109,125 | | 109,125 | 13,450 | 854 | |||||||||||||||||
Purchases of reserves in place |
| | | 3 | | 3 | 2 | | |||||||||||||||||
Sales of reserves in place |
(72 | ) | | (72 | ) | (2,501 | ) | | (2,501 | ) | (1,358 | ) | (95 | ) | |||||||||||
Production |
(223 | ) | (10 | ) | (233 | ) | (9,131 | ) | (406 | ) | (9,537 | ) | (1,904 | ) | (302 | ) | |||||||||
December 31, 2012 |
1,727 | 68 | 1,795 | 256,242 | 2,152 | 258,394 | 34,331 | 3,551 | |||||||||||||||||
F-70
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Oil and Condensate
(in MBbls) |
NGL
(in MBbls) |
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Natural Gas (in Bcf) |
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Equivalent
Volumes (in Bcfe) |
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U.S. | Brazil | Worldwide | U.S. | Brazil | Worldwide | U.S. | ||||||||||||||||||
Unconsolidated AffiliateFour Star: |
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January 1, 2010 |
158 | | 158 | 1,907 | | 1,907 | 5,264 | 201 | |||||||||||||||||
Revisions due to prices |
8 | | 8 | 44 | | 44 | 87 | 9 | |||||||||||||||||
Revisions other than price |
6 | | 6 | 36 | | 36 | (325 | ) | 4 | ||||||||||||||||
Extensions and discoveries |
| | | | | | 5 | | |||||||||||||||||
Production |
(17 | ) | | (17 | ) | (364 | ) | | (364 | ) | (573 | ) | (22 | ) | |||||||||||
December 31, 2010 |
155 | | 155 | 1,623 | | 1,623 | 4,458 | 192 | |||||||||||||||||
Revisions due to prices |
(5 | ) | | (5 | ) | 31 | | 31 | (28 | ) | (5 | ) | |||||||||||||
Revisions other than price |
2 | | 2 | 221 | | 221 | 1,034 | 9 | |||||||||||||||||
Extensions and discoveries |
| | | | | | | | |||||||||||||||||
Production |
(17 | ) | | (17 | ) | (306 | ) | | (306 | ) | (556 | ) | (22 | ) | |||||||||||
December 31, 2011 |
135 | | 135 | 1,569 | | 1,569 | 4,908 | 174 | |||||||||||||||||
Revisions due to prices |
(13 | ) | | (13 | ) | (37 | ) | | (37 | ) | (310 | ) | (15 | ) | |||||||||||
Revisions other than price |
19 | | 19 | 803 | | 803 | 1,710 | 35 | |||||||||||||||||
Extensions and discoveries |
25 | | 25 | 95 | | 95 | 137 | 26 | |||||||||||||||||
Production |
(16 | ) | | (16 | ) | (282 | ) | | (282 | ) | (478 | ) | (21 | ) | |||||||||||
December 31, 2012 |
150 | | 150 | 2,148 | | 2,148 | 5,967 | 199 | |||||||||||||||||
Total Combined: |
|||||||||||||||||||||||||
December 31, 2010 |
2,551 | 85 | 2,636 | 104,863 | 2,654 | 107,517 | 13,509 | 3,362 | |||||||||||||||||
December 31, 2011 |
2,701 | 81 | 2,782 | 179,370 | 2,269 | 181,639 | 19,153 | 3,987 | |||||||||||||||||
December 31, 2012 |
1,877 | 68 | 1,945 | 258,390 | 2,152 | 260,542 | 40,298 | 3,750 | |||||||||||||||||
Consolidated: |
|||||||||||||||||||||||||
Proved developed reserves: |
|||||||||||||||||||||||||
January 1, 2012 |
1,488 | 81 | 1,569 | 46,797 | 2,269 | 49,066 | 5,168 | 1,895 | |||||||||||||||||
December 31, 2012 |
1,189 | 68 | 1,257 | 55,924 | 2,152 | 58,076 | 9,080 | 1,660 | |||||||||||||||||
Proved undeveloped reserves: |
|||||||||||||||||||||||||
January 1, 2012 |
1,078 | | 1,078 | 131,004 | | 131,004 | 9,077 | 1,918 | |||||||||||||||||
December 31, 2012 |
538 | | 538 | 200,318 | | 200,318 | 25,251 | 1,891 | |||||||||||||||||
Unconsolidated AffiliateFour Star: |
|||||||||||||||||||||||||
Proved developed reserves: |
|||||||||||||||||||||||||
January 1, 2012 |
116 | | 116 | 1,520 | | 1,520 | 4,066 | 150 | |||||||||||||||||
December 31, 2012 |
140 | | 140 | 2,111 | | 2,111 | 5,289 | 185 | |||||||||||||||||
Proved undeveloped reserves: |
|||||||||||||||||||||||||
January 1, 2012 |
19 | | 19 | 49 | | 49 | 842 | 24 | |||||||||||||||||
December 31, 2012 |
10 | | 10 | 37 | | 37 | 678 | 14 | |||||||||||||||||
Total Combined: |
|||||||||||||||||||||||||
Proved developed reserves: |
|||||||||||||||||||||||||
January 1, 2012 |
1,604 | 81 | 1,685 | 48,317 | 2,269 | 50,586 | 9,234 | 2,045 | |||||||||||||||||
December 31, 2012 |
1,329 | 68 | 1,397 | 58,035 | 2,152 | 60,187 | 14,369 | 1,845 | |||||||||||||||||
Proved undeveloped reserves: |
|||||||||||||||||||||||||
January 1, 2012 |
1,097 | | 1,097 | 131,053 | | 131,053 | 9,919 | 1,942 | |||||||||||||||||
December 31, 2012 |
548 | | 548 | 200,355 | | 200,355 | 25,929 | 1,905 |
F-71
International division. Of the 880 Bcfe of extensions and discoveries, 737 Bcfe were liquids representing 84% of EP Energy's total extensions and discoveries which is a 26% increase in liquid extensions and discoveries from the previous year.
In accordance with SEC Regulation S-X, Rule 4-10 as amended, we use the 12-month average price calculated as the unweighted arithmetic average of the spot price on the first day of each month within the 12-month period prior to the end of the reporting period. The first day 12-month average U.S. price used to estimate our proved reserves at December 31, 2012 was $2.76 per MMBtu for natural gas and $94.61 per barrel of oil. The prices used for our International assets were contractually defined. The aggregate International price used to estimate our proved reserves at December 31, 2012 was $7.53 per MMBtu for natural gas and $111.21 per barrel of oil.
All estimates of proved reserves are determined according to the rules prescribed by the SEC in existence at the time estimates were made. These rules require that the standard of "reasonable certainty" be applied to proved reserve estimates, which is defined as having a high degree of confidence that the quantities will be recovered. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as more technical and economic data becomes available, a positive or upward revision or no revision is much more likely than a negative or downward revision. Estimates are subject to revision based upon a number of factors, including many factors beyond our control such as reservoir performance, prices, economic conditions and government restrictions. In addition, as a result of drilling, testing and production subsequent to the date of an estimate may justify revision of that estimate.
Reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. Estimating quantities of proved oil and natural gas reserves is a complex process that involves significant interpretations and assumptions and cannot be measured in an exact manner. It requires interpretations and judgment of available technical data, including the evaluation of available geological, geophysical, and engineering data. The accuracy of any reserve estimate is highly dependent on the quality of available data, the accuracy of the assumptions on which they are based upon economic factors, such as oil and natural gas prices, production costs, severance and excise taxes, capital expenditures, workover and remedial costs, and the assumed effects of governmental regulation. In addition, due to the lack of substantial, if any, production data, there are greater uncertainties in estimating proved undeveloped reserves, proved developed non-producing reserves and proved developed reserves that are early in their production life. As a result, our reserve estimates are inherently imprecise.
The meaningfulness of reserve estimates is highly dependent on the accuracy of the assumptions on which they were based. In general, the volume of production from oil and natural gas properties we own declines as reserves are depleted. Except to the extent we conduct successful exploration and development activities or acquire additional properties containing proved reserves, or both, our proved reserves will decline as reserves are produced. Subsequent to December 31, 2012, there have been no major discoveries, favorable or otherwise, that may be considered to have caused a significant change in our estimated proved reserves at December 31, 2012. The current 12-month average natural gas prices used to determine our domestic proved reserves at December 31, 2012 are significantly below the 12-month average price used to determine our domestic proved reserves at December 31, 2011. Domestic natural gas prices did result in a downward revision of proved reserves and a corresponding reduction in the discounted future net cash flows from our natural gas proved reserves. This downward revision was offset by the company's emphasis on the development of oil reserves. The result was a slight downward revision in total proved equivalent reserves, but an increase in overall reserves value.
F-72
Results of Operations. Results of operations for oil and natural gas producing activities for the successor period from February 14, 2012 (inception) to December 31, 2012 and the predecessor periods from January 1, 2012 to May 24, 2012 and years ended December 31, 2011 and 2010 (in millions):
|
U.S. |
Brazil
and Egypt |
Worldwide | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Successor |
||||||||||
Consolidated from February 14, 2012 (inception) to December 31, 2012: |
||||||||||
Net Revenues(1)Sales to external customers |
$ | 933 | $ | 76 | $ | 1,009 | ||||
Costs of products and services |
(88 | ) | | (88 | ) | |||||
Production costs(2) |
(160 | ) | (32 | ) | (192 | ) | ||||
Depreciation, depletion and amortization(3) |
(250 | ) | (8 | ) | (258 | ) | ||||
Exploration expense |
(45 | ) | (7 | ) | (52 | ) | ||||
Results of operations from producing activities |
$ | 390 | $ | 29 | $ | 419 | ||||
Unconsolidated Affiliate Four Star from February 14, 2012 (inception) to December 31, 2012(4): |
||||||||||
Net RevenuesSales to external customers |
$ | 52 | $ | | $ | 52 | ||||
Costs of products and services |
(3 | ) | | (3 | ) | |||||
Production costs(2) |
(24 | ) | | (24 | ) | |||||
Depreciation, depletion and amortization(5) |
(16 | ) | | (16 | ) | |||||
|
9 | | 9 | |||||||
Income tax expense |
(3 | ) | | (3 | ) | |||||
Results of operations from producing activities |
$ | 6 | $ | | $ | 6 | ||||
Predecessor |
||||||||||
Consolidated from January 1, 2012 to May 24, 2012: |
||||||||||
Net Revenues(1) |
||||||||||
Sales to external customers |
$ | 424 | $ | 46 | $ | 470 | ||||
Affiliated sales |
143 | | 143 | |||||||
Total |
567 | 46 | 613 | |||||||
Costs of products and services |
(49 | ) | | (49 | ) | |||||
Production costs(2) |
(115 | ) | (21 | ) | (136 | ) | ||||
Ceiling test charges(6) |
| (62 | ) | (62 | ) | |||||
Depreciation, depletion and amortization(3) |
(301 | ) | (12 | ) | (313 | ) | ||||
|
102 | (49 | ) | 53 | ||||||
Income tax expense |
(37 | ) | | (37 | ) | |||||
Results of operations from producing activities |
$ | 65 | $ | (49 | ) | $ | 16 | |||
Unconsolidated Affiliate Four Star from January 1, 2012 to May 24, 2012(4) : |
||||||||||
Net RevenuesSales to external customers |
$ | 35 | $ | | $ | 35 | ||||
Costs of products and services |
(1 | ) | | (1 | ) | |||||
Production costs(2) |
(15 | ) | | (15 | ) | |||||
Depreciation, depletion and amortization(5) |
(11 | ) | | (11 | ) | |||||
|
8 | | 8 | |||||||
Income tax expense |
(3 | ) | | (3 | ) | |||||
Results of operations from producing activities |
$ | 5 | $ | | $ | 5 | ||||
F-73
2011 Consolidated: |
||||||||||
Net Revenues(1) |
||||||||||
Sales to external customers |
$ | 837 | $ | 111 | $ | 948 | ||||
Affiliated sales |
634 | | 634 | |||||||
Total |
1,471 | 111 | 1,582 | |||||||
Costs of products and services |
(91 | ) | (5 | ) | (96 | ) | ||||
Production costs(2) |
(245 | ) | (53 | ) | (298 | ) | ||||
Ceiling test charges(6) |
| (152 | ) | (152 | ) | |||||
Depreciation, depletion and amortization(3) |
(563 | ) | (32 | ) | (595 | ) | ||||
|
572 | (131 | ) | 441 | ||||||
Income tax expense |
(207 | ) | | (207 | ) | |||||
Results of operations from producing activities |
$ | 365 | $ | (131 | ) | $ | 234 | |||
2011 Unconsolidated Affiliate Four Star(4): |
||||||||||
Net RevenuesSales to external customers |
$ | 123 | $ | | $ | 123 | ||||
Costs of products and services |
(4 | ) | | (4 | ) | |||||
Production costs(2) |
(49 | ) | | (49 | ) | |||||
Depreciation, depletion and amortization(5) |
(27 | ) | | (27 | ) | |||||
|
43 | | 43 | |||||||
Income tax expense |
(15 | ) | | (15 | ) | |||||
Results of operations from producing activities |
$ | 28 | $ | | $ | 28 | ||||
2010 Consolidated: |
||||||||||
Net Revenues(1) |
||||||||||
Sales to external customers |
$ | 551 | $ | 86 | $ | 637 | ||||
Affiliated sales |
743 | | 743 | |||||||
Total |
1,294 | 86 | 1,380 | |||||||
Costs of products and services |
(81 | ) | (5 | ) | (86 | ) | ||||
Production costs(2) |
(218 | ) | (46 | ) | (264 | ) | ||||
Ceiling test charges(6) |
| (25 | ) | (25 | ) | |||||
Depreciation, depletion and amortization(3) |
(432 | ) | (28 | ) | (460 | ) | ||||
|
563 | (18 | ) | 545 | ||||||
Income tax expense |
(204 | ) | | (204 | ) | |||||
Results of operations from producing activities |
$ | 359 | $ | (18 | ) | $ | 341 | |||
2010 Unconsolidated Affiliate Four Star(4): |
||||||||||
Net RevenuesSales to external customers |
$ | 119 | $ | | $ | 119 | ||||
Costs of products and services |
(4 | ) | | (4 | ) | |||||
Production costs(2) |
(36 | ) | | (36 | ) | |||||
Depreciation, depletion and amortization(5) |
(28 | ) | | (28 | ) | |||||
Asset impairment |
(4 | ) | | (4 | ) | |||||
|
47 | | 47 | |||||||
Income tax expense |
(17 | ) | | (17 | ) | |||||
Results of operations from producing activities |
$ | 30 | $ | | $ | 30 | ||||
F-74
F-75
Standardized Measure of Discounted Future Net Cash Flows. The standardized measure of discounted future net cash flows relating to our consolidated proved oil and natural gas reserves at December 31 is as follows (in millions):
|
U.S. | Brazil | Worldwide | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2012 Consolidated : |
||||||||||
Future cash inflows(1) |
$ | 28,488 | $ | 701 | $ | 29,189 | ||||
Future production costs |
(7,487 | ) | (415 | ) | (7,902 | ) | ||||
Future development costs |
(6,189 | ) | (71 | ) | (6,260 | ) | ||||
Future income tax expenses(2) |
| (14 | ) | (14 | ) | |||||
Future net cash flows |
14,812 | 201 | 15,013 | |||||||
10% annual discount for estimated timing of cash flows |
(7,913 | ) | (39 | ) | (7,952 | ) | ||||
Standardized measure of discounted future net cash flows |
$ | 6,899 | $ | 162 | $ | 7,061 | ||||
2012 Unconsolidated AffiliateFour Star(3) : |
||||||||||
Future cash inflows(1) |
$ | 828 | $ | | $ | 828 | ||||
Future production costs |
(392 | ) | | (392 | ) | |||||
Future development costs |
(54 | ) | | (54 | ) | |||||
Future income tax expenses |
(139 | ) | | (139 | ) | |||||
Future net cash flows |
243 | | 243 | |||||||
10% annual discount for estimated timing of cash flows |
(107 | ) | | (107 | ) | |||||
Standardized measure of discounted future net cash flows |
$ | 136 | $ | | $ | 136 | ||||
2011 Consolidated : |
||||||||||
Future cash inflows(1) |
$ | 26,079 | $ | 768 | $ | 26,847 | ||||
Future production costs |
(5,840 | ) | (415 | ) | (6,255 | ) | ||||
Future development costs |
(6,343 | ) | (34 | ) | (6,377 | ) | ||||
Future income tax expenses |
(4,086 | ) | (23 | ) | (4,109 | ) | ||||
Future net cash flows |
9,810 | 296 | 10,106 | |||||||
10% annual discount for estimated timing of cash flows |
(4,793 | ) | (97 | ) | (4,890 | ) | ||||
Standardized measure of discounted future net cash flows |
$ | 5,017 | $ | 199 | $ | 5,216 | ||||
2011 Unconsolidated AffiliateFour Star(3) : |
||||||||||
Future cash inflows(1) |
$ | 938 | $ | | $ | 938 | ||||
Future production costs |
(348 | ) | | (348 | ) | |||||
Future development costs |
(66 | ) | | (66 | ) | |||||
Future income tax expenses |
(201 | ) | | (201 | ) | |||||
Future net cash flows |
323 | | 323 | |||||||
10% annual discount for estimated timing of cash flows |
(129 | ) | | (129 | ) | |||||
Standardized measure of discounted future net cash flows |
$ | 194 | $ | | $ | 194 | ||||
2010 Consolidated: |
||||||||||
Future cash inflows(1) |
$ | 17,145 | $ | 659 | $ | 17,804 | ||||
Future production costs |
(4,768 | ) | (325 | ) | (5,093 | ) | ||||
Future development costs |
(3,249 | ) | (67 | ) | (3,316 | ) | ||||
Future income tax expenses |
(2,403 | ) | (9 | ) | (2,412 | ) | ||||
Future net cash flows |
6,725 | 258 | 6,983 | |||||||
10% annual discount for estimated timing of cash flows |
(2,905 | ) | (77 | ) | (2,982 | ) | ||||
Standardized measure of discounted future net cash flows |
$ | 3,820 | $ | 181 | $ | 4,001 | ||||
2010 Unconsolidated AffiliateFour Star(3) : |
||||||||||
Future cash inflows(1) |
$ | 943 | $ | | $ | 943 | ||||
Future production costs |
(404 | ) | | (404 | ) | |||||
Future development costs |
(34 | ) | | (34 | ) | |||||
Future income tax expenses |
(192 | ) | | (192 | ) | |||||
Future net cash flows |
313 | | 313 | |||||||
10% annual discount for estimated timing of cash flows |
(131 | ) | | (131 | ) | |||||
Standardized measure of discounted future net cash flows |
$ | 182 | $ | | $ | 182 | ||||
F-76
Changes in Standardized Measure of Discounted Future Net Cash Flows. The following are the principal sources of change in our consolidated worldwide standardized measure of discounted future net cash flows (in millions):
|
Years Ended December 31,(1) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | 2010 | |||||||
Consolidated: |
||||||||||
Sales and transfers of oil and natural gas produced net of production costs |
$ | (1,433 | ) | $ | (1,200 | ) | $ | (1,042 | ) | |
Net changes in prices and production costs |
(871 | ) | 1,057 | 1,734 | ||||||
Extensions, discoveries and improved recovery, less related costs |
2,539 | 2,140 | 986 | |||||||
Changes in estimated future development costs |
978 | (415 | ) | (226 | ) | |||||
Previously estimated development costs incurred during the period |
587 | 601 | 199 | |||||||
Revision of previous quantity estimates |
(1,863 | ) | 49 | 315 | ||||||
Accretion of discount |
731 | 430 | 220 | |||||||
Net change in income taxes |
1,683 | (599 | ) | (934 | ) | |||||
Purchases of reserves in place |
| | 73 | |||||||
Sales of reserves in place |
(296 | ) | (587 | ) | (47 | ) | ||||
Change in production rates, timing and other |
(210 | ) | (261 | ) | (19 | ) | ||||
Net change |
$ | 1,845 | $ | 1,215 | $ | 1,259 | ||||
Unconsolidated AffiliateFour Star: |
||||||||||
Sales and transfers of oil and natural gas produced net of production costs |
$ | (48 | ) | $ | (74 | ) | $ | (83 | ) | |
Net changes in prices and production costs |
(112 | ) | 62 | 70 | ||||||
Extensions, discoveries and improved recovery, less related costs |
25 | | 1 | |||||||
Changes in estimated future development costs |
5 | (14 | ) | (1 | ) | |||||
Revision of previous quantity estimates |
19 | 6 | 16 | |||||||
Accretion of discount |
22 | 22 | 18 | |||||||
Net change in income taxes |
39 | (9 | ) | (16 | ) | |||||
Change in production rates, timing and other |
(8 | ) | 19 | 15 | ||||||
Net change |
$ | (58 | ) | $ | 12 | $ | 20 | |||
Representative NYMEX prices:(2) |
||||||||||
Oil (Bbl) |
$ | 94.61 | $ | 96.19 | $ | 79.43 | ||||
Natural gas (MMBtu) |
$ | 2.76 | $ | 4.12 | $ | 4.38 | ||||
Aggregate International prices:(2) |
||||||||||
Oil (Bbl) |
$ | 111.21 | $ | 109.29 | $ | 79.02 | ||||
Natural gas (MMBtu) |
$ | 7.53 | $ | 5.31 | $ | 5.20 |
F-77
Shares
EP ENERGY CORPORATION
Common Stock
PROSPECTUS
, 2013
Until , 2013 (25 days after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses, other than underwriting discounts and commissions, paid or payable by the registrant in connection with the issuance and distribution of the common stock. All amounts are estimates except for the SEC registration, Financial Industry Regulatory Authority, Inc. and stock exchange and listing fees.
SEC registration fee |
$ | 13,640 | ||
Stock exchange filing fee and listing fee |
* | |||
Transfer agent and registrar fees |
* | |||
Printing and engraving costs |
* | |||
Legal fees and expenses |
* | |||
Accountants' fees and expenses |
* | |||
Financial Industry Regulatory Authority, Inc. filing fee |
* | |||
Miscellaneous |
* | |||
Total |
* | |||
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a Delaware corporation to indemnify its officers, directors and other corporate agents to the extent and under the circumstances set forth therein. Our Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that we will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that he is or was our director, officer or board observer, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in accordance with provisions corresponding to Section 145 of the Delaware General Corporation Law. These indemnification provisions may be sufficiently broad to permit indemnification of the registrant's executive officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law, our Second Amended and Restated Certificate of Incorporation eliminates the personal liability of a director to us or our stockholders for monetary damages for a breach of fiduciary duty as a director, except for liability:
The above discussion of Section 145 of the Delaware General Corporation Law and of our Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws is not intended to be exhaustive and is respectively qualified in its entirety by Section 145 of the Delaware General Corporation Law, our Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.
II-1
As permitted by Section 145 of the Delaware General Corporation Law, we will carry primary and excess insurance policies insuring our directors and officers against certain liabilities they may incur in their capacity as directors and officers. Under the policies, the insurer, on our behalf, may also pay amounts for which we granted indemnification to our directors and officers.
In addition, the underwriting agreement to be filed as Exhibit 1.1 to this Registration Statement provides that the underwriters will indemnify us and our executive officers and directors for certain liabilities related to this offering, including liabilities arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
In May 2012 and June 2012, $3.3 billion and 24.0 million, respectively, in cash was paid to our predecessor in interest, EPE Acquisition, and EPE Acquisition issued 3.3 million Class A units representing membership interests in EPE Acquisition to the Legacy Class A Stockholders or their predecessors in interest (as applicable), and 0.8 million Class B units representing membership interests in EPE Acquisition to the Legacy Class B Stockholder.
On August 30, 2013, in connection with our Corporate Reorganization, (i) certain of the Legacy Class A Stockholders contributed their Class A units to us in exchange for the issuance of a like number of common stock to such holders, (ii) certain other Legacy Class A Stockholders, which previously held their Class A membership interests in EPE Acquisition indirectly through Blocker Vehicles, contributed their interests in their Blocker Vehicles to us in exchange for the issuance to such indirect holders of a like number of shares of common stock and (iii) the Legacy Class B Stockholders contributed their interests to us in exchange for the issuance of shares of Class B common stock. These securities were issued by us in reliance upon the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act.
Additional shares of Class B common stock were issued to EPE Employee Holdings II, LLC, a vehicle through which we will grant incentive awards to our current and future employees. These securities were issued by us in reliance upon the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
See the Exhibit Index immediately following the signature page hereto, which is incorporated by reference as if fully set forth herein.
Not applicable.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director,
II-2
officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
II-3
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Houston, Texas on the 4th day of September, 2013.
|
EP ENERGY CORPORATION | |||
|
By: |
/s/ BRENT J. SMOLIK
|
Each person whose signature appears below hereby constitutes and appoints Marguerite N. Woung-Chapman and Dane E. Whitehead, and each of them, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and his name place and stead, in any and all capacities, to execute any and all amendments (including post-effective amendments) to this registration statement, to sign any registration statement filed pursuant to Rule 462(b) of the Securities Act of 1933, and to cause the same to be filed with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and desirable to be done in and about the premises as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated below.
Signature
|
Title
|
Date
|
||
---|---|---|---|---|
|
|
|
|
|
/s/ BRENT J. SMOLIK
Brent J. Smolik |
President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | September 4, 2013 | ||
/s/ DANE E. WHITEHEAD Dane E. Whitehead |
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
September 4, 2013 |
/s/ FRANCIS C. OLMSTED III Francis C. Olmsted III |
|
Vice President and Controller (Principal Accounting Officer) |
|
September 4, 2013 |
/s/ RALPH ALEXANDER Ralph Alexander |
|
Director |
|
September 4, 2013 |
/s/ GREGORY A. BEARD Gregory A. Beard |
|
Director |
|
September 4, 2013 |
Signature
|
Title
|
Date
|
||
---|---|---|---|---|
|
|
|
|
|
/s/ JOSHUA J. HARRIS
Joshua J. Harris |
Director | September 4, 2013 | ||
/s/ SAM OH Sam Oh |
|
Director |
|
September 4, 2013 |
/s/ ILRAE PARK Ilrae Park |
|
Director |
|
September 4, 2013 |
/s/ ROBERT M. TICHIO Robert M. Tichio |
|
Director |
|
September 4, 2013 |
/s/ DONALD A. WAGNER Donald A. Wagner |
|
Director |
|
September 4, 2013 |
/s/ RAKESH WILSON Rakesh Wilson |
|
Director |
|
September 4, 2013 |
Exhibit No. | Exhibit Description | ||
---|---|---|---|
1.1 | ** | Form of Underwriting Agreement. | |
2.1 | Purchase and Sale Agreement among EP Energy Corporation, EP Energy Holding Company and El Paso Brazil, L.L.C., as sellers, and EPE Acquisition, LLC, as purchaser, dated as of February 24, 2012 (Exhibit 2.1 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
2.2 | Amendment No. 1 to Purchase and Sale Agreement, dated as of April 16, 2012, among EP Energy, L.L.C. (f/k/a EP Energy Corporation), EP Energy Holding Company, El Paso Brazil, L.L.C. and EPE Acquisition, LLC (Exhibit 2.2 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
2.3 | Amendment No. 2 to Purchase and Sale Agreement, dated as of May 24, 2012, among EP Energy, L.L.C. (f/k/a EP Energy Corporation), EP Energy Holding Company, El Paso Brazil, L.L.C., EP Production International Cayman Company, EPE Acquisition, LLC and solely for purposes of Sections 2 and 5 thereunder, El Paso LLC (Exhibit 2.3 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
2.4 | Purchase and Sale Agreement, dated as of June 9, 2013, by and among EP Energy E&P Company, L.P., EPE Nominee Corp. and Atlas Resource Partners, L.P. (Exhibit 2.1 to EP Energy LLC's Current Report on Form 8-K, filed with the SEC on June 13, 2013). | ||
3.1 | * | Form of Second Amended and Restated Certificate of Incorporation of EP Energy Corporation. | |
3.2 | * | Form of Amended and Restated Bylaws of EP Energy Corporation. | |
4.1 | Indenture, dated as of April 24, 2012, between EP Energy LLC (f/k/a Everest Acquisition LLC) and Everest Acquisition Finance Inc., as Co-Issuers, and Wilmington Trust, National Association, as Trustee, in respect of 6.875% Senior Secured Notes due 2019 (Exhibit 4.1 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
4.2 | Indenture, dated as of April 24, 2012, between EP Energy LLC (f/k/a Everest Acquisition LLC) and Everest Acquisition Finance Inc., as Co-Issuers, and Wilmington Trust, National Association, as Trustee, in respect of 9.375% Senior Notes due 2020 (Exhibit 4.2 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
4.3 | Indenture, dated as of August 13, 2012, between EP Energy LLC and Everest Acquisition Finance Inc., as Co-Issuers, and Wilmington Trust, National Association, as Trustee, in respect of 7.750% Senior Notes due 2022 (Exhibit 4.3 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
4.4 | * | Indenture, dated as of December 21, 2012, between EPE Holdings LLC and EP Energy Bondco Inc., as Co-Issuers, and Wilmington Trust, National Association, as Trustee, in respect of 8.125%/8.875% Senior PIK Toggle Notes due 2017. | |
4.5 | Registration Rights Agreement, dated as of April 24, 2012, between EP Energy LLC (f/k/a Everest Acquisition LLC), Everest Acquisition Finance Inc. and Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasers, in respect of 6.875% Senior Secured Notes due 2019 (Exhibit 4.4 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
|
Exhibit No. | Exhibit Description | ||
---|---|---|---|
4.6 | Registration Rights Agreement, dated as of April 24, 2012, between EP Energy LLC (f/k/a Everest Acquisition LLC), Everest Acquisition Finance Inc. and Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasers, in respect of 9.375% Senior Notes due 2020 (Exhibit 4.5 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
4.7 | Registration Rights Agreement, dated as of August 13, 2012, between EP Energy LLC, Everest Acquisition Finance Inc. and Citigroup Global Markets Inc., as representative of the several initial purchasers, in respect of 7.750% Senior Notes due 2022 (Exhibit 4.6 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
4.8 | * | Registration Rights Agreement, dated as of August 30, 2013, between EP Energy Corporation and the stockholders party thereto. | |
5.1 | ** | Opinion of Akin Gump Strauss Hauer & Feld LLP as to the legality of securities being registered. | |
10.1 | Credit Agreement, dated as of May 24, 2012, by and among EPE Holdings, LLC, as Holdings, EP Energy LLC (f/k/a Everest Acquisition LLC), as the Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the other parties party thereto (Exhibit 10.1 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.2 | Guarantee Agreement, dated as of May 24, 2012, by and among EPE Holdings LLC, the Domestic Subsidiaries of the Borrower signatory thereto and JPMorgan Chase Bank, N.A., as collateral agent for the Secured Parties referred to therein (Exhibit 10.2 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.3 | Collateral Agreement, dated as of May 24, 2012, by and among EPE Holdings LLC, EP Energy LLC (f/k/a Everest Acquisition LLC), each Subsidiary of EP Energy LLC identified therein and JPMorgan Chase Bank, N.A., as Collateral Agent (Exhibit 10.3 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.4 | Pledge Agreement, dated as of May 24, 2012, by and among EP Energy LLC (f/k/a Everest Acquisition LLC), each Subsidiary of EP Energy LLC identified therein and JPMorgan Chase Bank, N.A., as Collateral Agent (Exhibit 10.4 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.5 | Pledge Agreement, dated as of May 24, 2012, by and among El Paso Brazil, L.L.C., as Pledgor, and JPMorgan Chase Bank, N.A., as Collateral Agent (Exhibit 10.5 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.6 | Amendment, dated as of August 17, 2012, to the Credit Agreement, dated as of May 24, 2012, among EPE Holdings LLC, EP Energy LLC, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (Exhibit 10.15 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.7 | Second Amendment, dated as of March 27, 2013, to the Credit Agreement, dated as of May 24, 2012, among EPE Holdings LLC, EP Energy LLC, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (Exhibit 10.1 to EP Energy LLC's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the SEC on May 9, 2013). | ||
|
Exhibit No. | Exhibit Description | ||
---|---|---|---|
10.8 | Consent and Agreement to Credit Agreement, dated as of June 7, 2013, among EPE Holdings LLC, EP Energy LLC, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (Exhibit 10.3 to EP Energy LLC's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, filed with the SEC on August 14, 2013). | ||
10.9 | Senior Lien Intercreditor Agreement, dated as of May 24, 2012, among JPMorgan Chase Bank, N.A., as RBL Facility Agent and Applicable First Lien Agent, Citibank, N.A., as Term Facility Agent, Senior Secured Notes Collateral Agent and Applicable Second Lien Agent, Wilmington Trust, National Association, as Trustee under the Senior Secured Notes Indenture, EP Energy LLC and the Subsidiaries of EP Energy LLC named therein (Exhibit 10.6 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.10 | Term Loan Agreement, dated as of April 24, 2012, by and among EP Energy LLC (f/k/a Everest Acquisition LLC), as Borrower, the Lenders party thereto, Citibank, N.A., as Administrative Agent and Collateral Agent, and Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as Co-Lead Arrangers (Exhibit 10.7 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.11 | Guarantee Agreement, dated as of April 24, 2012, by and between Everest Acquisition Finance Inc., as Guarantor, and Citibank, N.A., as collateral agent for the Secured Parties referred to therein (Exhibit 10.8 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.12 | Collateral Agreement, dated as of May 24, 2012, by and among EP Energy LLC (f/k/a Everest Acquisition LLC), each Subsidiary of EP Energy LLC identified therein and Citibank, N.A., as Collateral Agent (Exhibit 10.9 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.13 | Pledge Agreement, dated as of May 24, 2012, by and among EP Energy LLC (f/k/a Everest Acquisition LLC), each Subsidiary of EP Energy LLC identified therein and Citibank, N.A., as Collateral Agent (Exhibit 10.10 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.14 | Pledge Agreement, dated as of May 24, 2012, by and among EP Energy Brazil, L.L.C. (f/k/a El Paso Brazil, L.L.C.), as Pledgor, and Citibank, N.A., as Collateral Agent (Exhibit 10.11 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.15 | Amendment No. 1, dated as of August 21, 2012, to the Term Loan Agreement, dated as of April 24, 2012, among EP Energy LLC, the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (Exhibit 10.16 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.16 | Joinder Agreement, dated as of August 21, 2012, among Citibank, N.A., as Additional Tranche B-1 Lender, EP Energy LLC and Citibank, N.A., as administrative agent (Exhibit 10.17 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | ||
10.17 | Incremental Facility Agreement, dated October 31, 2012, to the Term Loan Agreement, dated as of April 24, 2012 and amended by that certain Amendment No. 1 dated as of August 21, 2012, among EP Energy LLC, the lenders from time to time party thereto and Citibank, N.A., as administrative agent and collateral agent. (Exhibit 10.1 to EP Energy LLC's Current Report on Form 8-K, filed with the SEC on October 31, 2012). | ||
|
Exhibit No. | Exhibit Description | ||
---|---|---|---|
10.30 | + | 2012 Omnibus Incentive Plan (Exhibit 10.24 to EP Energy LLC's Registration Statement on Form S-4, filed with the SEC on September 11, 2012). | |
10.31 | +* | Management Incentive Plan Agreement, dated as of August 30, 2013, between EP Energy Corporation and EPE Employee Holdings, LLC. | |
10.32 | + | Form of EPE Employee Holdings, LLC Management Incentive Unit Agreement (Exhibit 10.26 to EP Energy LLC's Registration Statement on Form S-4 filed with the SEC on September 11, 2012). | |
10.33 | +* | Form of Notice to MIPs Holders regarding Corporate Reorganization. | |
10.34 | +* | Third Amended and Restated Limited Liability Company Agreement of EPE Employee Holdings, LLC dated as of August 30, 2013. | |
10.35 | +* | Third Amended and Restated Limited Liability Company Agreement of EPE Management Investors, LLC dated as of August 30, 2013. | |
10.36 | +* | Subscription Agreement, dated as of August 30, 2013, between EP Energy Corporation and EPE Management Investors, LLC. | |
10.37 | +** | 2013 Omnibus Incentive Plan. | |
10.38 | * | Stockholders Agreement, dated as of August 30, 2013, between EP Energy Corporation and the stockholders party thereto. | |
21.1 | * | Subsidiaries of EP Energy Corporation. | |
23.1 | * | Consent of Ernst & Young LLP, an independent registered public accounting firm. | |
23.2 | * | Consent of PricewaterhouseCoopers, LLP, an independent registered public accounting firm. | |
23.3 | * | Consent of Ryder Scott Company, L.P. | |
23.4 | ** | Consent of Akin Gump Strauss Hauer & Feld LLP (contained in Exhibit 5.1). | |
24.1 | * | Powers of attorney (included on the signature page to this registration statement). | |
99.1 | Ryder Scott Company, L.P. reserve audit report for EP Energy LLC as of December 31, 2012 (Exhibit 99.1 to EP Energy LLC's Annual Report on Form 10-K filed with the SEC on March 1, 2013). | ||
99.2 | * | Ryder Scott Company, L.P. reserve audit report for EP Energy LLC as of June 30, 2013. |
Exhibit 3.1
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
EP ENERGY CORPORATION
EP Energy Corporation, a corporation organized and existing under the laws of the State of Delaware (the Corporation ), hereby certifies as follows:
1. The name of the Corporation is EP Energy Corporation.
2. The date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was August 8, 2013 (the Original Certificate of Incorporation ).
3. The Original Certificate of Incorporation was amended and restated in its entirety by the Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware was August 30, 2013 (the Amended and Restated Certificate of Incorporation ).
4. This Second Amended and Restated Certificate of Incorporation (as amended, restated or modified from time to time, this Second Amended and Restated Certificate of Incorporation ) amends and restates the Amended and Restated Certificate of Incorporation and has been duly adopted by the Board of Directors of the Corporation (the Board ) by unanimous written consent in lieu of a meeting in accordance with Sections 14(f), 242 and 245 of the General Corporation Law of the State of Delaware (as may be amended and supplemented from time to time, the DGCL ) and by the stockholders of the Corporation by written consent in lieu of a meeting thereof in accordance with Sections 228, 242 and 245 of the DGCL.
5. The Amended and Restated Certificate of Incorporation of the Corporation, as amended hereby, shall, upon the effectiveness hereof, read in its entirety, as follows:
ARTICLE I
NAME
The name of the Corporation is:
EP Energy Corporation
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporations registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The name of the Corporations registered agent at such address is Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act and activity for which corporations may be organized and incorporated under the DGCL.
ARTICLE IV
CAPITAL STOCK
Section 1. Authorized Shares . The total number of shares of all classes of stock that the Corporation shall have authority to issue is [ ] shares, of which [ ] shares shall be Class A Common Stock, $0.01 par value per share (the Class A Common Stock and shares of Class A Common Stock, Class A Shares ), 878,304 shares shall be Class B Common Stock, $0.01 par value per share (the Class B Common Stock and shares of Class B Common Stock, Class B Shares ), and [ ] shares shall be preferred stock, $0.01 par value per share (the Preferred Stock and shares of Preferred Stock, Preferred Shares ).
Section 2. Class A Shares . Except as otherwise required by applicable law, all Class A Shares shall be identical in all respects and shall entitle the holders thereof to the same rights, subject to the same qualifications, limitations and restrictions. The terms of the Class A Shares set forth below shall be subject to the express terms of the Class B Shares and any series of Preferred Shares.
(a) Voting Rights . Except as otherwise required by applicable law, the holders of Class A Shares (the Class A Stockholders ) shall be entitled to one vote per Class A Share on all matters to be voted on by the Corporations stockholders. No Class A Stockholders shall be entitled to exercise any right of cumulative voting.
(b) Dividends . Subject to the rights of the holders of Preferred Shares and Class B Shares, and subject to any other provisions of this Second Amended and Restated Certificate of Incorporation the Class A Stockholders shall be entitled to receive, as, if and when declared by the Board out of the funds of the Corporation legally available therefor (such funds, Available Cash), such dividends (payable in cash, stock or otherwise) as the Board may from time to time determine, payable to Class A Stockholders of record on such dates, not exceeding 60 days preceding the dividend distribution dates, as shall be fixed for such purpose by the Board in advance of distribution of each particular dividend, taking into account all debts, liabilities, and obligations of the Corporation and its Subsidiaries then due, and working capital and other
requirements, which the Board may deem necessary for the Corporations and its Subsidiaries businesses or to place into reserves for expenditures, claims or contingencies with respect to such businesses (any such cash dividends, Available Cash Dividends ).
Section 3. Class B Shares . Except as otherwise required by applicable law, all Class B Shares shall be identical in all respects and shall entitle the holders thereof to the same rights, subject to the same qualifications, limitations and restrictions.
(a) Voting Rights . Except as otherwise required by applicable law and as provided herein, the holders of Class B Shares (the Class B Stockholders ) shall not be entitled to any votes in respect of any matter to be voted on by the Corporations stockholders. No Class B Stockholders shall be entitled to exercise any right of cumulative voting.
(b) Dividends . Following the occurrence of a Threshold Capital Transaction (or following any other distributions or series of distributions of Capital Proceeds or Available Cash Dividends, where after giving effect to such distributions or series of distributions, MOIC is greater than 1.0), at such times as Available Cash Dividends are paid to the Class A Stockholders, dividends out of Available Cash shall be paid to the Class B Stockholders in respect of their Class B Shares (whether or not vested pursuant to any applicable management incentive plan agreement or otherwise) in the same manner and in such amounts as if they were Capital Proceeds distributed pursuant to Article IV, Section 5 (with the term Capital Proceeds used therein being deemed to include dividends out of Available Cash). In the event that any such dividends are paid to the Class B Stockholders pursuant to this Article IV, Section 3(b) , the calculation of amounts payable to the Class B Stockholders pursuant to Article IV, Section 5 and the calculation of the number of Class A Shares issuable to the Class B Stockholders pursuant to Article IV, Section 6 shall, in each case, be made on a cumulative basis and taking into account all prior distributions of Capital Proceeds and dividends out of Available Cash made pursuant to Article IV, Section 5 and this Article IV, Section 3(b) , as applicable, all Prior Distributions and all issuances of Class A Shares made pursuant to Article IV, Section 6 to avoid duplication.
Section 4. Preferred Shares . The Board is authorized to provide for the issuance from time to time of Preferred Shares in one or more series by filing a certificate of the voting powers (if any), designations, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, if any (a Preferred Stock Certificate of Designation ), pursuant to the applicable provisions of the DGCL, as are stated and expressed in the resolution or resolutions providing for the issuance thereof adopted by the Board and dependent on facts ascertainable outside such Preferred Stock Certificate of Designation or resolution or resolutions providing for the issuance thereof adopted by the Board, including, but not limited to, determination of any of the following:
(a) the distinctive designation of the series, whether by number, letter or title, and the number of shares which will constitute the series, which number may be increased or decreased (but not below the number of shares then outstanding and except to the extent otherwise provided in the applicable Preferred Stock Certificate of Designation) from time to time by action of the Board;
(b) the dividend rate, if any, and the times of distribution of dividends, if any, on the shares of the series, whether such dividends will be cumulative and, if so, from what date or dates, and the relation which such dividends, if any, shall bear to the dividends payable on any other class or classes of stock;
(c) the price or prices at which, and the terms and conditions on which, the shares of the series may be redeemed at the option of the Corporation;
(d) whether or not the shares of the series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if so entitled, the amount of such fund and the terms and provisions relative to the operation thereof;
(e) the amounts payable on, and the preferences, if any, of the shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;
(f) whether or not the shares of the series will be convertible into, or exchangeable for, any other shares of stock of the Corporation or other securities and, if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;
(g) whether or not the shares of the series will have priority over or be on a parity with or be junior to the shares of any other series or class of stock in any respect, or will be entitled to the benefit of limitations restricting the issuance of shares of any other series or class of stock, restricting the distribution of dividends on or the making of other distributions in respect of shares of any other series or class of stock ranking junior to the shares of the series as to dividends or assets, or restricting the purchase or redemption of the shares of any such junior series or class, and the terms of any such restriction;
(h) whether or not the shares of the series will have voting rights in addition to any voting rights provided by law and, if so, the terms of such voting rights; and
(i) any other terms of the shares of the series;
provided , that for so long as the Specified Condition is satisfied, any issuance of Preferred Shares or any specification of the rights of any Preferred Shares by the Board pursuant to this Article IV, Section 3 , shall require Special Board Approval and in the event that the Specified Condition is no longer satisfied, any issuance of Preferred Shares or any specification of the rights of any Preferred Shares by the Board pursuant to this Article IV, Section 3 , shall require the approval of a majority of the Board then in office.
Section 5. Capital Transactions.
(a) Upon the occurrence of a Capital Transaction, Capital Proceeds shall be allocated and distributed to the Class A Stockholders and the Class B Stockholders in the following order of priority promptly following the consummation of such Capital Transaction.
(i) First , to each Class A Stockholder, its Pro Rata Portion of such Capital Proceeds until the Legacy Class A Stockholders Unrecovered Capital balance is reduced to zero;
(ii) Second , only to the extent that there is any Previously Paid Class A Preferred Return, an amount of such Capital Proceeds remaining after the Corporation has made the distributions to the Class A Stockholders described in Article IV, Section 5(a)(i) , which amount shall be equal to 3/97ths of the aggregate amount of the Previously Paid Class A Preferred Return distributed to the Legacy Class A Stockholders prior to the occurrence of such Capital Transaction, to the Class B Stockholders Pro Rata (for the avoidance of doubt, the aggregate amount of distributions made to the Class B Stockholders under this Article IV, Section 5(a)(ii) , together with the Tier I MIPS (as defined below) shall not exceed an amount equal to three percent (3%) of the amount of Profits as of such date of distribution);
(iii) Third , the amount of such Capital Proceeds remaining after the Corporation has made the distributions to the Class A Stockholders and the Class B Stockholders described in Article IV, Section 5(a)(i) and Article IV, Section 5(a)(ii) (the Remaining Tier I Profits ) to the Class A Stockholders and the Class B Stockholders as follows:
(A) Ninety-seven percent (97%) of the Remaining Tier I Profits to the Class A Stockholders Pro Rata based on the relative Unpaid Class A Preferred Return of each Legacy Class A Stockholder until each Legacy Class A Stockholders Unpaid Class A Preferred Return is reduced to, and remains at, zero; and
(B) Three percent (3%) of the Remaining Tier I Profits (such amount, the Tier I MIPS ) to the Class B Stockholders Pro Rata until the unpaid Tier I MIPS is reduced to zero; and
(iv) Fourth , the amount of such Capital Proceeds remaining after the Corporation has made the distributions to the Class A Stockholders and the Class B Stockholders described in Article IV, Sections 5(a)(i), 5(a)(ii) and 5(a)(iii) (the Remaining Tier II Profits ) to the Class A Stockholders and Class B Stockholders as follows:
(A) An amount equal to (x) the Remaining Tier II Profits, minus (y) the Class B Additional Profits Amount (as defined below) or the Alternative Class B Additional Profits Amount (as defined below), as applicable, to the Class A Stockholders Pro Rata; and
(B) A portion of the Remaining Tier II Profits to the Class B Stockholders Pro Rata, as follows (such amount, the Class B Additional Profits Amount ):
(I) if MOIC is greater than or equal to 1.00, but less than or equal to 1.50, an amount equal to (x) the amount of Profits, multiplied by (y) three and one-half percent (3.5%);
(II) if MOIC is greater than 1.50, but less than or equal to 2.25, an amount equal to (x) the amount determined pursuant to clause (I) above (calculated assuming MOIC is equal to 1.50), plus (y) an amount equal to (1) six and one-half percent (6.5%), multiplied by (2) an amount equal to the excess of (xx) an amount equal to (A) the aggregate amount of Capital Proceeds theretofore distributed or to be distributed to the Class A Stockholders in connection with such Capital Transaction pursuant to this Article IV, Section 5 , plus (B) the aggregate amount of Available Cash Dividends theretofore distributed to the Class A Stockholders pursuant to Article IV, Section 2(b) through the date of such distribution, plus (C) the aggregate amount of Subsequent Sale Proceeds theretofore received by the Legacy Class A Stockholders (after deducting any underwriting discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with such Subsequent Sales giving rise to such proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) through such date, plus (D) the aggregate amount of Prior Distributions received by the Legacy Class A Stockholders or their predecessors in interest (as applicable) through such date, over (yy) an amount equal to (A) the aggregate amount of Capital Contributions theretofore made by the Class A Stockholders or their predecessors in interest (as applicable), multiplied by (B) 1.50; or
(III) if MOIC is greater than 2.25, an amount equal to (x) the amount determined pursuant to clause (II) above (calculated assuming MOIC is equal to 2.25), plus (y) an amount equal to (1) six percent (6.0%), multiplied by (2) an amount equal to the excess of (xx) an amount equal to (A) the aggregate amount of Capital Proceeds theretofore distributed or to be distributed to the Class A Stockholders in connection with such Capital Transaction pursuant to this Article IV, Section 5 , plus (B) the aggregate amount of Available Cash Dividends theretofore distributed to the Class A Stockholders pursuant to Article IV, Section 2(b) through the date of such distribution, plus (C) the aggregate amount of proceeds theretofore received by the Legacy Class A Stockholders in connection with Subsequent Sales (after deducting any underwriting discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with such Subsequent Sales giving rise to such Subsequent Sale Proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) through such date, plus (D) the aggregate amount of Prior Distributions received by the Legacy Class A
Stockholders or their predecessors in interest (as applicable) through such date, over (yy) an amount equal to (A) the aggregate amount of Capital Contributions theretofore made by the Class A Stockholders or their predecessors in interest (as applicable), multiplied by (B) 2.25;
provided , however , that, notwithstanding anything to the contrary set forth in Article IV, Section 5(a)(iv)(B) above, in the event that the amount of the Remaining Tier II Profits is insufficient to pay the Class B Additional Profits Amount to the Class B Stockholders, then in lieu of the Class B Additional Profits Amount, the Class B Stockholders shall instead receive, on a Pro Rata Basis, an aggregate amount equal to fifty percent (50%) of the Remaining Tier II Profits (the Alternative Class B Additional Profits Amount ).
(b) Notwithstanding anything to the contrary in this Second Amended and Restated Certificate of Incorporation, (i) in no event shall the aggregate amount distributed to the Class B Stockholders pursuant to Article IV, Section 5 and Article IV, Section 3(b) (together with any tax advances previously received by a Class B Stockholder or its predecessor in interest (as applicable) in respect of interests of the LLC previously held by such Class B Stockholder or its predecessor in interest (as applicable)) exceed eight and one-half percent (8.5%) of the aggregate amount of Profits distributed to the Class A Stockholders and the Class B Stockholders pursuant to Article IV, Section 5 and Article IV, Section 3(b) , and (ii) no distributions (excluding, for the avoidance of doubt, any exchange pursuant to Article IV, Section 6 , which shall be subject to the terms and provisions set forth therein) shall be made to any Class B Stockholder, until the consummation of a Threshold Capital Transaction.
(c) Any amount distributed to the Class B Stockholders in connection with any Class B Exchange shall be treated as an advance distribution of, and shall reduce by like amount, the next amounts otherwise payable to the Class B Stockholders pursuant to Article IV, Section 5 and Article IV, Section 3(b) . Notwithstanding anything to the contrary set forth in this Second Amended and Restated Certificate of Incorporation, if any Class B Shares are exchanged pursuant to a Class B Exchange, then the amount of any Capital Proceeds to be distributed to the Class B Members pursuant to this Article IV, Section 5 in connection with any Capital Transaction following such Class B Exchange ( provided , that such Capital Transaction is a Threshold Capital Transaction or that a Threshold Capital Transaction has been previously consummated) shall be (i) calculated by (A) disregarding the amount of Capital Proceeds received in such Capital Transaction in respect of those Class A Shares that were acquired by any Legacy Class A Stockholder in its capacity as the purchaser in a Specified Sale relating to a Class B Exchange and (B) including in such calculation, in lieu of the amount described in the immediately preceding subclause (A), the amount of proceeds received by the Specified Stockholders in such Specified Sale in respect of such Class A Shares, multiplied by the Adjustment Multiple and (ii) reduced by any amount distributed to the Class B Stockholders in connection with any Class B Exchange (in accordance with the first sentence of this Article IV, Section 3(c)). In addition, any other distributions to be made to the Class B Stockholders pursuant to Article IV, Section 5 and Article IV, Section 3(b) following any Class B Exchange shall be calculated in an equitable manner in accordance with the principles described in the immediately preceding sentence.
(d) Any distributions in kind pursuant to Article IV, Section 5 and Article IV, Section 3(b) shall be distributed out based on their Fair Market Values, in the same proportions as if cash (whether Available Cash Dividends or Capital Proceeds) were distributed. If cash and property are to be distributed in kind simultaneously, the Corporation shall pay such cash and property in kind in the same proportion to each Class A Stockholder and Class B Stockholder entitled to such distribution pursuant to this Second Amended and Restated Certificate of Incorporation, unless otherwise agreed by the Class A Stockholders and the Class B Stockholders, in each case, voting as a separate class. The Fair Market Value of any assets (other than cash) that are distributed pursuant to this Article IV, Section 5 and Article IV, Section 3(b) shall be determined as of the date that such distribution is made. For the avoidance of doubt, all amounts payable to the Class B Stockholders under this Article IV, Section 5 in connection with any Capital Transaction shall be in the same form as the distributions received by the Class A Stockholders in connection with such Capital Transaction.
Section 6. Class B Exchange .
(a) In connection with each Specified Sale, the Corporation shall exchange with the Class B Stockholders a number of newly issued Class A Shares calculated pursuant to Article IV, Section 6(c) for a number of Class B Shares (such number of Class B Shares, the Class B Exchange Amount ) such that, after giving effect to such exchange, the total number of Class B Shares held by the Class B Stockholders shall be equal to (i) the number of Class B Shares held by the Class B Stockholders immediately prior to the first Sale, multiplied by (ii) a fraction, expressed as a percentage (x) the numerator of which is an amount equal to the aggregate number of Class A Shares collectively held by the Specified Stockholders after giving effect to such Specified Sale, and (y) the denominator of which is an amount equal to the total number of Class A Shares collectively held by the Specified Stockholders immediately prior to the first Sale.
(b) The aggregate value of the Class A Shares to be issued by the Corporation in exchange for the Class B Exchange Amount (the Class B Consideration ) shall equal:
(i) only to the extent that there is any Specified Previously Paid Class A Preferred Return, an amount of Specified Profits equal to 3/97ths of the aggregate amount of the Specified Previously Paid Class A Preferred Return distributed to the Specified Stockholders prior to the occurrence of such Specified Sale (for the avoidance of doubt, the aggregate amount of the portion of the Class B Consideration calculated pursuant to this Article IV, Section 6(b)(i) , together with the Specified Tier I MIPS (as defined below) shall not exceed an amount equal to three percent (3%) of the amount of Specified Profits as of such date of exchange) (such amount, the Specified Class B Catch-Up Amount ); plus
(ii) an amount of Specified Remaining Tier I Profits equal to three percent (3)% of the Specified Remaining Tier I Profits (such amount, the Specified Tier I MIPS ); plus
(iii) an amount of the Specified Remaining Tier II Profits equal to:
(1) if Specified MOIC is greater than or equal to 1.00, but less than or equal to 1.50, an amount equal to (x) the amount of Specified Profits, multiplied by (y) three and one-half percent (3.5%);
(2) if Specified MOIC is greater than 1.50, but less than or equal to 2.25, an amount equal to (x) the amount determined pursuant to clause (1) above (assuming Specified MOIC is equal to 1.50), plus (y) an amount equal to (A) six and one-half percent (6.5%), multiplied by (B) an amount equal to the excess of (xx) an amount equal to (I) the aggregate amount of Capital Proceeds theretofore distributed to the Specified Stockholders in connection with a Capital Transaction pursuant to Article IV, Section 5 , plus (II) the aggregate amount of Available Cash Dividends theretofore distributed to the Specified Stockholders pursuant to Article IV, Section 2(b) through the date of such Class B Exchange, plus (III) the aggregate amount of Sale Proceeds received by the Specified Stockholders (after deducting any underwriting discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with such Sales giving rise to such Sale Proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) through such date, plus (IV) the aggregate amount of Specified Prior Distributions received by the Specified Stockholders or their predecessors in interest (as applicable) through such date, over (yy) an amount equal to (I) the aggregate amount of Capital Contributions theretofore made by the Specified Stockholders or their predecessors in interest (as applicable), multiplied by (II) 1.50;
(3) if Specified MOIC is greater than 2.25, an amount equal to (x) the amount determined pursuant to clause (2) above (calculated assuming MOIC is equal to 2.25), plus (y) an amount equal to (A) six percent (6.0%), multiplied by (B) an amount equal to the excess of (xx) an amount equal to (I) the aggregate amount of Capital Proceeds theretofore distributed to the Specified Stockholders in connection with a Capital Transaction pursuant to Article IV, Section 5 , plus (II) the aggregate amount of Available Cash Dividends theretofore distributed to the Specified Stockholders pursuant to Article IV, Section 2(b) through the date of such Class B Exchange, plus (III) the aggregate amount of Sale Proceeds received by the Specified Stockholders (after deducting any underwriting discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with such Sales giving rise to such Sale Proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) through such date, plus (IV) the aggregate amount of Specified Prior Distributions received by the Specified Stockholders or their predecessors
in interest (as applicable) through such date, over (yy) an amount equal to (I) the aggregate amount of Capital Contributions theretofore made by the Specified Stockholders or their predecessors in interest (as applicable), multiplied by (II) 2.25; plus
(iv) an amount equal to (A) (x) the portion of the Class B Consideration calculated by aggregating the amounts described in the preceding clauses (i) through (iii), multiplied by (y) the Adjustment Multiple, minus (B) the aggregate of the amounts described in the preceding clauses (i) through (iii);
provided , that (A) in no event shall the Class B Consideration distributed to the Class B Stockholders pursuant to this Article IV, Section 6 (together with any tax advances previously received by any Class B Stockholder in respect of membership interests of the LLC previously held by such Class B Stockholder) exceed eight and one-half percent (8.5%) of the aggregate amount of Specified Profits and (B) no Class B Exchange shall be consummated until the consummation of a Specified Sale; provided , further , that the Class B Consideration shall be calculated without duplication of amounts that were previously distributed to the Class B Stockholders in respect of their Class B Shares (including pursuant to Article IV, Section 5 and Article IV, Section 3(b) ) or in connection with any prior Class B Exchange, and any exchanges of Class B Shares pursuant to the Stockholders Agreement shall be treated as an advance distribution of, and shall reduce by like amount, the next amounts otherwise distributable to the applicable Class B Stockholders pursuant to this Article IV, Section 6 .
(c) The aggregate number of Class A Shares to be issued to the Class B Stockholders in exchange for the Class B Exchange Amount pursuant to a Class B Exchange shall be equal to (i) the Class B Consideration, divided by an amount equal to (ii) (A) if such Class B Exchange is consummated prior to an IPO, the price per Class A Share sold in such Specified Sale, or (B) if such Class B Exchange is consummated following an IPO, the average closing price per Class A Share for the five (5) consecutive trading days immediately prior to the date on which the Class B Exchange is consummated (the amount in clause (A) or (B) above, as applicable, the Per Class A Share Price ). Notwithstanding anything to the contrary in this Second Amended and Restated Certificate of Incorporation, no fractional Class A Shares shall be issued in connection with any Class B Exchange. In lieu of any fractional Class A Share, the Corporation shall pay to each affected Class B Stockholder an amount in cash equal to (I) such Class B Stockholders respective fractional Class A Share amount, multiplied by (II) the Per Class A Share Price.
(d) A Class B Exchange shall be consummated as promptly as practicable following the consummation of the related Specified Sale, but in any event no later than ten (10) Business Days following the consummation of such Specified Sale. Upon the consummation of a Class B Exchange, the Class B Exchange Amount shall be cancelled by the Corporation.
(e) This Article IV, Section 6 shall terminate immediately upon the consummation of a Class B Exchange, if following the related Specified Sale, none of the Specified Stockholders shall hold any Class A Shares.
ARTICLE V
DIRECTORS
Section 1. General Powers . Except as otherwise provided by applicable law or this Second Amended and Restated Certificate of Incorporation, in each case as the same may be amended and supplemented, the business and affairs of the Corporation shall be managed by or under the direction of the Board.
Section 2. Number of Directors . The number of directors that shall constitute the whole Board shall be as determined from time to time by a majority of the Board then in office; provided , that in no event shall the total number of directors constituting the entire Board be less than three (3) nor more than thirteen (13). Election of directors need not be by written ballot.
Section 3. Classes of Directors; Term of Office . The Board shall be and is divided into three classes, as nearly equal in number as possible, designated: Class I, Class II and Class III. In case of any increase or decrease, from time to time, in the number of directors, the number of directors in each class shall be apportioned as nearly equal as possible. No decrease in the number of directors shall shorten the term of any incumbent director.
Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided , that each director initially appointed to Class I shall serve for a term expiring at the Corporations annual meeting of stockholders held in 2014; each director initially appointed to Class II shall serve for a term expiring at the Corporations annual meeting of stockholders held in 2015; and each director initially appointed to Class III shall serve for a term expiring at the Corporations annual meeting of stockholders held in 2016; provided , further , that the term of each director shall continue until the election and qualification of his successor and be subject to his earlier death, resignation or removal.
Section 4. Quorum . Except as otherwise provided by law, this Second Amended and Restated Certificate of Incorporation or the Amended and Restated Bylaws, a majority of the total number of directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board, but in no event shall less than one-third of the directors constitute a quorum. A majority of the directors present (though less than such quorum) may adjourn the meeting from time to time without further notice.
Section 5. Manner of Acting . Every act or decision done or made by the majority of the directors present at a meeting at which a quorum is present shall be regarded as the act of the Board, unless the act of a greater number is required by law, this Second Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws or the Stockholders Agreement, in each case as the same may be amended and supplemented.
Section 6. Vacancies . Any vacancy or newly created directorships in the Board, however occurring, shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, except as otherwise provided by law, and shall not be filled by the stockholders of the Corporation; provided , however , that if (i) a vacancy in
the Board is created as a result of a Specified Stockholder or a Principal Stockholder losing its right to designate a director pursuant to the Stockholders Agreement and (ii) the Legacy Class A Stockholders beneficially own more than fifty percent (50%) of the outstanding Class A Shares at such time, then such vacancy shall be filled by a vote of the Majority-in-Interest (each such director designated by such Majority-in-Interest, a Replacement Director ) and such Replacement Director (A) must qualify as an Independent Director and (B) any directors fees or similar compensation paid to such Replacement Director shall be taken into account in determining whether such person an Independent Director. A director elected to fill a vacancy shall hold office until the next annual meeting of the stockholders of the Corporation, subject to the election and qualification of a successor and to such directors earlier death, resignation or removal. If any applicable provision of the DGCL expressly confers power on stockholders to fill such a directorship at a special meeting of stockholders, such a directorship may be filled at such meeting only by the affirmative vote of the holders of a majority of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors.
Section 7. Removal and Resignation of Directors . Directors may be removed only for cause, and only by the affirmative vote of the Stockholders that together hold at least sixty-six and two-thirds percent (66 2 / 3 %) of the voting power entitled to vote in any annual election of directors or class of directors; provided , however , that for so long as the Legacy Class A Stockholders beneficially own more than fifty percent (50%) of the outstanding Class A Shares, directors may be removed only for cause, and only by the affirmative vote of Stockholders that together hold at least a majority of the voting power entitled to vote in any annual election of directors or class of directors; provided , further , that a director may be removed and replaced at any time and for any reason (or no reason) by the Legacy Class A Stockholder or the Majority-in-Interest that has the right to designate such director or may be removed and replaced by the Majority-in-Interest to the extent the applicable Legacy Class A Stockholder has lost the right to designate such director, in each case, pursuant to the Stockholders Agreement. A director may resign at any time by filing his or her written resignation with the secretary of the Corporation.
Section 8. Voting Rights of Preferred Shares . Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Shares issued by the Corporation shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal, filling of vacancies and other features of such directorships shall be governed by the terms of this Second Amended and Restated Certificate of Incorporation (including any Preferred Stock Certificate of Designation) applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article V unless expressly provided by such terms.
ARTICLE VI
ACCESS TO BOOKS & RECORDS OF THE CORPORATION
Except as expressly provided in this Second Amended and Restated Certificate of Incorporation, the Stockholders Agreement or in any Preferred Stock Certificate of Designation, no stockholder shall have any right to inspect any account, book or document of the Corporation other than such rights as may be conferred by applicable law. Notwithstanding the foregoing, any request for access to the accounts, books or documents of the Corporation pursuant to
Section 220 of the DGCL shall only be granted during regular business hours, upon reasonable notice to the secretary of the Corporation and in a manner that does not unreasonably interfere with the business of the Corporation and such access shall be subject to such other reasonable restrictions permitted by Section 220 of the DGCL.
ARTICLE VII
ACTION BY WRITTEN CONSENT
Any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and, subject to the next sentence, may not be effected by any consent or consents in writing by stockholders of the Corporation. Notwithstanding the foregoing, until such time as the Legacy Class A Stockholders beneficially own fifty percent (50%) or less of the outstanding Class A Shares, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the stockholders of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation that are entitled to vote on such matter were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders of the Corporation are recorded.
ARTICLE VIII
SPECIAL MEETINGS
Except as otherwise required by law or provided in the Stockholders Agreement, special meetings of the stockholders of the Corporation may be called by a majority of the members of the Board then in office pursuant to a resolution approved by the Board, and special meetings may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice of such meeting .
ARTICLE IX
LIMITED LIABILITY
To the extent permitted by the DGCL, a director of the Corporation will not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the directors duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (or any successor provision thereto), or (iv) for any transaction from which the director derived any improper personal benefit. Any repeal or amendment or modification of this Article IX by the stockholders of the Corporation or by changes in applicable law, or the adoption of any provision of this Second Amended and Restated Certificate of Incorporation inconsistent with this Article IX ,
will, to the extent permitted by applicable law, be prospective only (except to the extent such amendment or change in applicable law permits the Corporation to provide a broader limitation on a retroactive basis than permitted prior thereto), and will not adversely affect any limitation on the personal liability of any director of the Corporation at the time of such repeal or amendment or modification or adoption of such inconsistent provision. If any provision of the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
ARTICLE X
INDEMNIFICATION
Section 1. Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a Proceeding ), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was, at any time during which this Second Amended and Restated Certificate of Incorporation is in effect (whether or not such person continues to serve in such capacity at the time any indemnification or payment of expenses pursuant hereto is sought or at the time any Proceeding relating thereto exists or is brought), a director, officer or Board observer of the Corporation or is or was at any such time serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation (hereinafter, an Indemnitee ), whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity while serving as a director, officer, trustee, employee or agent, shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the Corporation (and any successor of the Corporation by merger or otherwise) to the fullest extent authorized by the DGCL as the same exists or may hereafter be amended or modified from time to time (but, in the case of any such amendment or modification that may have retroactive effect, only to the extent that such amendment or modification permits the Corporation to provide greater indemnification rights than said law permitted the Corporation to provide prior to such amendment or modification), against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided , however , that except as provided in Article X, Section 3 , the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in this Article X shall include the right, without the need for any action by the Board, to be paid by the Corporation (and any successor of the Corporation by merger or otherwise) the expenses incurred in defending any such Proceeding in advance of its final disposition, such advances to be paid by the Corporation within twenty (20) days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the DGCL requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter, the Undertaking ) by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal (a Final Disposition ) that such director or officer is not entitled to be indemnified for such expenses under this Article X or otherwise. The rights conferred upon Indemnitees in this Article X shall be contract rights between the Corporation and each Indemnitee to whom such rights are extended that vest at the commencement of such persons service to or at the request of the Corporation and all such rights shall continue as to an Indemnitee who has ceased to be a director or officer of the Corporation or ceased to serve at the Corporations request as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, as described herein, and shall inure to the benefit of the Indemnitees heirs, executors and administrators.
Section 2. Claims . To obtain indemnification under this Article X , a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Article X, Section 2 , a determination, if required by applicable law, with respect to the claimants entitlement thereto shall be made as follows if there is a dispute between the Corporation and the claimant with respect to the claimants rights to indemnification hereunder: (i) if requested by the claimant, by Independent Counsel, or (ii) if no request is made by the claimant for a determination by Independent Counsel, (A) by the Board by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), (B) if a quorum of the Board consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel (as hereinafter defined) in a written opinion to the Board, a copy of which shall be delivered to the claimant, or (C) if a quorum of Disinterested Directors so directs, by a majority of the stockholders of the Corporation by Independent Counsel. In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected by the Board unless there shall have occurred within two years prior to the date of the commencement of the action, suit or Proceeding for which indemnification is claimed a Specified Change of Control in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within ten (10) days after such determination.
Section 3. Recovery of Claims . If a claim under Article X, Section 1 is not paid in full by the Corporation within thirty (30) days after a written claim pursuant to Article X, Section 2 has been received by the Corporation (except in the case of a claim for advancement of expenses, for which the applicable period is twenty (20) days), the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action that the claimant has not met the
standard of conduct which makes it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed or that the claimant is not entitled to the requested advancement of expenses, but (except where the required Undertaking, if any, has not been tendered to the Corporation) the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 4. Corporate Estoppel . If a determination shall have been made pursuant to Article X, Section 2 that the claimant is entitled to indemnification, the Corporation shall be bound by such determination in any judicial Proceeding commenced pursuant to Article X, Section 3 .
Section 5. Preclusion in Judicial Procedure . The Corporation shall be precluded from asserting in any judicial Proceeding commenced pursuant to Article X, Section 3 that the procedures and presumptions of this Article X are not valid, binding and enforceable and shall stipulate in such Proceeding that the Corporation is bound by all the provisions of this Article X .
Section 6. Nonexclusivity of Rights . The right to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its Final Disposition conferred in this Article X : (i) shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise and (ii) cannot be terminated by the Corporation, the Board or the stockholders of the Corporation with respect to a persons service prior to the date of such termination. Any amendment, modification, alteration or repeal of this Article X that in any way diminishes, limits, restricts, adversely affects or eliminates any right of an Indemnitee or his or her successors to indemnification, advancement of expenses or otherwise shall be prospective only and shall not, without the written consent of the Indemnitee, in any way diminish, limit, restrict, adversely affect or eliminate any such right with respect to any actual or alleged state of facts, occurrence, action or omission then or previously existing, or any action, suit or Proceeding previously or thereafter brought or threatened based in whole or in part upon any such actual or alleged state of facts, occurrence, action or omission.
Section 7. Maintaining Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any current or former director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL. To the extent that the Corporation maintains any policy or policies providing such insurance, each such current or former director or officer shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such current or former directors or officers, respectively.
Section 8. Other Indemnification and Prepayment of Expenses . The Corporation may, to the extent authorized from time to time by the Board or the Chief Executive Officer, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in connection with any Proceeding in advance of its Final Disposition, to any current or former employee or agent of the Corporation to the fullest extent of the provisions of this Article X with respect to the indemnification and advancement of expenses of current or former directors and officers of the Corporation.
Section 9. Reliance . If any provision or provisions of this Article X shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Article X (including, without limitation, each portion of any Section of this Article X containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (ii) to the fullest extent possible, the provisions of this Article X (including, without limitation, each such portion of any Section of this Article X containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
Section 10. Notice . Any notice, request or other communication required or permitted to be given to the Corporation under this Article X shall be in writing and either delivered in person or sent by facsimile, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary.
ARTICLE XI
RELATED PERSONS; CORPORATE OPPORTUNITY
Neither any contract or other transaction between the Corporation and any other corporation, partnership, limited liability company, joint venture, firm, association, or other entity (an Entity ), nor any other acts of the Corporation with relation to any other Entity will, in the absence of fraud, in any way be invalidated by the fact that any one or more of the directors or officers of the Corporation are pecuniarly or otherwise interested in, or are directors, officers, partners, or members of, such other Entity (such directors, officers, and Entities, each a Related Person ). The fact that any Related Person may be a party to, or may be pecuniarly or otherwise interested in, any contract or transaction of the Corporation, shall not affect the validity of such contract or transaction; provided , that the fact that such person is a Related Person is disclosed or is known to the Board or a majority of directors present at any meeting of the Board at which action upon any such contract or transaction is taken; and any director of the Corporation who is also a Related Person may be counted in determining the existence of a quorum at any meeting of the Board during which any such contract or transaction is authorized and may vote thereat to authorize any such contract or transaction, with like force and effect as if such person were not a Related Person. Any director of the Corporation may vote upon any contract or any other transaction between the Corporation and any Subsidiary or affiliated corporation without regard to the fact that such person is also a director or officer of such Subsidiary or affiliated corporation.
Any contract, transaction or act of the Corporation or of the directors that is ratified at any annual meeting of the stockholders of the Corporation, or at any special meeting of the stockholders of the Corporation called for such purpose, will, insofar as permitted by applicable law, be as valid and as binding as though ratified by every stockholder of the Corporation; provided , however , that any failure of the stockholders to approve or ratify any such contract, transaction or act, when and if submitted, will not be deemed in any way to invalidate the same or deprive the Corporation, its directors, officers or employees, of its or their right to proceed with such contract, transaction or act.
The Corporation waives, to the maximum extent permitted by law, the application of the doctrine of corporate opportunity, or any other analogous doctrine, with respect to the Corporation, to any of the Legacy Class A Stockholders or any directors of the Corporation who are employees, partners, officers or directors of any of the Legacy Class A Stockholders or any of their Affiliates. None of the Legacy Class A Stockholders nor any of their Affiliates (including, without limitation, any director who is an employee, partner, officer or director of any of the Legacy Class A Stockholders or any of their Affiliates) shall have any obligation to refrain from (i) engaging in or managing the same or similar activities or lines of business as the Corporation or its Subsidiaries or developing or marketing any products or services that compete, directly or indirectly, with those of the Corporation or its Subsidiaries, (ii) investing or owning any interest publicly or privately in, or developing a business relationship with, any Person engaged in the same or similar activities or lines of business as, or otherwise in competition with, the Corporation and its Subsidiaries or (iii) doing business with any client or customer of the Corporation or its Subsidiaries (each of the activities referred to in clauses (i)-(iii), a Specified Activity ) and (iv) the Corporation renounces on behalf of itself and its Subsidiaries any interest or expectancy in, or in being offered an opportunity to participate in, any Specified Activity that may be presented to or become known to any of the Legacy Class A Stockholders or any of their Affiliates (including, without limitation, any director who is an employee, partner officer or director of any of the Legacy Class A Stockholders or any of their Affiliates).
Any Person purchasing or otherwise acquiring any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article XI .
ARTICLE XII
SECTION 203 OF THE DGCL
The Corporation elects not to be governed by Section 203 of the DGCL.
ARTICLE XIII
AMENDMENT
Section 1. Second Amended and Restated Certificate of Incorporation .
(a) The Corporation reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Second Amended and Restated Certificate
of Incorporation, and any other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Second Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article XIII , except as otherwise expressly provided in this Second Amended and Restated Certificate of Incorporation or in any Preferred Stock Certificate of Designation.
(b) This Second Amended and Restated Certificate of Incorporation may be modified, amended or repealed upon (i) the approval of a majority of the Board then in office and (ii) the affirmative vote of the Class A Stockholders that together hold at least ninety percent (90%) of the voting power of the Class A Shares entitled to vote thereon; provided , however , that for so long as the Specified Condition is satisfied, this Second Amended and Restated Certificate of Incorporation may be modified, amended or repealed upon (A) a Special Board Approval and (B) the affirmative vote of the Class A Stockholders that together hold eighty percent (80%) of the voting power of the Class A Shares entitled to vote thereon.
Section 2. Amended and Restated Bylaws .
(a) In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board shall have the power to adopt, amend, alter or repeal the Amended and Restated Bylaws, subject to the rights reserved in this Article XIII, Section 2 .
(b) The Amended and Restated Bylaws may be modified, amended or repealed upon (i) the approval of a majority of the Board then in office and (ii) the affirmative vote of the Class A Stockholders that together hold at least ninety percent (90%) of the voting power of the Class A Shares entitled to vote thereon; provided , however , that for so long as the Specified Condition is satisfied, the Amended and Restated Bylaws may be modified, amended or repealed upon (A) a Special Board Approval and (B) the affirmative vote of the Class A Stockholders that together hold eighty percent (80%) of the voting power of the Class A Shares entitled to vote thereon.
ARTICLE XIV
SEVERABILITY
If any provision or provisions of this Second Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Second Amended and Restated Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Second Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Second Amended and Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Second Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall
be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
ARTICLE XV
FORUM SELECTION
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporations stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL, or (d) any action asserting a claim governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any Person purchasing or otherwise acquiring any interest in any share of capital stock of the Corporation shall be deemed to have notice of and consent to the provisions of this Article XV .
ARTICLE XVI
DEFINED TERMS
Access Stockholder means Texas Oil & Gas Holdings LLC, a Delaware limited liability company, and/or its Permitted Transferees (as the case may be).
Adjustment Multiple means a fraction, (i) the numerator of which is the number of outstanding Class A Shares held by the Legacy Class A Stockholders as of immediately prior to the first Sale and (ii) the denominator of which is the total number of Class A Shares held by the Specified Stockholders as of immediately prior to the first Sale.
Affiliate means, with respect to a specified Person, a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person, and with respect to any Legacy Class A Stockholder, an Affiliate shall include (i) any Person who is the direct or indirect ultimate holder of Equity Securities of such Specified Person, and (ii) any investment fund, alternative investment vehicle, special purpose vehicle or holding company that is directly or indirectly managed, advised or controlled by such Legacy Class A Stockholder or any Affiliate of such Legacy Class A Stockholder; provided , however , that an Affiliate shall not include any portfolio company of any Person (including any Legacy Class A Stockholder).
Amended and Restated Bylaws means the Amended and Restated Bylaws of the Corporation adopted as of [ ], 2013, as the same may be amended, restated or supplemented from time to time.
Apollo Stockholder means, collectively, ANRP (EPE AIV), L.P., a Delaware limited partnership, AIF PB VII (LS AIV), L.P., a Delaware limited partnership, AIF VII (AIV), L.P., a Delaware limited partnership, AOP VII (EPE Intermediate), L.P., a Delaware limited
partnership, ANRP (EPE Intermediate), L.P., a Delaware limited partnership, ANRP 892/TE (EPE AIV), L.P., a Delaware limited partnership, AP VII 892/TE (EPE AIV I), L.P., a Delaware limited partnership, AP VII 892/TE (EPE AIV II), L.P., a Delaware limited partnership, AP VII 892/TE (EPE AIV III), L.P., a Delaware limited partnership, AP VII 892/TE (EPE AIV IV), L.P., a Delaware limited partnership, Apollo Investment Fund (PB) VII, L.P., a Delaware limited partnership, and/or their Permitted Transferees (as the case may be), all of which Persons are either Apollo Members or Permitted Transferees thereof (as such terms are defined in the Second Amended and Restated Limited Liability Company Agreement of the LLC, dated as of May 24, 2012).
Business Day means any day excluding Saturday, Sunday or any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions are authorized or required by law or other governmental action to close.
Capital Contribution means, (i) with respect to any Legacy Class A Stockholder, as of any date of determination, the amount of any capital invested or contributed (or deemed invested or contributed) by such Legacy Class A Stockholder or its predecessor in interest (as applicable) to the Corporation and/or the LLC through such date (including the amount of any debt financing expenses of the LLC previously funded by any such Legacy Class A Stockholder (or its predecessor in interest, as applicable) and including, for the avoidance of doubt, any such capital invested or contributed (or deemed or invested or contributed) by such Legacy Class A Stockholder or its predecessor in interest (as applicable) to the Corporation or the LLC with respect to Equity Securities of the Corporation or the LLC acquired pursuant to the exercise of any preemptive rights, and (ii) with respect to the Class A Stockholders that are not Legacy Class A Stockholders, the aggregate amount of proceeds generated in connection with an IPO and Subsequent Public Offerings pursuant to which such Class A Stockholders purchased Class A Shares.
Capital Proceeds means without duplication, the net cash, securities or other proceeds or property received by the Corporation or the Class A Stockholders in connection with a Capital Transaction.
Capital Transaction means (i) a liquidation, dissolution or winding up of the Corporation or any other recapitalization transaction outside of the ordinary course in which cash or other assets are distributed to any of the Class A Stockholders or any extraordinary dividend or other distribution to any of the Class A Stockholders or (ii) a Specified Change of Control.
Class A Preferred Return means, with respect to any Legacy Class A Stockholder, as of any date of determination, a cumulative return of five percent (5%) per annum on the amount of the Unrecovered Capital balance of such Legacy Class A Stockholder (as it may be adjusted from time to time) during the period from each date that such Legacy Class A Stockholder or its predecessor in interest (as applicable) made a Capital Contribution accrued through such date, compounded annually.
Class B Exchange means any exchange of Class B Shares for newly issued Class A Shares pursuant to Article IV, Section 6 .
control (including the terms controlling and controlled ), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of such subject Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.
Disinterested Director means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.
Equity Security has the meaning ascribed to such term in Rule 405 under the Securities Act, and in any event, includes any security having the attendant right to vote for directors or similar representatives and any general or limited partner interest in any Person.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Fair Market Value means, with respect to property (other than cash), the fair market value of such property as determined in good faith by the Board.
Fiscal Year means the twelve (12)-month (or shorter) period ending on December 31 of each year.
GAAP means United States generally accepted accounting principles as in effect from time to time.
Independent Counsel means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporate law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimants rights under Article X .
Independent Director means a director who, as of the date of such directors election or appointment to the Board and as of any other date on which the determination is being made, would qualify as an independent director of the Corporation, each Legacy Class A Stockholder and Legacy Class B Stockholder and their respective Affiliates under Rule 303A(2) of the NYSE Listed Company Manual (assuming for this purpose that it applies to each such Person).
IPO means the first firm commitment underwritten public offering of Equity Securities of the Corporation conducted pursuant to an effective registration statement under the Securities Act (other than a registration statement on Forms S-4 or S-8 or any similar form).
KNOC Stockholder means Korea National Oil Corporation, a corporation duly organized and existing under the laws of Korea, and/or its Permitted Transferees (as the case may be).
Legacy Class A Stockholders means, collectively, the Apollo Stockholder, the Riverstone Stockholder, the Access Stockholder, the KNOC Stockholder, EPE 892 Co-Investors I, L.P., a Delaware limited partnership, EPE 892 Co-Investors II, L.P., a Delaware limited partnership, EPE 892 Co-Investors III, L.P., a Delaware limited partnership, EPE
Overseas Co-Investors (FC), L.P., a Cayman Islands exempted limited partnership, EPE Domestic Co-Investors, L.P., a Delaware limited partnership, EPE Management Investors, LLC, a Delaware limited liability company, and/or their Permitted Transferees (as the case may be).
Legacy Class B Stockholder means, EPE Employee Holdings, LLC, a Delaware limited liability company, its Permitted Transferees (as the case may be) and EPE Employee Holdings II, LLC, a Delaware limited liability company.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.
LLC means EPE Acquisition, LLC, a limited liability company formerly organized under the laws of the State of Delaware prior to its dissolution.
Majority-in-Interest means the Legacy Class A Stockholders holding a majority of the outstanding Class A Shares held by the Legacy Class A Stockholders.
MOIC means, as of any date of determination, the multiple of invested capital by the Legacy Class A Stockholders in the Corporation and their respective predecessors in interest in the LLC (as applicable), which shall be equal to the quotient of (i) an amount equal to (A) the aggregate amount of Available Cash Dividends theretofore distributed or to be distributed to the Legacy Class A Stockholders pursuant to Article IV, Section 2(b) through such date (for the avoidance of doubt including, for all purposes, any Available Cash Dividends distributed to the Legacy Class A Stockholders pursuant to Article IV, Section 2(b) through such date with respect to any Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights), plus (B) solely with respect to Capital Transactions, the aggregate amount of Capital Proceeds (after deducting any costs and expenses incurred by or on behalf of the Stockholders in connection with the Capital Transaction giving rise to such Capital Proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) theretofore distributed or to be distributed to the Legacy Class A Stockholders through such date (including, for the avoidance of doubt, any Capital Proceeds distributed to the Legacy Class A Stockholders pursuant to Article IV, Section 5 through such date with respect to any Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights), plus (C) an amount equal to (x) the offering price per share of Registrable Securities that are offered to the public in an IPO or a Subsequent Public Offering (after deducting the per share amount of any underwriting discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with such IPO or Subsequent Public Offering (as applicable), but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise), multiplied by (y) the aggregate number of such shares of Registrable Securities then outstanding that are held, directly or indirectly, by the Legacy Class A Stockholders; provided , that solely for the purposes of calculating the amount of Available Cash Dividends and Capital Proceeds distributable to the Class A Stockholders and the Class B Stockholders pursuant to Article IV, Section 3(b) and Article IV, Section 5 , the amount set forth in subclause (C) of this definition shall be the aggregate amount of Subsequent Sale Proceeds (after deducting any underwriting
discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with the Subsequent Sales giving rise to such Subsequent Sale Proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) theretofore received or to be received by the Legacy Class A Stockholders in connection with such Subsequent Sales (including, for the avoidance of doubt, any Subsequent Sale Proceeds theretofore received or to be received by the Legacy Class A Stockholders in connection with such Subsequent Sales with respect to any Registrable Securities acquired pursuant to the exercise of any preemptive rights), plus (D) the aggregate amount of Prior Distributions, divided by (ii) the aggregate amount of Capital Contributions made by the Legacy Class A Stockholders or their predecessors in interest (as applicable) through such date (including, for the avoidance of doubt, any Capital Contributions made by the Legacy Class A Stockholders or their predecessors in interest (as applicable) to acquire any Equity Securities of the Corporation or the LLC through such date).
Permitted Transferee means any recipient of Class A Shares pursuant to a Transfer of Class A Shares by a Legacy Class A Stockholder that is permitted under the Stockholders Agreement at any time without prior approval of the Board.
Person means any individual, firm, corporation, partnership, limited liability company, trust, estate, joint venture, governmental authority or other entity.
Previously Paid Class A Preferred Return means, with respect to the Legacy Class A Stockholders, as of any date of determination, the aggregate amount of Profits distributed prior to the occurrence of a Threshold Capital Transaction to the Legacy Class A Stockholders and their predecessors in interest (as applicable) through such date (after the Unrecovered Capital balance of each Legacy Class A Stockholder has been reduced to zero) that reduces the Unpaid Class A Preferred Return of any Legacy Class A Stockholder.
Principal Stockholders means, collectively, the Riverstone Stockholder, the KNOC Stockholder and the Access Stockholder.
Prior Distributions means, with respect to any Legacy Class A Stockholder, as of any date of date of determination, the aggregate amount of any distributions of proceeds from capital transactions and available cash and tax distributions received by such Legacy Class A Stockholder or its predecessor in interest (as applicable) in respect of membership interests in the LLC previously held by such Legacy Class A Stockholder or its predecessor in interest (as applicable) (including, for the avoidance of doubt, any such amounts distributed to such Legacy Class A Stockholder or its predecessor in interest (as applicable) with respect to membership interests in the LLC acquired pursuant to the exercise of any preemptive rights).
Pro Rata and Pro Rata Portion means (i) with respect to each Class A Stockholder, a fraction expressed as a percentage, the numerator of which is the number of Class A Shares held by such Class A Stockholder and the denominator of which is the number of outstanding Class A Shares, (ii) with respect to each Class B Stockholder, a fraction expressed as a percentage, the numerator of which is the number of Class B Shares held by such Class B Stockholder and the denominator of which is the number of outstanding Class B Shares, and (iii) with respect to each
Legacy Class A Stockholder, a fraction expressed as a percentage, the numerator of which is the number of Class A Shares held by such Legacy Class A Stockholder and the denominator of which is the total number of Class A Shares held by all Legacy Class A Stockholders.
Profits means, as of any date of determination, an amount equal to (i) the aggregate amount of Capital Proceeds and Available Cash Dividends theretofore distributed or to be distributed to the Legacy Class A Stockholders pursuant to Article IV, Section 2(b) and Article IV, Section 5 (including, for the avoidance of doubt, any such amounts distributed to the Legacy Class A Stockholders with respect to Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights) and Prior Distributions received by the Legacy Class A Stockholders or their predecessors in interest (as applicable), plus (ii) the aggregate amount of Subsequent Sale Proceeds (including, for the avoidance of doubt, any such Subsequent Sale Proceeds received by the Legacy Class A Stockholders in respect of Registrable Securities acquired pursuant to the exercise of any preemptive rights), minus (iii) the aggregate amount of Capital Contributions made by the Class A Stockholders or their predecessors in interest (as applicable).
Registrable Securities means any and all Class A Shares currently held or hereafter acquired by the Legacy Class A Stockholders and any other securities issued or issuable with respect to any such shares by way of share split, or in connection with a combination of shares, share dividend, recapitalization, merger, exchange, conversion, reclassification or similar event or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) they are sold pursuant to an effective registration statement under the Securities Act, (ii) they are sold pursuant to Rule 144 (or any similar provision then in force under the Securities Act) or (iii) they shall have ceased to be outstanding. No Registrable Securities may be registered under more than one registration statement at any one time.
Riverstone Stockholder means, collectively, Riverstone V Everest Holdings, L.P., a Delaware limited partnership, and Riverstone V FT Corp Holdings, L.P., a Delaware limited partnership, and/or their Permitted Transferees (as the case may be).
Sale means any Transfer of Class A Shares by the Specified Stockholders that is not a Permitted Transfer, whether pursuant to a Subsequent Public Offering or otherwise.
Sale Proceeds means the cash proceeds received by the Specified Stockholders in connection with a Sale, including any consideration received by the Specified Stockholders following the consummation of a Sale (whether in the form of contingent consideration or a post-closing adjustment or pursuant to an escrow or hold-back arrangement or otherwise).
Securities Act means the United States Securities Act of 1933, as amended, and the rules and regulations thereunder.
Special Board Approval means the approval of a majority of all of the directors then in office, which majority shall include at least one (1) director designated by the Apollo Stockholder pursuant to the Stockholders Agreement, and one (1) director designated by a Principal Stockholder pursuant to the Stockholders Agreement or one (1) Replacement Director designated pursuant to the Stockholders Agreement.
Specified Change of Control means the following transactions in which proceeds are (a) received by the Corporation and the Board has approved the distribution of all or a portion of such proceeds to the Stockholders pursuant to Article IV, Section 5 or (b) received by the Legacy Class A Stockholders from a third party purchaser: (i) an acquisition by any Person or group of Persons of Equity Securities of the Corporation, whether already outstanding or newly issued, in a transaction or series of transactions, if immediately thereafter such Person or group of Persons (other than the Apollo Stockholder, the Principal Stockholders or their respective Affiliates or a wholly-owned Subsidiary of the Corporation) has, or would have, directly or indirectly, beneficial ownership of fifty percent (50%) or more of the combined Equity Securities or voting power of the Corporation, excluding, for the avoidance of doubt, Class B Shares; (ii) the sale of all or substantially all (i.e., eighty percent (80%) or more) of the assets of the Corporation and its Subsidiaries, taken as a whole, directly or indirectly, to any Person or group of Persons in a transaction or series of transactions; or (iii) the consummation of a tender offer, merger, recapitalization, consolidation, business combination, reorganization or other transaction, or series of related transactions, involving the Corporation and any other Person or group of Persons; unless, in the case of clause (iii) of this definition, both (1) the Legacy Class A Stockholders, immediately prior to such transaction or the first transaction in such series of transactions, will, solely as a result of their ownership of Class A Shares immediately prior to such transaction or the first transaction in such series of transactions, beneficially own more than fifty percent (50%) of the combined Equity Securities or voting power of the Corporation (or, if the Corporation will not be the surviving entity in such transaction or series of transactions, such surviving entity) immediately after such transaction or series of transactions and (2) individuals who are directors, immediately prior to such transaction or the first transaction in such series of transactions, will be entitled to cast at least a majority of the votes of the Board (or the board of directors or equivalent body of such surviving entity, as the case may be) after the closing of such transaction or series of transactions. As used in this definition of Specified Change of Control, the term group shall have the same meaning used in Rule 13d-5 of the United States Securities Exchange Act of 1934, as amended. For the avoidance of doubt, this definition of Specified Change of Control shall not include an IPO.
Specified Class A Preferred Return means, with respect to the Specified Stockholders, as of any date of determination, a cumulative return of five percent (5%) per annum on the amount of the Specified Unrecovered Capital balance (as it may be adjusted from time to time) during the period from each date that the Specified Stockholders or their predecessors in interest (as applicable) made a Capital Contribution accrued through such date, compounded annually.
Specified Condition means, as of any date of determination, that (i) the Legacy Class A Stockholders beneficially own twenty-five percent (25%) or more of the outstanding Class A Shares and (ii) a Specified Stockholder is entitled to designate at least one (1) director to the Board pursuant to the Stockholders Agreement.
Specified MOIC means, as of any date of determination, the multiple of invested capital by the Apollo Stockholder and the Riverstone Stockholder in the Corporation and their respective predecessors in interest in the LLC (as applicable), which shall be equal to the quotient of (i) an amount equal to (A) the aggregate amount of Available Cash Dividends theretofore distributed or to be distributed to the Specified Stockholders pursuant to Article IV, Section 2(b) through such date (for the avoidance of doubt including, for all purposes, any
Available Cash Dividends distributed or to be distributed to the Specified Stockholders pursuant to Article IV, Section 2(b) through such date with respect to any Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights), plus (B) solely with respect to Capital Transactions, the aggregate amount of Capital Proceeds (after deducting any costs and expenses incurred by or on behalf of the Stockholders in connection with the Capital Transactions giving rise to such Capital Proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) theretofore received or to be received by the Specified Stockholders through such date (including, for the avoidance of doubt, any Capital Proceeds received by the Specified Stockholders pursuant to Capital Transactions through such date with respect to any Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights), plus (C) an amount equal to (x) the offering price per share of Registrable Securities that are offered to the public in an IPO or a Subsequent Public Offering (after deducting the per share amount of any underwriting discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with such IPO or Subsequent Public Offering (as applicable), but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise), multiplied by (y) the aggregate number of such shares of Registrable Securities then outstanding that are held, directly or indirectly, by the Specified Stockholders; provided , that solely for the purposes of calculating the amount of Class B Consideration pursuant to Article IV, Section 6 , the amount set forth in subclause (C) of this definition shall be the aggregate amount of Sale Proceeds (after deducting any underwriting discounts, expenses and commissions and any other costs and expenses incurred by or on behalf of the Stockholders in connection with such Sales giving rise to such Sale Proceeds, but only to the extent that such Stockholders have not previously been reimbursed such amounts by the Corporation pursuant to the Stockholders Agreement or otherwise) theretofore received or to be received by the Specified Stockholders in connection with such Sales (including, for the avoidance of doubt, any Sale Proceeds theretofore received or to be received by the Specified Stockholders in connection with such Sales with respect to any Registrable Securities acquired pursuant to the exercise of any preemptive rights), plus (D) the aggregate amount of Specified Prior Distributions, divided by (ii) the aggregate amount of Capital Contributions made by the Specified Stockholders or their predecessors in interest (as applicable) through such date (including, for the avoidance of doubt, any Capital Contributions made by the Specified Stockholders or their predecessors in interest (as applicable) to acquire any Equity Securities of the Corporation or the LLC through such date).
Specified Previously Paid Class A Preferred Return means, with respect to the Specified Stockholders, as of any date of determination, the aggregate amount of Specified Profits distributed prior to the occurrence of a Specified Sale to the Specified Stockholders and their predecessors in interest (as applicable) through such date (after the Specified Unrecovered Capital balance has been reduced to zero) that reduces the Specified Unpaid Class A Preferred Return.
Specified Prior Distributions means, with respect to the Specified Stockholders, as of any date of determination, the aggregate amount of any distributions of proceeds from capital transactions and available cash and tax distributions received by the Specified Stockholders or their predecessors in interest (as applicable) in respect of membership interests in the LLC
previously held by the Specified Stockholders or their predecessors in interest (as applicable) (including, for the avoidance of doubt, any such amounts distributed to or received by the Specified Stockholders or their predecessors in interest (as applicable) with respect to membership interests in the LLC, which membership interests were acquired pursuant to the exercise of any preemptive rights).
Specified Profits means, as of any date of determination, an amount equal to (i) the aggregate amount of Capital Proceeds and Available Cash Dividends theretofore distributed or to be distributed to the Specified Stockholders pursuant to Article IV, Section 5 and Article IV, Section 2(b) (including, for the avoidance of doubt, any such amounts distributed to the Specified Stockholders with respect to Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights) and Prior Distributions received by the Specified Stockholders or their predecessors in interest (as applicable), plus (ii) the aggregate amount of Sale Proceeds (including, for the avoidance of doubt, any such Sale Proceeds received by the Specified Stockholders in respect of Registrable Securities acquired pursuant to the exercise of any preemptive rights), minus (iii) the aggregate amount of Capital Contributions made by the Specified Stockholders or their respective predecessors in interest (as applicable).
Specified Remaining Tier I Profits means the remaining amount of Specified Profits after the Specified Unrecovered Capital balance has been reduced to zero, minus the Specified Class B Catch-Up Amount.
Specified Remaining Tier II Profits means the remaining amount of Specified Remaining Tier I Profits after the Specified Unpaid Class A Preferred Return has been reduced to, and remains at zero, minus the Specified Tier I MIPS.
Specified Sale means any Sale by the Specified Stockholders where the Specified MOIC after giving effect to such Sale, is greater than one (1.0).
Specified Stockholders means, collectively, the Apollo Stockholder and the Riverstone Stockholder.
Specified Unpaid Class A Preferred Return means, with respect to the Specified Stockholders, as of any date of determination, the excess, if any, of (i) the amount of accrued Specified Class A Preferred Return as of such date, over (ii) an amount equal to the excess, if any, of (x) the aggregate amount of Capital Proceeds and Available Cash Dividends theretofore distributed or to be distributed to the Specified Stockholders pursuant to Article IV, Section 2(b) and Article IV, Section 5 (including, for the avoidance of doubt, any such amounts distributed to the Specified Stockholders with respect to Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights), Sale Proceeds (including, for the avoidance of doubt, any such Sale Proceeds received by the Specified Stockholders in respect of Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights) and Specified Prior Distributions, over (y) the aggregate amount of any Capital Contributions made by the Specified Stockholders or their predecessors in interest (as applicable); provided , that amounts received by the Specified Stockholders and their predecessors in interest (as applicable) that reduce the positive balance of the Specified Unrecovered Capital shall not also be applied to reduce the Specified Unpaid Class A Preferred Return in a manner that is duplicative.
Specified Unrecovered Capital means, with respect to the Specified Stockholders, as of any date of determination, the excess, if any, of (i) the aggregate amount of any Capital Contributions made by the Specified Stockholders or their predecessors in interest (as applicable), over (ii) the aggregate amount of Capital Proceeds and Available Cash Dividends theretofore distributed or to be distributed to the Specified Stockholders pursuant to Article IV, Section 2(b) and Article IV, Section 5 (including, for the avoidance of doubt, any such amounts distributed to the Specified Stockholders with respect to Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights), Sale Proceeds (including, for the avoidance of doubt, any such Sale Proceeds received by the Specified Stockholders in respect of Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights) and Prior Distributions made to the Specified Stockholders or their predecessors in interest (as applicable).
Stockholders means, collectively, the Class A Stockholders, the Class B Stockholders and the Preferred Stockholders.
Stockholders Agreement means the Stockholders Agreement, dated as of August 30, 2013, by and among the Corporation and the other parties thereto, as the same may be amended, restated or supplemented from time to time.
Subsequent Public Offering means any public offering of Registrable Securities conducted following the consummation of an IPO pursuant to an effective registration statement under the Securities Act (other than a registration statement on Forms S-4 or S-8).
Subsequent Sale means any Transfer of Class A Shares by a Legacy Class A Stockholder that is not a Permitted Transfer, whether pursuant to a Subsequent Public Offering or otherwise.
Subsequent Sale Proceeds means the cash proceeds received by a Legacy Class A Stockholder in connection with a Subsequent Sale.
Subsidiary means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than fifty percent (50%) of the total voting power of shares of capital stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.
Threshold Capital Transaction means a Capital Transaction where the MOIC after giving effect to such Capital Transaction is at least one (1.0).
Transfer means any sale, assignment, transfer, exchange, gift, bequest, pledge, hypothecation or other disposition or encumbrance, direct or indirect, in whole or in part, by operation of law or otherwise. The terms Transferred , Transferring , Transferor and Transferee have meanings correlative to the foregoing.
Unpaid Class A Preferred Return means, with respect to any Legacy Class A Stockholder, as of any date of determination, the excess, if any, of (i) the amount of such Legacy Class A Stockholders accrued Class A Preferred Return as of such date, over (ii) an amount equal to the excess, if any, of (x) the aggregate amount of Capital Proceeds and Available Cash Dividends theretofore distributed or to be distributed to such Legacy Class A Stockholder pursuant to Article IV, Section 2(b) and Article IV, Section 5 (including, for the avoidance of doubt, any such amounts distributed to such Legacy Class A Stockholder and its predecessor in interest with respect to Equity Securities of the Corporation or the LLC acquired pursuant to the exercise of any preemptive rights), Subsequent Sale Proceeds (including, for the avoidance of doubt, any such Subsequent Sale Proceeds received by such Legacy Class A Stockholder in respect of Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights) and Prior Distributions made to such Legacy Class A Stockholder or its predecessor in interest (as applicable), over (y) the aggregate amount of any Capital Contributions made by such Legacy Class A Stockholder or its predecessor in interest (as applicable); provided , that amounts received by such Legacy Class A Stockholder and its predecessor in interest (as applicable) that reduce the positive balance of the Unrecovered Capital of such Legacy Class A Stockholder shall not also be applied to reduce the Unpaid Class A Preferred Return of such Legacy Class A Stockholder in a manner that is duplicative.
Unrecovered Capital means, with respect to any Legacy Class A Stockholder, as of any date of determination, the excess, if any, of (i) the aggregate amount of any Capital Contributions made by such Legacy Class A Stockholder (or its predecessor in interest, as applicable), over (ii) the aggregate amount of Capital Proceeds and Available Cash Dividends theretofore distributed or to be distributed to such Legacy Class A Stockholder pursuant to Article IV, Section 2(b) and Article IV, Section 5 (including, for the avoidance of doubt, any such amounts distributed to such Legacy Class A Stockholder and its predecessor in interest with respect to Equity Securities of the Corporation or the LLC acquired pursuant to the exercise of any preemptive rights), Subsequent Sale Proceeds (including, for the avoidance of doubt, any such Subsequent Sale Proceeds received by such Legacy Class A Stockholder in respect of Equity Securities of the Corporation acquired pursuant to the exercise of any preemptive rights) and Prior Distributions made to such Legacy Class A Stockholder or its predecessor in interest (as applicable).
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IN WITNESS WHEREOF, the Corporation has caused this Second Amended and Restated Certificate of Incorporation to be duly executed this day of , 2013.
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[Signature Page Second Amended and Restated Certificate of Incorporation]
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
EP ENERGY CORPORATION
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. Delaware Office . The registered office of EP Energy Corporation (the Corporation ) in the State of Delaware shall be located in Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 and the name and address of its registered agent is Corporation Trust Company.
SECTION 1.2. Other Offices . The Corporation may have such other offices, either within or without the State of Delaware, as the Board of Directors of the Corporation (the Board of Directors ) may designate or as the business of the Corporation may from time to time require.
SECTION 1.3. Books and Records . The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. Annual Meeting . The annual meeting of the stockholders of the Corporation shall be held on such date and at such place and time as may be fixed by resolution of the Board of Directors.
SECTION 2.2. Special Meeting . Subject to the rights of the holders of any series of stock having a preference over the Class A Common Stock and/or Class B Common Stock of the Corporation as to dividends or upon liquidation ( Preferred Stock ), special meetings of the stockholders may be called only by a majority of the number of directors then in office pursuant to a resolution approved by the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
SECTION 2.3. Place of Meeting . The Board of Directors or the Chairman of the Board, as the case may be, may designate the place of meeting for any annual meeting or for any special meeting of the stockholders called by the Board of Directors or the Chairman of the Board. If no designation is so made, the place of meeting shall be the principal office of the Corporation.
SECTION 2.4. Notice of Meeting . Written or printed notice, stating the place, date and time of the meeting and the purpose or purposes for which the meeting is called, shall be delivered by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally, by electronic transmission in the manner provided in
Section 232 of the General Corporation Law of the State of Delaware (as may be amended and supplemented from time to time, the DGCL ) (except to the extent prohibited by Section 232(e) of the DGCL) or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his or her address as it appears on the stock transfer books of the Corporation. If notice is given by electronic transmission, such notice shall be deemed to be given at the times provided in the DGCL. Such further notice shall be given as may be required by law. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting or otherwise by or at the direction of the Board of Directors. Meetings may be held without notice if all stockholders entitled to vote are present, or if notice is waived by those not present in accordance with Section 6.4 of these Amended and Restated Bylaws adopted by the Corporation on [ ], 2013, as may be amended, restated or modified from time to time (these Amended and Restated Bylaws ). Any previously scheduled meeting of the stockholders may be postponed, and (unless otherwise provided in the Second Amended and Restated Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware on [ ], 2013, as may be amended, restated or modified from time to time (the Second Amended and Restated Certificate of Incorporation )) any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders.
SECTION 2.5. Quorum and Adjournment . Except as otherwise provided by law or by the Second Amended and Restated Certificate of Incorporation, the holders of a majority of the outstanding shares of the Corporation entitled to vote generally in the election of directors (the Voting Stock ), represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The Chairman of the meeting, the Chief Executive Officer or a President may adjourn the meeting from time to time, whether or not there is such a quorum. No notice of the time and place of adjourned meetings need be given except as required by law. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted that might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6. Proxies . At all meetings of stockholders, a stockholder may vote by proxy executed in writing (or in such manner prescribed by the DGCL) by the stockholder, or by his or her duly authorized attorney in fact.
SECTION 2.7. Notice of Stockholder Business and Nominations .
(A) Annual Meetings of Stockholders .
(1) At any annual meeting of the stockholders, only such nominations of persons for election to the Board of Directors and only other business shall be considered or conducted, as shall have been properly brought before the meeting. For nominations to be properly made at an annual meeting, and proposals of other business to be properly brought before an annual meeting, nominations and proposals of other business must be: (a) pursuant to the Corporations notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who (i) was a stockholder of record at the time of giving of notice provided for in this Bylaw and at the time of the annual meeting, (ii) is entitled to vote at the meeting and (iii) complies with the notice procedures set forth in this Bylaw as to such business or nomination; clause (c) shall be the exclusive means for a stockholder to make nominations or submit other business (other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934 (as amended, the Exchange Act ) and included in the Corporations notice of meeting) before an annual meeting of stockholders.
(2) Without qualification or limitation, for any nominations or any other business to be properly brought before an annual meeting by a stockholder pursuant to paragraph (A)(1)(c) of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120 th ) day and not later than the close of business on the ninetieth (90 th ) day prior to the first anniversary of the preceding years annual meeting; provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120 th ) day prior to the date of such annual meeting and not later than the close of business on the later of the ninetieth (90 th ) day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, the tenth (10 th ) day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described above. In addition, to be timely, a stockholders notice shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight (8) business days prior to the date for the meeting, any adjournment or postponement thereof in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof. To be in proper form, a stockholders notice (whether given pursuant to this paragraph (A)(2) or paragraph (B)) to the Secretary must: (a) set forth, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporations books, of such beneficial owner, if any, and of their respective affiliates or associates or others acting in concert therewith, (ii) (A) the class or series and number of shares
of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder, such beneficial owner, and of their respective affiliates or associates or others acting in concert therewith, (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the Corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the Corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise, through the delivery of cash or other property, or otherwise, and without regard of whether the stockholder of record, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right (any of the foregoing, a Derivative Instrument ) directly or indirectly owned beneficially by such stockholder, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any shares of any security of the Corporation, (D) any contract, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called stock borrowing agreement or arrangement, engaged in, directly or indirectly, by such stockholder, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder with respect to any class or series of the shares of the Corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any security of the Corporation (any of the foregoing, a Short Interest ), (E) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the Corporation, (F) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership, (G) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholders immediate family sharing the same household, (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the Corporation held by such stockholder, and (I) any direct or indirect interest of such stockholder in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), and (iii) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy
statement and form of proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; (b) if the notice relates to any business other than a nomination of a director or directors that the stockholder proposes to bring before the meeting, set forth (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such stockholder and beneficial owner, if any, in such business, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration) and (iii) a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such stockholder; (c) set forth, as to each person, if any, whom the stockholder proposes to nominate for election or reelection to the Board of Directors (i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the registrant for purposes of such rule and the nominee were a director or executive officer of such registrant; and (d) with respect to each nominee for election or reelection to the Board of Directors, include a completed and signed questionnaire, representation and agreement required by Section 2.8 of these Amended and Restated Bylaws. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such nominee.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first (1 st ) anniversary of the preceding years annual meeting, a stockholders notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10 th ) day following the day on which such public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders . Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (i) is a stockholder of record at the time of giving of notice provided for in this Bylaw and at the time of the special meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in this Bylaw as to such nomination. The immediately preceding sentence shall be the exclusive means for a stockholder to make nominations (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Corporations notice of meeting) before a special meeting of stockholders. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporations notice of meeting, if the stockholders notice required by paragraph (A)(2) of this Bylaw with respect to any nomination (including the completed and signed questionnaire, representation and agreement required by Section 2.8 of this Bylaw) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120 th ) day prior to the date of such special meeting and not later than the close of business on the later of the ninetieth (90 th ) day prior to the date of such special meeting or, if the first public announcement of the date of such special meeting is less than one hundred (100) days prior to the date of such special meeting, the tenth (10 th ) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described above.
(C) General .
(1) Only such persons who are nominated in accordance with the procedures set forth in these Amended and Restated Bylaws shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Amended and Restated Bylaws. Except as otherwise provided by applicable law, the Second Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in these Amended and Restated Bylaws and, if any proposed nomination or business is not in compliance with these Amended and Restated Bylaws, to declare that such defective proposal or nomination shall be disregarded. Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to make a nomination or present a proposal of other business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of these Amended and Restated Bylaws, to be considered a qualified representative of the stockholder, a person must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act
for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(2) For purposes of these Amended and Restated Bylaws, public announcement shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.
(3) Notwithstanding the foregoing provisions of these Amended and Restated Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Amended and Restated Bylaws; provided , however , that any references in these Amended and Restated Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to paragraph (A)(1)(c) or paragraph (B) of this Bylaw. Nothing in these Amended and Restated Bylaws shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock if and to the extent provided for under law, the Second Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws. Subject to Rule 14a-8 under the Exchange Act, nothing in these Amended and Restated Bylaws shall be construed to permit any stockholder, or give any stockholder the right, to include or have disseminated or described in the Corporations proxy statement any nomination of director or directors or any other business proposal.
SECTION 2.8. Submission of Questionnaire, Representation and Agreement . To be eligible to be a nominee for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.7 of these Amended and Restated Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a Voting Commitment ) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such persons ability to comply, if elected as a director of the Corporation, with such persons fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein and (C) in such persons individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate
governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.
SECTION 2.9. Procedure for Election of Directors; Required Vote . Election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, a plurality of the votes cast at any meeting for the election of directors at which a quorum is present shall elect directors. Except as otherwise provided by law, the Second Amended and Restated Certificate of Incorporation, or these Amended and Restated Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the shares present in person or represented by proxy at a meeting at which a quorum is present and entitled to vote on the matter shall be the act of the stockholders.
SECTION 2.10. Inspectors of Elections; Opening and Closing the Polls . The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.
SECTION 2.11. Action Without Meeting . For so long as the Legacy Class A Stockholders beneficially own more than fifty percent (50%) of the outstanding shares of Class A Common Stock of the Corporation, $0.01 par value per share (the Class A Shares ), holders of Class A Shares (the Class A Stockholders ) may take action by the written consent of Class A Stockholders, if a consent or consents in writing, setting forth the action so taken, shall be signed by or on behalf of the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the state of incorporation, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporations registered office shall be by hand or by certified or registered mail, return receipt requested. An electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed, and dated for the purposes of these Amended and Restated Bylaws, provided that any such electronic transmission sets forth or is delivered with information from which the Corporation can determine (A) that the electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder
or proxyholder and (B) the date on which such stockholder or proxyholder or authorized person or persons transmitted such electronic transmission. Any consent by means of electronic transmission shall be deemed to have been signed on the date on which such electronic transmission was transmitted. No consent given by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book or books in which proceedings of meetings of stockholders are recorded. Delivery of a consent given by electronic transmission made to the Corporations registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book or books in which proceedings of meetings of stockholders are recorded if, to the extent, and in the manner provided by resolution of the Board of Directors of the Corporation. Any copy, facsimile, or other reliable reproduction of a consent in writing (or reproduction in paper form of a consent by electronic transmission) may be substituted or used in lieu of the original writing (or original reproduction in paper form of a consent by electronic transmission) for any and all purposes for which the original consent could be used, provided that such copy, facsimile, or other reproduction shall be a complete reproduction of the entire original writing (or original reproduction in paper form of a consent by electronic transmission). Prompt notice of the taking of corporate action without a meeting by less than a unanimous written consent shall be given by the Secretary to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of the holders to take the action were delivered to the Corporation.
SECTION 2.12. Effectiveness of Written Consent . Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated written consent received in accordance with Section 2.11 , a written consent or consents signed by a sufficient number of holders to take such action are delivered to the Corporation in the manner prescribed in Section 2.11 .
SECTION 2.13. Remote Meetings . If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(A) participate in a meeting of stockholders; and
(B) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication; provided , that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate
in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
In the case of any annual meeting of stockholders or any special meeting of stockholders called upon order of the Board of Directors, the Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communications as authorized by this Section 2.13 .
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. General Powers . The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. In addition to the powers and authorities by these Amended and Restated Bylaws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Second Amended and Restated Certificate of Incorporation or by these Amended and Restated Bylaws required to be exercised or done by the stockholders.
SECTION 3.2. Number, Tenure and Qualifications . Subject to (x) the Stockholders Agreement and (y) the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances and for so long as the Specified Condition is satisfied, the number of directors, classes of directors, tenure and qualifications of directors and other matters relating to the composition of the Board of Directors shall be determined from time to time exclusively pursuant to a Special Board Approval set forth in a resolution adopted by such directors constituting a Special Board Approval and subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances and in the event the Specified Condition is no longer satisfied, the number of directors, classes of directors, tenure and qualifications of directors and other matters relating to the composition of the Board of Directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Board of Directors then in office. Subject to the immediately preceding sentence, commencing with the date of these Amended and Restated Bylaws, the directors shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, with the term of office of the first class to expire at the 2014 annual meeting of stockholders, the term of office of the second class to expire at the 2015 annual meeting of stockholders and the term of office of the third class to expire at the 2016 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 2014 annual meeting, (i) directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified, and (ii) if authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created.
SECTION 3.3. Regular Meetings . The Board of Directors shall, by resolution, provide for regular meetings of the Board of Directors at such times and at such places as it deems desirable. Notice of regular meetings need not be given.
SECTION 3.4. Special Meetings . Subject to the notice requirements in Section 3.6 , special meetings of the Board of Directors shall be called at the request of a majority of the Board of Directors then in office or the Chairman of the Board. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of the meetings
SECTION 3.5. Company Attorney-Client Privilege . The Chief Executive Officer may be excluded from all or any portion of any meeting of the Board of Directors to the extent that a majority of the other directors then in office determines in good faith and upon the advice of counsel to the Corporation that such exclusion is required to preserve the attorney-client privilege between the Corporation and its counsel, or to the extent the respective interests of the Corporation and its Subsidiaries and those of the Chief Executive Officer as to the matter(s) to be discussed or actions to be taken during such portion of such meeting, conflict or could be perceived to conflict (in the good faith judgment of the other directors).
SECTION 3.6. Notice . Notice of any special meeting of directors shall be given to each director at his or her business or residence in writing by hand delivery, first-class or overnight mail or courier service, facsimile or electronic transmission, or orally by telephone, which notice shall include a brief description of the action or actions to be considered by the Board of Directors. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by overnight mail or courier service, such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If by facsimile or electronic transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these Amended and Restated Bylaws, as provided under Section 8.1 . A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 6.4 of these Amended and Restated Bylaws.
SECTION 3.7. Action by Written Consent of Board of Directors . Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
SECTION 3.8. Conference Telephone Meetings . Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
SECTION 3.9. Quorum . A majority of the members of the Board of Directors then in office shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting without further notice. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors (x) unless the Second Amended and Restated Certificate of Incorporation, these Amended and Restated Bylaws or applicable law shall require the vote of a greater number and (y) except as provided in the Stockholders Agreement. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.
SECTION 3.10. Vacancies . Subject to applicable law, the Second Amended and Restated Certificate of Incorporation and the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, except as otherwise provided by law, and shall not be filled by the stockholders of the Corporation; provided , however , that if (i) a vacancy in the Board of Directors is created as a result of the Apollo Stockholder or a Principal Stockholder losing its right to designate a director pursuant to the Stockholders Agreement and (ii) the Legacy Class A Stockholders beneficially own more than fifty percent (50%) of the outstanding Class A Shares at such time, then such vacancy shall be filled by a vote of the Legacy Class A Stockholders holding a majority of the outstanding Class A Shares held by the Legacy Class A Stockholders (a Majority-in-Interest ) (each such director designated by such Majority-in-Interest, a Replacement Director ); provided , that each Replacement Director (A) shall qualify as an Independent Director and (B) any directors fees or similar compensation paid to such Replacement Director shall be taken into account in determining whether such person is an Independent Director. A director elected to fill a vacancy shall hold office until the next annual meeting of the stockholders of the Corporation, subject to the election and qualification of a successor and to such directors earlier death, resignation or removal. If any applicable provision of the DGCL expressly confers power on stockholders to fill such a directorship at a special meeting of stockholders, such a directorship may be filled at such meeting only by the affirmative vote of the holders of a majority of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors. No decrease in the number of authorized directors constituting the total number of directors then in office shall shorten the term of any incumbent director.
SECTION 3.11. Committees of the Board of Directors . The Board of Directors may, by resolution adopted by a majority of the Board of Directors then in office, designate from among members of the Board of Directors one or more committees (including an audit committee and a compensation committee), and delegate to such committee such power, authority and responsibility as the Board of Directors determines is appropriate subject to the
limitations set forth in the DGCL or in the establishment of the committee; provided , however , that in no event shall the Board of Directors designate an executive committee or similar committee to exercise all or substantially all of the power of the Board of Directors when not in session. Each such committee shall consist of two or more directors of the Corporation and, to the extent permitted by applicable law, rules and regulations (including securities laws and regulations and listing rules and requirements), the composition of each such committee shall be consistent with the right of the applicable Legacy Class A Stockholder(s) to designate directors to the Board of Directors under, and the committee composition provisions of, the Stockholders Agreement. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, may to the extent permitted by law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep written minutes of its proceedings and shall report such proceedings to the Board of Directors when required.
A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.6 of these Amended and Restated Bylaws. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided , however , that no such committee shall have or may exercise any authority of the Board of Directors. Without limiting the generality of the foregoing, for so long as any Legacy Class A Stockholder or a Majority-in-Interest has the right to designate a director pursuant to the Stockholders Agreement, the nominating committee of the Board of Directors shall only nominate the applicable director designee designated by such Legacy Class A Stockholder or Majority-in-Interest entitled to designate such seat on the Board of Directors; provided , that such designee satisfies the applicable qualification requirements.
SECTION 3.12. Records . The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board of Directors and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1. Officers . The elected officers of the Corporation shall consist of a Chief Executive Officer, a President, a Chief Financial Officer, a Chief Operating Officer, a General Counsel, a Chief Accounting Officer, a Treasurer, a Secretary and any other officers of the Corporation that report directly to the Chief Executive Officer, all of whom shall be elected by the Board of Directors and shall hold office until their successors are duly elected and
qualified. The Chairman of the Board shall be chosen from among the directors. All officers elected by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV . Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. In addition, the Board of Directors or any committee thereof may from time to time elect, or the Chief Executive Officer may appoint, such other officers (including one or more Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Controllers and Tax Officers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Any number of offices may be held by the same person. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Amended and Restated Bylaws or as may be prescribed by the Board of Directors or such committee or by the Chief Executive Officer, as the case may be.
SECTION 4.2. Election and Term of Office . The elected officers of the Corporation shall be elected by the Board of Directors and shall hold office until such officers successor shall have been duly elected and qualified or until such officers death, resignation or removal.
SECTION 4.3. Chairman of the Board . The Chairman of the Board shall preside at all meetings of the Board of Directors and shall have and perform such other duties as may be assigned to him or her by the Board of Directors.
SECTION 4.4. Chief Executive Officer . The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. The Chief Executive Officer shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, at all meetings of the Board of Directors. Unless there shall have been elected one or more Presidents of the Corporation, the Chief Executive Officer shall be the President of the Corporation.
SECTION 4.5. President . The President shall have such general powers and duties of supervision and management as shall be assigned to him or her by the Board of Directors.
SECTION 4.6. Vice-Presidents . Each Executive Vice President, Senior Vice President and Vice President, if any, shall have such powers and shall perform such duties as shall be assigned to him or her by the Board of Directors or by the Chief Executive Officer, as the case may be.
SECTION 4.7. Chief Financial Officer . The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation. He or she shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chairman of the Board, or a President, taking proper vouchers for such disbursements. He or she shall render to the Chairman of the Board, the President and the Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his or her transactions as Chief Financial Officer
and of the financial condition of the Corporation. The Chief Executive Officer may direct the Treasurer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and the Treasurer shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time; provided, however, that if the offices of the Chief Financial Officer and the Treasurer are held by the same person, then the Chief Executive Officer may direct the Chief Accounting Officer to assume and perform the duties of the Chief Financial Officer.
SECTION 4.8. Chief Operating Officer . The Chief Operating Officer shall have direct management responsibility for the general business operations of the Corporation, and he or she shall have such powers and perform such duties as may be incident to the office of chief operating officer of a corporation, those duties assigned to him or her by other provisions of these Amended and Restated Bylaws, and such other duties as may from time to time be assigned to him or her either directly or indirectly by the Board of Directors or the Chief Executive Officer.
SECTION 4.9. Chief Accounting Officer . The Chief Accounting Officer shall have such general powers and duties of supervision and management as shall be assigned to him or her by the Board of Directors. The Chief Accounting Officer shall perform such other duties commonly incident to his or her office and shall have such other powers as the Board of Directors shall designate from time to time. In addition, the Board of Directors may direct the Chief Accounting Officer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer.
SECTION 4.10. General Counsel . The General Counsel shall be the chief legal advisor of the corporation and shall have responsibility for the management of the legal affairs and litigation of the corporation and, in general, he or she shall perform the duties incident to the office of general counsel of a corporation and such other duties as may be assigned to him or her either directly or indirectly by the Board of Directors or the Chief Executive Officer, or as may be provided by law.
SECTION 4.11. Treasurer . The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. In case of the Treasurers death, resignation, retirement or removal from office, all books, papers, vouchers, money and other property of whatever kind in the Treasurers possession or under the Treasurers control belonging to the Corporation shall be restored to the Corporation.
SECTION 4.12. Secretary . The Secretary shall keep or cause to be kept in one or more books provided for that purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders; he or she shall see that all notices are duly given in accordance with the provisions of these Amended and Restated Bylaws and as required by law; he or she shall be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; and he or she shall see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and in general, he or she shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board, the Chairman of the Board or a President.
SECTION 4.13. Removal . Any officer elected, or agent appointed, by the Board of Directors may be removed by the affirmative vote of a majority of the Board of Directors then in office whenever, in their judgment, the best interests of the Corporation would be served thereby. Any officer or agent appointed by the Chief Executive Officer may be removed by him or her whenever, in his or her judgment, the best interests of the Corporation would be served thereby. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his or her successor or his or her death, resignation or removal, whichever event shall first occur, except as otherwise provided in any incentive plan, including but not limited to, any employment contract or under an employee deferred compensation plan.
SECTION 4.14. Vacancies . A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board of Directors. Any vacancy in an office appointed by the Chief Executive Officer because of death, resignation, or removal may be filled by the Chief Executive Officer.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. Certificated and Uncertificated Stock; Transfers . The interests of stockholders of the Corporation shall be uncertificated; provided , that the Board of Directors may expressly elect to evidence such interests by certificate and if the Board of Directors so elects, such interests shall be evidenced by certificates for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe or be uncertificated.
The shares of the stock of the Corporation shall be transferred on the books of the Corporation, in the case of certificated shares of stock, by the holder thereof in person or by his attorney duly authorized in writing, upon surrender for cancellation of certificates for at least the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require; and, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by such persons attorney duly authorized in writing, and upon compliance with appropriate procedures for transferring shares in uncertificated form. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.
Certificates of stock, if any, shall be signed, countersigned and registered in such manner as the Board of Directors may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Notwithstanding anything to the contrary in these Amended and Restated Bylaws, at all times that the Corporations stock is listed on a stock exchange, the shares of the stock of the Corporation shall comply with all direct registration system eligibility requirements established by such exchange, including any requirement that shares of the Corporations stock be eligible for issue in book-entry form. All issuances and transfers of shares of the Corporations stock shall be entered on the books of the Corporation with all information necessary to comply with such direct registration system eligibility requirements, including the name and address of the person to whom the shares of stock are issued, the number of shares of stock issued and the date of issue. The Board of Directors shall have the power and authority to make such rules and regulations as it may deem necessary or proper concerning the issue, transfer and registration of shares of stock of the Corporation in both the certificated and uncertificated form.
SECTION 5.2. Lost, Stolen or Destroyed Certificates . In the event that the Board of Directors expressly elects to evidence shares of stock in the Corporation by certificate pursuant to Section 5.1 , no certificate for shares of stock in the Corporation shall be issued in place of any such certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors or any financial officer may in its or his or her discretion require.
SECTION 5.3. Record Owners . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
SECTION 5.4. Transfer and Registry Agents . The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. Fiscal Year . The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.
SECTION 6.2. Dividends . The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Second Amended and Restated Certificate of Incorporation.
SECTION 6.3. Seal . The corporate seal shall be in such form as shall be determined by resolution of the Board of Directors. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 6.4. Waiver of Notice . Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the DGCL or these Amended and Restated Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting.
SECTION 6.5. Audits . The accounts, books and records of the Corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors, and it shall be the duty of the Board of Directors to cause such audit to be done annually.
SECTION 6.6. Resignations . Any director or any officer, whether elected or appointed, may resign at any time by giving written notice of such resignation to the Chairman of the Board, the Chief Executive Officer or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the Chairman of the Board of Directors, the Chief Executive Officer or the Secretary, or at such later time as is specified therein. No formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective.
SECTION 6.7. Defined Terms . Capitalized terms that are used by not defined herein, but that are defined in the Second Amended and Restated Certificate of Incorporation, shall have the respective meanings assigned to them in the Second Amended and Restated Certificate of Incorporation.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. Contracts . Except as otherwise required by law, the Second Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, any contracts or other instruments may be executed and delivered in the name and on the behalf of the Corporation by such officer or officers of the Corporation as the Board of Directors may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. The Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or any Vice President may execute bonds, contracts, deeds, leases and other instruments to be made or executed for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board of Directors or the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or any Vice President of the Corporation may delegate contractual powers to others under his or her jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power.
SECTION 7.2. Proxies . Unless otherwise provided by resolution adopted by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. Amendments . These Amended and Restated Bylaws may be modified, amended or repealed upon (A) the approval of a majority of the Board of Directors then in office and (B) the affirmative vote of the Class A Stockholders that together beneficially own at least ninety percent (90%) of the voting power of the Class A Shares entitled to vote thereon; provided , however , that for so long as the Specified Condition is satisfied, these Amended and Restated Bylaws may be modified, amended or repealed upon (1) a Special Board Approval and (2) the affirmative vote of the Class A Stockholders that together beneficially own eighty percent (80%) of the voting power of the Class A Shares entitled to vote thereon.
Exhibit 4.4
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EPE HOLDINGS LLC
and
EP ENERGY BONDCO INC.
as Issuers
and the Subsidiary Guarantors party hereto from time to time
8.125%/8.875% Senior PIK Toggle Notes due 2017
INDENTURE
Dated as of December 21, 2012
and
Wilmington Trust, National Association
as Trustee
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TABLE OF CONTENTS
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Page |
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ARTICLE I |
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DEFINITIONS AND INCORPORATION BY REFERENCE |
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SECTION 1.01 |
Definitions |
1 |
SECTION 1.02 |
Other Definitions |
45 |
SECTION 1.03 |
Rules of Construction |
46 |
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ARTICLE II |
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THE NOTES |
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SECTION 2.01 |
Amount of Notes |
47 |
SECTION 2.02 |
Form and Dating |
48 |
SECTION 2.03 |
Execution and Authentication |
48 |
SECTION 2.04 |
Registrar and Paying Agent |
49 |
SECTION 2.05 |
Paying Agent to Hold Money in Trust |
50 |
SECTION 2.06 |
Holder Lists |
50 |
SECTION 2.07 |
Transfer and Exchange |
51 |
SECTION 2.08 |
Replacement Notes |
51 |
SECTION 2.09 |
Outstanding Notes |
52 |
SECTION 2.10 |
Cancellation |
52 |
SECTION 2.11 |
Defaulted Interest |
53 |
SECTION 2.12 |
CUSIP Numbers, ISINs, Etc. |
53 |
SECTION 2.13 |
Calculation of Principal Amount of Notes |
53 |
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ARTICLE III |
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REDEMPTION |
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SECTION 3.01 |
Redemption |
53 |
SECTION 3.02 |
Applicability of Article |
54 |
SECTION 3.03 |
Notices to Trustee |
54 |
SECTION 3.04 |
Selection of Notes to Be Redeemed |
54 |
SECTION 3.05 |
Notice of Optional Redemption |
54 |
SECTION 3.06 |
Effect of Notice of Redemption |
55 |
SECTION 3.07 |
Deposit of Redemption Price |
55 |
SECTION 3.08 |
Notes Redeemed in Part |
56 |
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ARTICLE IV |
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COVENANTS |
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SECTION 4.01 |
Payment of Notes |
56 |
SECTION 4.02 |
Reports and Other Information |
56 |
SECTION 4.03 |
Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock |
58 |
SECTION 4.04 |
Limitation on Restricted Payments |
66 |
SECTION 4.05 |
Dividend and Other Payment Restrictions Affecting Subsidiaries |
72 |
TABLE OF CONTENTS
(contd)
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Page |
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SECTION 4.06 |
Asset Sales |
75 |
SECTION 4.07 |
Transactions with Affiliates |
78 |
SECTION 4.08 |
Change of Control |
82 |
SECTION 4.09 |
Compliance Certificate |
83 |
SECTION 4.10 |
Further Instruments and Acts |
84 |
SECTION 4.11 |
Future Subsidiary Guarantors |
84 |
SECTION 4.12 |
Liens |
84 |
SECTION 4.13 |
[Intentionally Omitted] |
85 |
SECTION 4.14 |
Maintenance of Office or Agency |
85 |
SECTION 4.15 |
Covenant Suspension |
85 |
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ARTICLE V |
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SUCCESSOR COMPANY |
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SECTION 5.01 |
When Issuers May Merge or Transfer Assets |
86 |
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ARTICLE VI |
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DEFAULTS AND REMEDIES |
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SECTION 6.01 |
Events of Default |
89 |
SECTION 6.02 |
Acceleration |
90 |
SECTION 6.03 |
Other Remedies |
91 |
SECTION 6.04 |
Waiver of Past Defaults |
91 |
SECTION 6.05 |
Control by Majority |
91 |
SECTION 6.06 |
Limitation on Suits |
92 |
SECTION 6.07 |
Rights of the Holders to Receive Payment |
92 |
SECTION 6.08 |
Collection Suit by Trustee |
92 |
SECTION 6.09 |
Trustee May File Proofs of Claim |
93 |
SECTION 6.10 |
Priorities |
93 |
SECTION 6.11 |
Undertaking for Costs |
93 |
SECTION 6.12 |
Waiver of Stay or Extension Laws |
94 |
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ARTICLE VII |
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TRUSTEE |
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SECTION 7.01 |
Duties of Trustee |
94 |
SECTION 7.02 |
Rights of Trustee |
95 |
SECTION 7.03 |
Individual Rights of Trustee |
97 |
SECTION 7.04 |
Trustees Disclaimer |
97 |
SECTION 7.05 |
Notice of Defaults |
97 |
SECTION 7.06 |
[Intentionally Omitted] |
98 |
SECTION 7.07 |
Compensation and Indemnity |
98 |
SECTION 7.08 |
Replacement of Trustee |
99 |
SECTION 7.09 |
Successor Trustee by Merger |
100 |
SECTION 7.10 |
Eligibility; Disqualification |
100 |
TABLE OF CONTENTS
(contd)
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Page |
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SECTION 7.11 |
Preferential Collection of Claims Against the Issuers |
100 |
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ARTICLE VIII |
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DISCHARGE OF INDENTURE; DEFEASANCE |
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SECTION 8.01 |
Discharge of Liability on Notes; Defeasance |
100 |
SECTION 8.02 |
Conditions to Defeasance |
102 |
SECTION 8.03 |
Application of Trust Money |
103 |
SECTION 8.04 |
Repayment to Issuer |
103 |
SECTION 8.05 |
Indemnity for U.S. Government Obligations |
103 |
SECTION 8.06 |
Reinstatement |
103 |
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ARTICLE IX |
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AMENDMENTS AND WAIVERS |
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SECTION 9.01 |
Without Consent of the Holders |
104 |
SECTION 9.02 |
With Consent of the Holders |
105 |
SECTION 9.03 |
Revocation and Effect of Consents and Waivers |
106 |
SECTION 9.04 |
Notation on or Exchange of Notes |
106 |
SECTION 9.05 |
Trustee to Sign Amendments |
107 |
SECTION 9.06 |
Additional Voting Terms; Calculation of Principal Amount |
107 |
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ARTICLE X |
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[INTENTIONALLY OMITTED] |
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ARTICLE XI |
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[INTENTIONALLY OMITTED] |
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ARTICLE XII |
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GUARANTEE |
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SECTION 12.01 |
Guarantee |
107 |
SECTION 12.02 |
Limitation on Liability |
110 |
SECTION 12.03 |
[Intentionally Omitted] |
111 |
SECTION 12.04 |
Successors and Assigns |
111 |
SECTION 12.05 |
No Waiver |
111 |
SECTION 12.06 |
Modification |
111 |
SECTION 12.07 |
Execution of Supplemental Indenture for Future Guarantors |
111 |
SECTION 12.08 |
Non-Impairment |
111 |
TABLE OF CONTENTS
(contd)
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Page |
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ARTICLE XIII |
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[INTENTIONALLY OMITTED] |
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ARTICLE XIV |
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MISCELLANEOUS |
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SECTION 14.01 |
Notices |
112 |
SECTION 14.02 |
Certificate and Opinion as to Conditions Precedent |
113 |
SECTION 14.03 |
Statements Required in Certificate or Opinion |
113 |
SECTION 14.04 |
When Notes Disregarded |
114 |
SECTION 14.05 |
Rules by Trustee, Paying Agent and Registrar |
114 |
SECTION 14.06 |
Legal Holidays |
114 |
SECTION 14.07 |
GOVERNING LAW |
114 |
SECTION 14.08 |
No Recourse Against Others |
114 |
SECTION 14.09 |
Successors |
115 |
SECTION 14.10 |
Multiple Originals |
115 |
SECTION 14.11 |
Table of Contents; Headings |
115 |
SECTION 14.12 |
Indenture Controls |
115 |
SECTION 14.13 |
Severability |
115 |
SECTION 14.14 |
Waiver of Jury Trial |
115 |
Appendix A Provisions Relating to Initial Notes and Additional Notes
TABLE OF CONTENTS
(contd)
EXHIBIT INDEX
Exhibit A Form of Initial Note
Exhibit B Form of Transferee Letter of Representation
Exhibit C Form of Supplemental Indenture
INDENTURE, dated as of December 21, 2012, among EPE HOLDINGS LLC, a Delaware limited liability company, (together with its successors and assigns, EPE Holdings ), EP ENERGY BONDCO INC., a Delaware corporation (together with its successors and assigns, the Co-Issuer and, together with EPE Holdings, the Issuers ), the Subsidiary Guarantors party hereto from time to time (as defined below) and Wilmington Trust, National Association, as trustee (the Trustee ).
Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the holders of (i) $350,000,000 aggregate principal amount of the Issuers 8.125%/8.875% Senior PIK Toggle Notes due 2017 issued on the date hereof (the Initial Notes ) and (ii) Additional Notes issued from time to time (together with the Initial Notes, the Notes ):
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions .
Acquired Business means (i) all of the issued and outstanding membership interests of EP Energy L.L.C. (f/k/a EP Energy Corporation); (ii) all of the issued and outstanding shares of El Paso E&P S. Alamein Cayman Company; (iii) all of the issued and outstanding quotas of UnoPaso Exploracao e Producao de Petroleo e Gas Ltda. and El Paso Oleo e Gas do Brasil Ltda.; and (iv) all of the issued and outstanding shares of El Paso Brazil Holdings Company.
Acquired Indebtedness means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged, consolidated or amalgamated with or into or became a Restricted Subsidiary of such specified Person, and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
Acquired Indebtedness will be deemed to have been Incurred, with respect to clause (1) of the preceding sentence, on the date such Person becomes a Restricted Subsidiary and, with respect to clause (2) of the preceding sentence, on the date of consummation of such acquisition of such assets.
Acquisition means the purchase by EPE Acquisition, LLC of the Acquired Business.
Acquisition Documents means the Purchase and Sale Agreement, dated as of February 24, 2012, by and among EP Energy Corporation, EP Energy Holding Company and El Paso Brazil, L.L.C., as sellers, and EPE Acquisition, LLC, as purchaser, and any other agreements or instruments contemplated thereby, in each case, as amended, restated, supplemented or otherwise modified from time to time.
Additional Assets means:
(1) any properties or assets used or useful in the Oil and Gas Business;
(2) capital expenditures by EPE Holdings or a Restricted Subsidiary in the Oil and Gas Business;
(3) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by EPE Holdings or another Restricted Subsidiary; or
(4) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary;
provided , however , that, in the case of clauses (3) and (4), such Restricted Subsidiary is primarily engaged in the Oil and Gas Business.
Additional Notes means the Notes issued under the terms of this Indenture subsequent to the Issue Date.
Additional Refinancing Amount means, in connection with the Incurrence of any Refinancing Indebtedness, the aggregate principal amount of additional Indebtedness, Disqualified Stock or Preferred Stock Incurred to pay premiums (including tender premiums), expenses, defeasance costs and fees in respect thereof.
Adjusted Consolidated Net Tangible Assets means (without duplication), as of the date of determination, the remainder of:
(a) the sum of:
(i) estimated discounted future net revenues from proved oil and gas reserves of EPE Holdings and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any provincial, territorial, state, federal or foreign income taxes, as estimated by EPE Holdings in a reserve report prepared as of the end of EPE Holdings most recently completed fiscal year for which audited financial statements are available, as increased by, as of the date of determination, the estimated discounted future net revenues from (A) estimated proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and (B) estimated oil and gas reserves attributable to upward revisions of estimates of proved oil and gas reserves (including the impact to discounted future net revenues related to development costs previously estimated in the last year end reserve report, but only to the extent such costs were actually incurred since the date of the last year end reserve report) since such year end due to exploration, development, exploitation or other activities, increased by the accretion of discount from the date of the last year end reserve report to the date of determination and decreased by, as of the date of determination, the estimated discounted future net revenues from (C) estimated proved oil and gas reserves included in the last year end reserve report that shall have been produced or disposed of since such year end, and (D) estimated oil and gas reserves included therein that are subsequently removed
from the proved oil and gas reserves of EPE Holdings and its Restricted Subsidiaries as so calculated due to downward revisions of estimates of proved oil and gas reserves since such year end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, provided , that (x) in the case of such year end reserve report and any adjustments since such year end pursuant to clauses (A), (B) and (D), the estimated discounted future net revenues from proved oil and gas reserves shall be determined in their entirety using oil, gas and other hydrocarbon prices and costs that are either (1) calculated in accordance with SEC guidelines and, with respect to such adjustments under clauses (A), (B) or (D), calculated with such prices and costs as if the end of the most recent fiscal quarter preceding the date of determination for which such information is available to EPE Holdings were year end or (2) if EPE Holdings so elects at any time, calculated in accordance with the foregoing clause (1), except that when pricing of future net revenues of proved oil and gas reserves under SEC guidelines is not based on a contract price and is instead based upon benchmark, market or posted pricing, the pricing for each month of estimated future production from such proved oil and gas reserves not subject to contract pricing shall be based upon NYMEX (or successor) published forward prices for the most comparable hydrocarbon commodity applicable to such production month (adjusted for energy content, quality and basis differentials, with such basis differentials determined as provided in the definition of Borrowing Base and giving application to the last sentence of such definition hereto), as such forward prices are published as of the year end date of such reserve report or, with respect to post-year end adjustments under clauses (A), (B) or (D), the last day of the most recent fiscal quarter preceding the date of determination, (y) the pricing of estimated proved reserves that have been produced or disposed since year end as set forth in clause (D) shall be based upon the applicable pricing elected for the prior year end reserve report as provided in clause (x), and (z) in each case as estimated by EPE Holdings petroleum engineers or any independent petroleum engineers engaged by EPE Holdings for that purpose;
(ii) the capitalized costs that are attributable to Oil and Gas Properties of EPE Holdings and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on EPE Holdings books and records as of a date no earlier than the date of EPE Holdings latest annual or quarterly consolidated financial statements;
(iii) the Net Working Capital on a date no earlier than the date of EPE Holdings latest annual or quarterly consolidated financial statements;
(iv) assets related to commodity risk management activities less liabilities related to commodity risk management activities, in each case to the extent that such assets and liabilities arise in the ordinary course of the Oil and Gas Business, provided that such net value shall not be less than zero; and
(v) the greater of (A) the net book value of other tangible assets (including, without limitation, investments in unconsolidated Restricted Subsidiaries and mineral rights held under lease or other contractual arrangement) of EPE Holdings and its Restricted Subsidiaries, as of a date no earlier than the date of EPE Holdings latest annual or quarterly consolidated financial statements, and (B) the Fair Market Value, as
estimated by EPE Holdings, of other tangible assets (including, without limitation, investments in unconsolidated Restricted Subsidiaries and mineral rights held under lease or other contractual arrangement) of EPE Holdings and its Restricted Subsidiaries, as of a date no earlier than the date of EPE Holdings latest audited consolidated financial statements (it being understood that EPE Holdings shall not be required to obtain any appraisal of any assets); minus
(b) the sum of:
(i) any amount included in clauses (a)(i) through (a)(v) above that is attributable to minority interests;
(ii) any net gas balancing liabilities of EPE Holdings and its Restricted Subsidiaries reflected in EPE Holdings latest audited consolidated financial statements;
(iii) to the extent included in clause (a)(i) above, the estimated discounted future net revenues, calculated in accordance with SEC guidelines (utilizing the prices and costs as provided in clause (a)(i)), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of EPE Holdings and its Restricted Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and
(iv) to the extent included in clause (a)(i) above, the estimated discounted future net revenues, calculated in accordance with SEC guidelines (utilizing prices and costs as provided in clause (a)(i)), attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the estimated discounted future net revenues specified in clause (a)(i) above, would be necessary to fully satisfy the payment obligations of EPE Holdings and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).
If EPE Holdings changes its method of accounting from the full cost method of accounting to the successful efforts or a similar method, Adjusted Consolidated Net Tangible Assets will continue to be calculated as if EPE Holdings were still using the full cost method of accounting.
Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control (including, with correlative meanings, the terms controlling, controlled by and under common control with), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
Applicable Premium means, with respect to any Note on any applicable redemption date, as determined by the Issuers, the greater of:
(1) 1% of the then outstanding principal amount of the Note; and
(2) the excess of:
(a) the present value at such redemption date of (i) the redemption price of the Note, at December 15, 2013 (such redemption price being set forth in Paragraph 5 of the Note) plus (ii) all required interest payments due on the Note through December 15, 2013 (excluding accrued but unpaid interest), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over
(b) the then outstanding principal amount of the Note.
Asset Sale means:
(1) the sale, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of property or assets (including by way of Production Payments and Reserve Sales and Sale/ Leaseback Transactions) (other than an operating lease entered into in the ordinary course of the Oil and Gas Business) outside the ordinary course of business of EPE Holdings or any Restricted Subsidiary (each referred to in this definition as a disposition ); or
(2) the issuance or sale of Equity Interests (other than directors qualifying shares and shares issued to foreign nationals or other third parties to the extent required by applicable law) of any Restricted Subsidiary (other than to EPE Holdings or another Restricted Subsidiary) (whether in a single transaction or a series of related transactions),
in each case other than:
(a) a disposition of Cash Equivalents or Investment Grade Securities or obsolete, damaged or worn out property or equipment in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of EPE Holdings in a manner permitted pursuant to Section 5.01 or any disposition that constitutes a Change of Control;
(c) any Restricted Payment or Permitted Investment that is permitted to be made, and is made, under Section 4.04;
(d) any disposition of assets of EPE Holdings or any Restricted Subsidiary or issuance or sale of Equity Interests of EPE Holdings or any Restricted Subsidiary, which assets or Equity Interests so disposed or issued have an aggregate Fair Market Value (as determined in good faith by EPE Holdings) of less than $50.0 million;
(e) any disposition of property or assets, or the issuance of securities, by a Restricted Subsidiary to EPE Holdings or by EPE Holdings or a Restricted Subsidiary to a Restricted Subsidiary;
(f) any exchange of assets (including a combination of assets and Cash Equivalents) for assets related to a Similar Business of comparable or greater market value or usefulness to the business of EPE Holdings and the Restricted Subsidiaries as a whole, as determined in good faith by EPE Holdings;
(g) foreclosure or any similar action with respect to any property or other asset of EPE Holdings or any of the Restricted Subsidiaries;
(h) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;
(i) the lease, assignment or sublease of, or any transfer related to a reverse build to suit or similar transaction in respect of, any real or personal property in the ordinary course of business;
(j) any sale of inventory or other assets in the ordinary course of business;
(k) any grant in the ordinary course of business of any license of patents, trademarks, know-how or any other intellectual property;
(l) in the ordinary course of business, any swap of assets, or lease, assignment or sublease of any real or personal property, in exchange for services (including in connection with any outsourcing arrangements) of comparable or greater value or usefulness to the business of EPE Holdings and the Restricted Subsidiaries as a whole, as determined in good faith by EPE Holdings;
(m) a transfer of accounts receivable and related assets of the type specified in the definition of Receivables Financing (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Financing;
(n) any financing transaction with respect to property built or acquired by EPE Holdings or any Restricted Subsidiary after the Issue Date, including any Sale/Leaseback Transaction or asset securitization permitted by this Indenture;
(o) dispositions in connection with Permitted Liens;
(p) any disposition of Capital Stock of a Restricted Subsidiary pursuant to an agreement or other obligation with or to a Person (other than EPE Holdings or a Restricted Subsidiary) from whom such Restricted Subsidiary was acquired or from whom such Restricted Subsidiary acquired its business and assets (having been newly formed in connection with such acquisition), made as part of such acquisition and in each case comprising all or a portion of the consideration in respect of such sale or acquisition;
(q) the sale of any property in a Sale/Leaseback Transaction within twelve months of the acquisition of such property;
(r) dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements;
(s) any surrender, expiration or waiver of contract rights or oil and gas leases or the settlement, release, recovery on or surrender of contract, tort or other claims of any kind;
(t) a disposition of Hydrocarbons or mineral products inventory in the ordinary course of business;
(u) any Production Payments and Reserve Sales; provided that any such Production Payments and Reserve Sales, other than incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical services to EPE Holdings or a Restricted Subsidiary, shall have been created, incurred, issued, assumed or guaranteed in connection with the financing of, and within 60 days after the acquisition of, the property that is subject thereto;
(v) the abandonment, farm-out pursuant to a Farm-Out Agreement, lease or sublease of developed or underdeveloped Oil and Gas Properties owned or held by EPE Holdings or any Restricted Subsidiary in the ordinary course of business or which are usual and customary in the Oil and Gas Business generally or in the geographic region in which such activities occur; and
(w) a disposition (whether or not in the ordinary course of business) of any Oil and Gas Property or interest therein to which no proved reserves are attributable at the time of such disposition.
Bank Indebtedness means any and all amounts payable under or in respect of (a) the Credit Agreement and the other Credit Agreement Documents, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or otherwise), restructured, repaid, refunded, refinanced or otherwise modified from time to time (including after termination of the Credit Agreement), including any agreement or indenture extending the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or agreements or indenture or indentures or any successor or replacement agreement or agreements or indenture or indentures or increasing the amount loaned or issued thereunder or altering the maturity thereof, including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to EPE Holdings whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof and (b) whether or not the Indebtedness referred to in clause (a) remains outstanding, if designated by EPE Holdings to be included in this definition, one or more (A) debt facilities or commercial paper facilities, providing for revolving credit loans, term loans, reserve-based loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables) or letters of credit, (B) debt securities,
indentures or other forms of debt financing (including convertible or exchangeable debt instruments or bank guarantees or bankers acceptances), or (C) instruments or agreements evidencing any other Indebtedness, in each case, with the same or different borrowers or issuers and, in each case, as amended, supplemented, modified, extended, restructured, renewed, refinanced, restated, replaced or refunded in whole or in part from time to time.
Board of Directors means, as to any Person, the board of directors or managers, as applicable, of such Person (or, if such Person is a partnership, the board of directors or other governing body of the general partner of such Person) or any duly authorized committee thereof. In the case of EPE Holdings, the Board of Directors of EPE Holdings shall be deemed to include the Board of Directors of EPE Holdings or any direct or indirect parent of EPE Holdings, as appropriate.
Borrowing Base means, at any date of determination, an amount equal to the amount of (a) 65% of the net present value discounted at 9% of proved developed producing (PDP) reserves, plus (b) 35% of the net present value discounted at 9% of proved developed non-producing (PDNP) reserves, plus (c) 25% of the net present value discounted at 9% of proven undeveloped (PUD) reserves, plus or minus (d) 65% of the net present value discounted at 9% of the future receipts expected to be paid to or by EPE Holdings and its Restricted Subsidiaries under commodity hedging agreements (other than basis differential commodity hedging agreements), netted against the price described below, plus or minus (e) 65% of the net present value discounted at 9% of the future receipts expected to be paid to or by EPE Holdings and its Restricted Subsidiaries under basis differential commodity hedging agreements, in each case for EPE Holdings and its Restricted Subsidiaries, and (i) for purposes of clauses (a) through (d) above, as estimated by EPE Holdings in a reserve report prepared by EPE Holdings petroleum engineers applying the relevant NYMEX (or successor) published forward prices for the most comparable hydrocarbon commodity adjusted for relevant energy content, quality and basis differentials (before any state or federal or other income tax) and (ii) for purposes of clauses (d) and (e) above, as estimated by EPE Holdings applying, if available, the relevant NYMEX (or successor) published forward basis differential or, if such NYMEX (or successor) forward basis differential is unavailable, in good faith based on historical basis differential (before any state or federal or other income tax). For any months beyond the term included in published NYMEX (or successor) forward pricing, the price used will be equal to the last published contract escalated at 1.5% per annum.
Business Day means a day other than a Saturday, Sunday or other day on which banking institutions are authorized or required by law to close in New York City or the place of payment.
Capital Stock means:
(1) in the case of a corporation, corporate stock or shares;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
Capitalized Lease Obligation means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP; provided that any obligations of EPE Holdings or its Restricted Subsidiaries, or of a special purpose or other entity not consolidated with EPE Holdings and its Restricted Subsidiaries, either existing on the Issue Date or created prior to any recharacterization described below (or any refinancings thereof) (i) that were not included on the consolidated balance sheet of EPE Holdings as capital lease obligations and (ii) that are subsequently recharacterized as capital lease obligations or, in the case of such a special purpose or other entity becoming consolidated with EPE Holdings and its Restricted Subsidiaries, due to a change in accounting treatment or otherwise, shall for all purposes not be treated as Capitalized Lease Obligations or Indebtedness.
Capitalized Software Expenditures shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by a Person and its Restricted Subsidiaries during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in conformity with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of such Person and such Restricted Subsidiaries.
Cash Equivalents means:
(1) U.S. dollars, pounds sterling, euros, the national currency of any member state in the European Union or such local currencies held by an entity from time to time in the ordinary course of business;
(2) securities issued or directly and fully guaranteed or insured by the U.S. government or any country that is a member of the European Union or any agency or instrumentality thereof in each case maturing not more than two years from the date of acquisition;
(3) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers acceptances, in each case with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $250.0 million and whose long-term debt is rated A or the equivalent thereof by Moodys or S&P (or reasonably equivalent ratings of another internationally recognized ratings agency);
(4) repurchase obligations for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5) commercial paper issued by a corporation (other than an Affiliate of EPE Holdings) rated at least A-1 or the equivalent thereof by Moodys or S&P (or reasonably equivalent ratings of another internationally recognized ratings agency) and in each case maturing within one year after the date of acquisition;
(6) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moodys or S&P (or reasonably equivalent ratings of another internationally recognized ratings agency) in each case with maturities not exceeding two years from the date of acquisition;
(7) Indebtedness issued by Persons (other than the Sponsors or any of their Affiliates) with a rating of A or higher from S&P or A-2 or higher from Moodys (or reasonably equivalent ratings of another internationally recognized ratings agency) in each case with maturities not exceeding two years from the date of acquisition; and
(8) investment funds investing at least 95% of their assets in securities of the types described in clauses (1) through (7) above.
CFC means a controlled foreign corporation within the meaning of Section 957 of the Code.
Change of Control means the occurrence of either of the following:
(1) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all the assets of EPE Holdings and its Subsidiaries, taken as a whole, to a Person other than any of the Permitted Holders; or
(2) EPE Holdings becomes aware (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) of the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than any of the Permitted Holders, in a single transaction or in a related series of transactions, by way of merger, consolidation, amalgamation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision), of more than 50% of the total voting power of the Voting Stock of EPE Holdings.
Code means the Internal Revenue Code of 1986, as amended.
Consolidated Depreciation, Depletion and Amortization Expense means, with respect to any Person for any period, the total amount of depreciation, depletion and amortization expense, including the amortization of intangible assets, deferred financing fees and Capitalized Software Expenditures and amortization of unrecognized prior service costs and actuarial gains and losses related to pensions and other post-employment benefits, of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP.
Consolidated Interest Expense means, with respect to any Person for any period, the sum, without duplication, of:
(1) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, the interest component of Capitalized Lease Obligations, and net payments and receipts (if any) pursuant to interest rate Hedging Obligations and excluding amortization of deferred financing fees, any interest attributable to Dollar-Denominated Production Payments, debt issuance costs, commissions, fees and expenses, expensing of any bridge, commitment or other financing fees and non-cash interest expense attributable to movement in mark to market valuation of Hedging Obligations or other derivatives (in each case permitted hereunder) under GAAP); plus
(2) consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued; plus
(3) commissions, discounts, yield and other fees and charges Incurred in connection with any Receivables Financing which are payable to Persons other than EPE Holdings and the Restricted Subsidiaries; minus
(4) interest income for such period.
For purposes of this definition, interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by EPE Holdings to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
Consolidated Net Income means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis; provided , however , that:
(1) any net after-tax extraordinary, nonrecurring or unusual gains or losses (less all fees and expenses relating thereto) or expenses or charges, any severance expenses, relocation expenses, curtailments or modifications to pension and post-retirement employee benefit plans, any expenses related to any reconstruction, decommissioning, recommissioning or reconfiguration of fixed assets for alternate uses and fees, expenses or charges relating to facilities closing costs, acquisition integration costs, facilities opening costs, project start-up costs, business optimization costs, signing, retention or completion bonuses, expenses or charges related to any issuance of Equity Interests, Investment, acquisition, disposition, recapitalization or issuance, repayment, refinancing, amendment or modification of Indebtedness (in each case, whether or not successful), and any fees, expenses, charges or change in control payments related to the Transactions, in each case, shall be excluded;
(2) effects of purchase accounting adjustments (including the effects of such adjustments pushed down to such Person and such Subsidiaries) in amounts required or permitted by GAAP, resulting from the application of purchase accounting or the amortization or write-off of any amounts thereof, net of taxes, shall be excluded;
(3) the Net Income for such period shall not include the cumulative effect of a change in accounting principles during such period;
(4) any net after-tax income or loss from disposed, abandoned, transferred, closed or discontinued operations or fixed assets and any net after-tax gains or losses on disposal of disposed, abandoned, transferred, closed or discontinued operations or fixed assets shall be excluded;
(5) any net after-tax gains or losses (less all fees and expenses or charges relating thereto) attributable to business dispositions or asset dispositions other than in the ordinary course of business (as determined in good faith by management of EPE Holdings) shall be excluded;
(6) any net after-tax gains or losses (less all fees and expenses or charges relating thereto) attributable to the early extinguishment of indebtedness, Hedging Obligations or other derivative instruments shall be excluded;
(7) the Net Income for such period of any Person that is not a Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period;
(8) solely for the purpose of determining the amount available for Restricted Payments under clause (1) of the definition of Cumulative Credit, the Net Income for such period of any Restricted Subsidiary (other than any Subsidiary Guarantor and Opco and its Subsidiaries) shall be excluded to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restrictions with respect to the payment of dividends or similar distributions have been legally waived; provided that the Consolidated Net Income of such Person shall be increased by the amount of dividends or other distributions or other payments actually paid in cash (or converted into cash) by any such Restricted Subsidiary to such Person, to the extent not already included therein;
(9) an amount equal to the amount of Tax Distributions actually made to any parent or equity holder of such Person in respect of such period in accordance with Section 4.04(b)(xii) shall be included as though such amounts had been paid as income taxes directly by such Person for such period;
(10) any impairment charges or asset write-offs, in each case pursuant to GAAP, the amortization of intangibles arising pursuant to GAAP, and any impairment charges, asset write-offs or write-down, including ceiling test write-downs, on Oil and Gas Properties under GAAP or SEC guidelines shall be excluded;
(11) any non-cash expense realized or resulting from stock option plans, employee benefit plans or post-employment benefit plans, or grants or sales of stock, stock appreciation or similar rights, stock options, restricted stock, preferred stock or other rights shall be excluded;
(12) any (a) non-cash compensation charges, (b) costs and expenses after the Issue Date related to employment of terminated employees, or (c) costs or expenses realized in connection with or resulting from stock appreciation or similar rights, stock options or other rights existing on the Issue Date of officers, directors and employees, in each case of such Person or any Restricted Subsidiary, shall be excluded;
(13) accruals and reserves that are established or adjusted within 12 months after the Issue Date and that are so required to be established or adjusted in accordance with GAAP or as a result of adoption or modification of accounting policies shall be excluded;
(14) (a) the Net Income of any Person and its Restricted Subsidiaries shall be calculated without deducting the income attributable to, or adding the losses attributable to, the minority equity interests of third parties in any non-Wholly Owned Restricted Subsidiary except to the extent of dividends declared or paid in respect of such period or any prior period on the shares of Capital Stock of such Restricted Subsidiary held by such third parties and (b) any ordinary course dividend, distribution or other payment paid in cash and received from any Person in excess of amounts included in clause (7) above shall be included;
(15) (a)(i) the non-cash portion of straight-line rent expense shall be excluded and (ii) the cash portion of straight-line rent expense which exceeds the amount expensed in respect of such rent expense shall be included and (b) non-cash gains, losses, income and expenses resulting from fair value accounting required by the applicable standard under GAAP and related interpretations shall be excluded;
(16) any currency translation gains and losses related to currency remeasurements of Indebtedness, and any net loss or gain resulting from hedging transactions for currency exchange risk, shall be excluded;
(17) (a) to the extent covered by insurance and actually reimbursed, or, so long as such Person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is (i) not denied by the applicable carrier in writing within 180 days and (ii) in fact reimbursed within 365 days of the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within 365 days), expenses with respect to liability or casualty events or business interruption shall be excluded and (b) amounts estimated in good faith to be received from insurance in respect of lost revenues or earnings in respect of liability or casualty events or business interruption shall be included (with a deduction for amounts actually received up to such estimated amount to the extent included in Net Income in a future period);
(18) Capitalized Software Expenditures shall be excluded; and
(19) Non-cash charges for deferred tax asset valuation allowances shall be excluded (except to the extent reversing a previously recognized increase to net income).
Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries or Restricted Subsidiaries to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under Section 4.04 pursuant to clauses (4) and (5) of the definition of Cumulative Credit.
Consolidated Non-Cash Charges means, with respect to any Person for any period, the non-cash expenses (other than Consolidated Depreciation, Depletion and Amortization Expense) of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person for such period on a consolidated basis and otherwise determined in accordance with GAAP, provided that if any such non-cash expenses represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from EBITDA in such future period to the extent paid, but excluding from this proviso, for the avoidance of doubt, amortization of a prepaid cash item that was paid in a prior period.
Consolidated Taxes means, with respect to any Person for any period, the provision for taxes based on income, profits or capital, including, without limitation, state, franchise, property and similar taxes, foreign withholding taxes (including penalties and interest related to such taxes or arising from tax examinations) and any Tax Distributions taken into account in calculating Consolidated Net Income.
Consolidated Total Indebtedness means, as of any date of determination, an amount equal to the sum (without duplication) of (1) the aggregate principal amount of all outstanding Indebtedness of EPE Holdings and the Restricted Subsidiaries (excluding any undrawn letters of credit) consisting of Capitalized Lease Obligations, bankers acceptances and Indebtedness for borrowed money, plus (2) the aggregate amount of all outstanding Disqualified Stock of EPE Holdings and the Restricted Subsidiaries and all Preferred Stock of Restricted Subsidiaries, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences, in each case determined on a consolidated basis in accordance with GAAP.
Contingent Obligations means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness ( primary obligations ) of any other Person (the primary obligor ) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:
(1) to purchase any such primary obligation or any property constituting direct or indirect security therefor,
(2) to advance or supply funds:
(a) for the purchase or payment of any such primary obligation; or
(b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or
(3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
Corporate Trust Office means the designated office of the Trustee in the United States of America at which at any time its corporate trust business shall be administered, or such other address as the Trustee may designate from time to time by notice to the holders and the Issuers, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the holders and the Issuers).
Credit Agreement means (i) the Credit Agreement dated as of May 24, 2012 by and among Opco, the guarantors named therein, the financial institutions named therein, and JPMorgan Chase Bank, N.A., as administrative agent, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or otherwise), restructured, repaid, refunded, refinanced or otherwise modified from time to time, including any agreement or indenture extending the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or agreements or indenture or indentures or any successor or replacement agreement or agreements or indenture or indentures or increasing the amount loaned or issued thereunder or altering the maturity thereof and (ii) whether or not the credit agreement referred to in clause (i) remains outstanding, if designated by EPE Holdings to be included in the definition of Credit Agreement, one or more (A) debt facilities or commercial paper facilities, providing for revolving credit loans, term loans, reserve-based loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables) or letters of credit, (B) debt securities, indentures or other forms of debt financing (including convertible or exchangeable debt instruments or bank guarantees or bankers acceptances), or (C) instruments or agreements evidencing any other Indebtedness, in each case, with the same or different borrowers or issuers and, in each case, as amended, supplemented, modified, extended, restructured, renewed, refinanced, restated, replaced or refunded in whole or in part from time to time.
Credit Agreement Documents means the collective reference to any Credit Agreement, any notes issued pursuant thereto and the guarantees thereof, and the collateral documents relating thereto, as amended, supplemented, restated, renewed, refunded, replaced, restructured, repaid, refinanced or otherwise modified, in whole or in part, from time to time.
Cumulative Credit means the sum of (without duplication):
(1) 50% of the Consolidated Net Income of EPE Holdings for the period from July 1, 2012 to the end of EPE Holdings most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (taken
as one accounting period, the Reference Period ) (or in case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit), plus
(2) 100% of (i) the aggregate net proceeds, including cash and the Fair Market Value (as determined in good faith by EPE Holdings) of property other than cash, received by EPE Holdings after May 24, 2012 plus (ii) the aggregate net proceeds, including cash and the Fair Market Value (as determined in good faith by EPE Holdings) of property other than cash, received by EPE Holdings in excess of $3,200 million prior to or on May 24, 2012 (in each case other than net proceeds to the extent such net proceeds have been used to Incur Indebtedness, Disqualified Stock or Preferred Stock pursuant to Section 4.03(b)(xiii)) from the issue or sale of Equity Interests of EPE Holdings or any direct or indirect parent entity of EPE Holdings (excluding Refunding Capital Stock (as defined below), Designated Preferred Stock, Excluded Contributions, and Disqualified Stock), including Equity Interests issued upon exercise of warrants or options (other than an issuance or sale to EPE Holdings or a Restricted Subsidiary), plus
(3) 100% of (i) the aggregate amount of contributions to the capital of EPE Holdings received in cash and the Fair Market Value (as determined in good faith by EPE Holdings) of property other than cash after May 24, 2012 plus (ii) the aggregate amount of contributions to the capital of EPE Holdings received in cash and the Fair Market Value (as determined in good faith by EPE Holdings) of property other than cash, in excess of $3,200 million prior to or on May 24, 2012 (in each case other than Excluded Contributions, Refunding Capital Stock, Designated Preferred Stock, and Disqualified Stock and other than contributions to the extent such contributions have been used to Incur Indebtedness, Disqualified Stock, or Preferred Stock pursuant to Section 4.03(b)(xiii)), plus
(4) 100% of the principal amount of any Indebtedness, or the liquidation preference or maximum fixed repurchase price, as the case may be, of any Disqualified Stock of EPE Holdings or any Restricted Subsidiary issued after May 24, 2012 (other than Indebtedness or Disqualified Stock issued to a Restricted Subsidiary) which has been converted into or exchanged for Equity Interests in EPE Holdings (other than Disqualified Stock) or any direct or indirect parent of EPE Holdings (provided in the case of any such parent, such Indebtedness or Disqualified Stock is retired or extinguished), plus
(5) 100% of the aggregate amount received by EPE Holdings or any Restricted Subsidiary in cash and the Fair Market Value (as determined in good faith by EPE Holdings) of property other than cash received by EPE Holdings or any Restricted Subsidiary from:
(A) the sale or other disposition (other than to EPE Holdings or a Restricted Subsidiary) of Restricted Investments made by EPE Holdings and the Restricted Subsidiaries and from repurchases and redemptions of such Restricted Investments from EPE Holdings and the Restricted Subsidiaries by any Person (other than EPE Holdings or any Restricted Subsidiary) and from repayments of loans or advances, and releases of guarantees, which constituted Restricted
Investments (other than in each case to the extent that the Restricted Investment was made pursuant to Section 4.04(b)(vii)),
(B) the sale (other than to EPE Holdings or a Restricted Subsidiary) of the Capital Stock of an Unrestricted Subsidiary, or
(C) a distribution or dividend from an Unrestricted Subsidiary, plus
(6) in the event any Unrestricted Subsidiary has been redesignated as a Restricted Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, EPE Holdings or a Restricted Subsidiary, the Fair Market Value (as determined in good faith by EPE Holdings) of the Investment of EPE Holdings or the Restricted Subsidiaries in such Unrestricted Subsidiary (which, if the Fair Market Value of such investment shall exceed $25.0 million, shall be determined by the Board of Directors of EPE Holdings) at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable) (other than in each case to the extent that the designation of such Subsidiary as an Unrestricted Subsidiary was made pursuant to Section 4.04(b)(vii) or constituted a Permitted Investment).
Default means any event which is, or after notice or passage of time or both would be, an Event of Default.
Designated Non-cash Consideration means the Fair Market Value (as determined in good faith by EPE Holdings) of non-cash consideration received by EPE Holdings or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers Certificate, setting forth the basis of such valuation, less the amount of Cash Equivalents received in connection with a subsequent sale of such Designated Non-cash Consideration.
Designated Preferred Stock means Preferred Stock of EPE Holdings or any direct or indirect parent of EPE Holdings (other than Disqualified Stock), that is issued for cash (other than to EPE Holdings or any of its Subsidiaries or an employee stock ownership plan or trust established by EPE Holdings or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to an Officers Certificate, on the issuance date thereof.
Disqualified Stock means, with respect to any Person, any Capital Stock of such Person which, by its terms (or by the terms of any security into which it is convertible or for which it is redeemable or exchangeable), or upon the happening of any event:
(1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than as a result of a change of control or asset sale),
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock of such Person, or
(3) is redeemable at the option of the holder thereof, in whole or in part (other than solely as a result of a change of control or asset sale),
in each case prior to 91 days after the earlier of the maturity date of the Notes or the date the Notes are no longer outstanding; provided , however , that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock; provided , further , however , that if such Capital Stock is issued to any employee or to any plan for the benefit of employees of EPE Holdings or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by such Person in order to satisfy applicable statutory or regulatory obligations or as a result of such employees termination, death or disability; provided , further , that any class of Capital Stock of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Stock shall not be deemed to be Disqualified Stock.
Dollar-Denominated Production Payments means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.
Domestic Subsidiary means a Restricted Subsidiary that is not a Foreign Subsidiary.
EBITDA means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus , without duplication, to the extent the same was deducted in calculating Consolidated Net Income:
(1) Consolidated Taxes; plus
(2) Fixed Charges; plus
(3) Consolidated Depreciation, Depletion and Amortization Expense; plus
(4) Consolidated Non-Cash Charges; plus
(5) any expenses or charges (other than Consolidated Depreciation, Depletion and Amortization Expense) related to any issuance of Equity Interests, Investment, acquisition, disposition, recapitalization or the Incurrence or repayment of Indebtedness permitted to be Incurred by this Indenture (including a refinancing thereof) (whether or not successful), including (i) such fees, expenses or charges related to the Transactions, the Notes or any Bank Indebtedness, (ii) any amendment or other modification of the Notes or other Indebtedness and (iii) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Qualified Receivables Financing; plus
(6) business optimization expenses and other restructuring charges, reserves or expenses (which, for the avoidance of doubt, shall include, without limitation, the effect of inventory optimization programs, facility closures, facility consolidations, retention, systems establishment costs, contract termination costs, future lease commitments and excess pension charges); plus
(7) the amount of loss on sale of receivables and related assets to a Receivables Subsidiary in connection with a Qualified Receivables Financing; plus
(8) any costs or expense Incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such cost or expenses are funded with cash proceeds contributed to the capital of an Issuer or a Subsidiary Guarantor or net cash proceeds of an issuance of Equity Interests of EPE Holdings (other than Disqualified Stock) solely to the extent that such net cash proceeds are excluded from the calculation of the Cumulative Credit; plus
(9) the amount of any management, monitoring, consulting, transaction and advisory fees and related expenses paid to the Sponsors (or any accruals relating to such fees and related expenses) during such period to the extent otherwise permitted by Section 4.07; plus
(10) all adjustments of the nature used in connection with the calculation of Adjusted EBITDAX as set forth in footnote (4) to the Summary Historical and Pro Forma Consolidated Financial and Other Operating Data under Summary in the Offering Memorandum to the extent such adjustments, without duplication, continue to be applicable to such period; plus
(11) the amount of any loss attributable to a new plant or facility until the date that is 12 months after completing construction of or acquiring such plant or facility, as the case may be; provided that (A) such losses are reasonably identifiable and factually supportable and certified by a responsible officer of EPE Holdings and (B) losses attributable to such plant or facility after 12 months from the date of completing construction of or acquisition of such plant or facility, as the case may be, shall not be included in this clause (11), plus
(12) exploration expenses or costs (to the extent EPE Holdings adopts the successful efforts method), and
less , without duplication, to the extent the same increased Consolidated Net Income,
(13) the sum of (x) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments and (y) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments; and
(14) non-cash items increasing Consolidated Net Income for such period (excluding the recognition of deferred revenue or any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges that reduced EBITDA in any prior period and any items for which cash was received in a prior period).
Equity Interests means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
Equity Offering means any public or private sale after the Issue Date of common Capital Stock or Preferred Stock of EPE Holdings or any direct or indirect parent of EPE Holdings, as applicable (other than Disqualified Stock), other than:
(1) public offerings with respect to EPE Holdings or such direct or indirect parents common stock registered on Form S-4 or Form S-8;
(2) issuances to any Subsidiary of EPE Holdings; and
(3) any such public or private sale that constitutes an Excluded Contribution.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Excluded Contributions means the Cash Equivalents or other assets (valued at their Fair Market Value as determined in good faith by senior management or the Board of Directors of EPE Holdings) received by EPE Holdings after the Issue Date from:
(1) contributions to its common equity capital, and
(2) the sale (other than to a Subsidiary of EPE Holdings or to any Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of EPE Holdings,
in each case designated as Excluded Contributions pursuant to an Officers Certificate on or promptly after the date such capital contributions are made or the date such Capital Stock is sold, as the case may be; provided, that $3,200 million of Cash Equivalents received by EPE Holdings from the Equity Investors on or prior to May 24, 2012 to fund the Acquisition shall not be permitted to be designated an Excluded Contribution.
Excluded Subsidiary means (a) any Unrestricted Subsidiary, (b) any Subsidiary that is not a Wholly Owned Subsidiary, (c) any Foreign Subsidiary, (d) any Domestic Subsidiary (i) that owns no material assets (directly or through its Subsidiaries) other than equity interests of one or more Foreign Subsidiaries that are CFCs or (ii) that is a direct or indirect Subsidiary of a Foreign Subsidiary, (e) any Receivables Subsidiary and (f) any Subsidiary (other than a Significant Subsidiary) that (i) did not, as of the last day of the fiscal quarter of EPE Holdings most recently ended, have assets with a value in excess of 5.0% of the Total Assets or revenues representing in excess of 5.0% of total revenues of EPE Holdings and the Restricted Subsidiaries on a consolidated basis as of such date and (ii) taken together with all other such Subsidiaries as of the last day of the fiscal quarter of EPE Holdings most recently ended, did not have assets with a value in excess of 10.0% of the Total Assets or revenues representing in excess of 10.0% of total revenues of EPE Holdings and the Restricted Subsidiaries on a consolidated basis as of such date.
Fair Market Value means, with respect to any asset or property, the price which could be negotiated in an arms-length transaction, for cash, between a willing seller and a
willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction.
Farm-In Agreement means an agreement whereby a Person agrees to pay all or a share of the drilling, completion or other expenses of one or more exploratory or development wells (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interests therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well or wells as all or a part of the consideration provided in exchange for an ownership interest in an Oil and Gas Property.
Farm-Out Agreement means a Farm-In Agreement, viewed from the standpoint of the party that transfers an ownership interest to another.
Fixed Charge Coverage Ratio means, with respect to any Person for any period, the ratio of EBITDA of such Person for such period to the Fixed Charges of such Person for such period. In the event that EPE Holdings or any of its Restricted Subsidiaries Incurs, repays, repurchases or redeems any Indebtedness (other than in the case of any Qualified Receivables Financing, in which case interest expense shall be computed based upon the average daily balance of such Indebtedness during the applicable period) or issues, repurchases or redeems Disqualified Stock or Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made (the Calculation Date ), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such Incurrence, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period; provided that EPE Holdings may elect pursuant to an Officers Certificate delivered to the Trustee to treat all or any portion of the commitment under any Indebtedness as being Incurred at such time, in which case any subsequent Incurrence of Indebtedness under such commitment shall not be deemed, for purposes of this calculation, to be an Incurrence at such subsequent time.
For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, amalgamations, consolidations and discontinued operations (as determined in accordance with GAAP), in each case with respect to an operating unit of a business, and any operational changes that EPE Holdings or any Restricted Subsidiary has determined to make and/or made during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers, amalgamations, consolidations, discontinued operations and other operational changes (and the change of any associated fixed charge obligations and the change in EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into EPE Holdings or any Restricted Subsidiary since the beginning of such period shall have made any Investment, acquisition, disposition, merger, consolidation, amalgamation, discontinued operation or operational change, in each case with respect to an operating unit of a business, that would have required adjustment pursuant to this definition, then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, discontinued operation, merger, amalgamation, consolidation or operational change had occurred at the beginning of the applicable four-quarter period. If since the beginning of such period any Restricted Subsidiary is designated an Unrestricted Subsidiary or any Unrestricted Subsidiary is designated a Restricted Subsidiary, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such designation had occurred at the beginning of the applicable four-quarter period.
For purposes of this definition, whenever pro forma effect is to be given to any event, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of EPE Holdings. Any such pro forma calculation may include adjustments appropriate, in the reasonable good faith determination of EPE Holdings as set forth in an Officers Certificate, to reflect (1) operating expense reductions and other operating improvements or synergies reasonably expected to result from the applicable event, and (2) all adjustments of the nature used in connection with the calculation of Adjusted EBITDAX as set forth in footnote (4) to the Summary Historical and Pro Forma Consolidated Financial and Other Operating Data under Summary in the Offering Memorandum to the extent such adjustments, without duplication, continue to be applicable to such four-quarter period.
If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness if such Hedging Obligation has a remaining term in excess of 12 months). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of EPE Holdings to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. For purposes of making the computation referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a Eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as EPE Holdings may designate.
For purposes of this definition, any amount in a currency other than U.S. dollars will be converted to U.S. dollars based on the average exchange rate for such currency for the most recent twelve month period immediately prior to the date of determination in a manner consistent with that used in calculating EBITDA for the applicable period.
Fixed Charges means, with respect to any Person for any period, the sum, without duplication, of: (1) Consolidated Interest Expense (excluding amortization or write-off of deferred financing costs) of such Person for such period, and (2) all cash dividend payments (excluding items eliminated in consolidation) on any series of Preferred Stock or Disqualified Stock of such Person and its Restricted Subsidiaries.
Foreign Subsidiary means a Restricted Subsidiary not organized or existing under the laws of the United States of America or any state thereof or the District of Columbia.
GAAP means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date. For the purposes of this Indenture, the term consolidated with respect to any Person shall mean such Person consolidated with its Restricted Subsidiaries, and shall not include any Unrestricted Subsidiary, but the interest of such Person in an Unrestricted Subsidiary will be accounted for as an Investment.
guarantee means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.
Hedging Obligations means, with respect to any Person, the obligations of such Person under:
(1) currency exchange, interest rate or commodity swap agreements (including commodity swaps, commodity options, forward commodity contracts, basis differential swaps, spot contracts, fixed-price physical delivery contracts or other similar agreements or arrangements in respect of Hydrocarbons), currency exchange, interest rate or commodity cap agreements and currency exchange, interest rate or commodity collar agreements; and
(2) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange, interest rates or commodity prices.
Notwithstanding the foregoing, agreements or obligations to physically sell any commodity at any index-based price shall not be considered Hedging Obligations.
holder or noteholder means the Person in whose name a Note is registered on the Registrars books.
Hydrocarbons means oil, natural gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.
Incur means issue, assume, guarantee, incur or otherwise become liable for; provided , however , that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Subsidiary (whether by merger, amalgamation, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Subsidiary.
Indebtedness means, with respect to any Person:
(1) the principal and premium (if any) of any indebtedness of such Person, whether or not contingent, (a) in respect of borrowed money, (b) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers acceptances (or, without duplication, reimbursement agreements in respect thereof), (c) representing the deferred and unpaid purchase price of any property (except any such balance that constitutes (i) a trade payable or similar obligation to a trade creditor Incurred in the ordinary course of business, (ii) any earn-out obligations until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and (iii) liabilities accrued in the ordinary course of business), which purchase price is due more than six months after the date of placing the property in service or taking delivery and title thereto, (d) in respect of Capitalized Lease Obligations, or (e) representing any Hedging Obligations, if and to the extent that any of the foregoing indebtedness would appear as a liability on a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP;
(2) to the extent not otherwise included, any obligation of such Person to be liable for, or to pay, as obligor, guarantor or otherwise, the obligations referred to in clause (1) of another Person (other than by endorsement of negotiable instruments for collection in the ordinary course of business); and
(3) to the extent not otherwise included, Indebtedness of another Person secured by a Lien on any asset owned by such Person (whether or not such Indebtedness is assumed by such Person); provided , however , that the amount of such Indebtedness will be the lesser of: (a) the Fair Market Value (as determined in good faith by EPE Holdings) of such asset at such date of determination, and (b) the amount of such Indebtedness of such other Person;
provided , however , that notwithstanding the foregoing, Indebtedness shall be deemed not to include (1) Contingent Obligations Incurred in the ordinary course of business and not in respect of borrowed money; (2) deferred or prepaid revenues; (3) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed obligations of the respective seller; (4) Obligations under or in respect of Qualified Receivables Financing; (5) obligations under the Acquisition Documents; (6) Production Payments and Reserve Sales; (7) any obligation of a Person in respect of a Farm-In Agreement or similar arrangement whereby such Person agrees to pay all or a share of the drilling, completion or other expenses of an exploratory or development well (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interest therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well in exchange for an ownership interest in an oil or gas property; (8) any obligations under Hedging Obligations; provided that such agreements are entered into for bona fide hedging purposes of EPE Holdings or its Restricted Subsidiaries (as determined in good faith by the board of directors or senior management of EPE Holdings, whether or not accounted for as a hedge in accordance with GAAP) and, in the case of any foreign exchange contract, currency swap agreement, futures contract, option contract or other similar agreement, such agreements are related to business transactions of EPE Holdings or its Restricted Subsidiaries entered into in the ordinary course of business and, in the case of any interest rate protection agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement, such agreements substantially correspond in terms of notional amount, duration and interest rates, as applicable, to Indebtedness of EPE Holdings or its Restricted Subsidiaries Incurred without violation of this Indenture; and (9) in-kind obligations relating to net oil, natural gas liquids or natural gas balancing positions arising in the ordinary course of business.
Notwithstanding anything in this Indenture to the contrary, Indebtedness shall not include, and shall be calculated without giving effect to, the effects of Statement of Financial Accounting Standards No. 133 and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Indenture as a result of accounting for any embedded derivatives created by the terms of such Indebtedness; and any such amounts that would have constituted Indebtedness under this Indenture but for the application of this sentence shall not be deemed an Incurrence of Indebtedness under this Indenture.
Indenture means this Indenture as amended or supplemented from time to time.
Independent Financial Advisor means an accounting, appraisal or investment banking firm or consultant, in each case of nationally recognized standing, that is, in the good faith determination of EPE Holdings, qualified to perform the task for which it has been engaged.
Interest Payment Date has the meaning set forth in Exhibit A hereto.
Interest Period means the period commencing on and including an Interest Payment Date and ending on and including the day immediately preceding the next succeeding Interest Payment Date, with the exception that the first Interest Period shall commence on and include the Issue Date and end on and include June 14, 2013.
Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P, or an equivalent rating by any other Rating Agency.
Investment Grade Securities means:
(1) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof (other than Cash Equivalents),
(2) securities that have a rating equal to or higher than Baa3 (or equivalent) by Moodys and BBB- (or equivalent) by S&P, but excluding any debt securities or loans or advances between and among EPE Holdings and its Subsidiaries,
(3) investments in any fund that invests exclusively in investments of the type described in clauses (1) and (2) which fund may also hold immaterial amounts of cash pending investment and/or distribution, and
(4) corresponding instruments in countries other than the United States customarily utilized for high quality investments and in each case with maturities not exceeding two years from the date of acquisition.
Investments means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, trade credit and advances to customers and commission, travel and similar advances to officers, employees and consultants made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet of such Person in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of Unrestricted Subsidiary and Section 4.04:
(1) Investments shall include the portion (proportionate to EPE Holdings equity interest in such Subsidiary) of the Fair Market Value (as determined in good faith by EPE Holdings) of the net assets of a Subsidiary of EPE Holdings at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided , however , that upon a redesignation of such Subsidiary as a Restricted Subsidiary, EPE Holdings shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary equal to an amount (if positive) equal to:
(a) EPE Holdings Investment in such Subsidiary at the time of such redesignation less
(b) the portion (proportionate to EPE Holdings equity interest in such Subsidiary) of the Fair Market Value (as determined in good faith by EPE Holdings) of the net assets of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value (as determined in good faith by EPE Holdings) at the time of such transfer, in each case as determined in good faith by the Board of Directors of EPE Holdings.
Issue Date means December 21, 2012.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or similar encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien.
Management Group means the group consisting of the directors, executive officers and other management personnel of EPE Holdings or any direct or indirect parent of EPE Holdings, as the case may be, on the Issue Date together with (1) any new directors whose election by such boards of directors or whose nomination for election by the shareholders of EPE
Holdings or any direct or indirect parent of EPE Holdings, as applicable, was approved by a vote of a majority of the directors of EPE Holdings or any direct or indirect parent of EPE Holdings, as applicable, then still in office who were either directors on the Issue Date or whose election or nomination was previously so approved and (2) executive officers and other management personnel of EPE Holdings or any direct or indirect parent of EPE Holdings, as applicable, hired at a time when the directors on the Issue Date together with the directors so approved constituted a majority of the directors of EPE Holdings or any direct or indirect parent of EPE Holdings, as applicable.
Moodys means Moodys Investors Service, Inc. or any successor to the rating agency business thereof.
Net Income means, with respect to any Person, the net income (loss) of such Person and its Restricted Subsidiaries, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.
Net Proceeds means the aggregate cash proceeds received by EPE Holdings or any Restricted Subsidiary in respect of any Asset Sale (including, without limitation, any cash received in respect of or upon the sale or other disposition of any Designated Non-cash Consideration received in any Asset Sale and any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding the assumption by the acquiring person of Indebtedness relating to the disposed assets or other consideration received in any other non-cash form), net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration (including, without limitation, legal, accounting and investment banking fees, and brokerage and sales commissions), and any relocation expenses Incurred as a result thereof, taxes paid or payable as a result thereof (including Tax Distributions and after taking into account any available tax credits or deductions and any tax sharing arrangements related solely to such disposition), amounts required to be applied to the repayment of principal, premium (if any) and interest on Indebtedness required (other than pursuant to Section 4.06(b)(i)) to be paid as a result of such transaction, amounts paid in connection with the termination of Hedging Obligations related to Indebtedness repaid with such proceeds or hedging oil, natural gas and natural gas liquid production in notional volumes corresponding to the Oil and Gas Properties subject to such Asset Sale, and any deduction of appropriate amounts to be provided by EPE Holdings as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by EPE Holdings after such sale or other disposition thereof, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.
Net Working Capital means (a) all current assets of EPE Holdings and its Restricted Subsidiaries, except current assets from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business less (b) all current liabilities of EPE Holdings and its Restricted Subsidiaries, except current liabilities (i) associated with asset retirement obligations relating to Oil and Gas Properties, (ii) included in Indebtedness and (iii) any current liabilities from commodity price risk management activities arising in the
ordinary course of the Oil and Gas Business, in each case as set forth in the consolidated financial statements of EPE Holdings prepared in accordance with GAAP.
NYMEX means the New York Mercantile Exchange.
Obligations means any principal, interest, penalties, fees, indemnifications, reimbursements (including, without limitation, reimbursement obligations with respect to letters of credit and bankers acceptances), damages and other liabilities payable under the documentation governing any Indebtedness; provided that Obligations with respect to the Notes shall not include fees or indemnifications in favor of third parties other than the Trustee and the holders of the Notes.
Offering Memorandum means the offering memorandum, dated December 18, 2012, as supplemented or amended from time to time, relating to the issuance of the Initial Notes.
Officer means the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of EPE Holdings.
Officers Certificate means a certificate signed on behalf of EPE Holdings by two Officers of EPE Holdings, which meets the requirements set forth in this Indenture.
Oil and Gas Business means:
(1) the business of acquiring, exploring, exploiting, developing, producing, operating and disposing of interests in oil, natural gas, natural gas liquids, liquefied natural gas and other Hydrocarbons and mineral properties or products produced in association with any of the foregoing;
(2) the business of gathering, marketing, distributing, treating, processing, storing, refining, selling and transporting of any production from such interests or properties and products produced in association therewith and the marketing of oil, natural gas, other Hydrocarbons and minerals obtained from unrelated Persons;
(3) any other related energy business, including power generation and electrical transmission business, directly or indirectly, from oil, natural gas and other Hydrocarbons and minerals produced substantially from properties in which EPE Holdings or its Restricted Subsidiaries, directly or indirectly, participate;
(4) any business relating to oil field sales and service; and
(5) any business or activity relating to, arising from, or necessary, appropriate, incidental or ancillary to the activities described in the foregoing clauses (1) through (4) of this definition.
Oil and Gas Properties means all properties, including equity or other ownership interests therein, owned by a Person which contain or are believed to contain oil and gas reserves or other reserves of Hydrocarbons.
Opco means EP Energy LLC (formerly known as Everest Acquisition LLC), a Delaware limited liability company, together with its successors or assigns.
Opco 2020 Senior Notes means the 9.375% Senior Notes due 2020 issued by Opco and Everest Acquisition Finance Inc. on April 24, 2012 (including exchange notes issued in exchange therefor pursuant to a registration rights agreement dated April 24, 2012) pursuant to the Indenture dated as of April 24, 2012 by and among Opco and Everest Acquisition Finance Inc., the subsidiary guarantors party thereto, Wilmington Trust, National Association, as trustee, as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof (the Opco 2020 Senior Notes Indenture ).
Opco 2022 Senior Notes means the 7.750% Senior Notes due 2022 issued by Opco and Everest Acquisition Finance Inc. on August 13, 2012 (including exchange notes issued in exchange therefor pursuant to a registration rights agreement dated August 13, 2012) pursuant to the Indenture dated as of August 13, 2012 by and among Opco and Everest Acquisition Finance Inc., the subsidiary guarantors party thereto, Wilmington Trust, National Association, as trustee, as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof (the Opco 2022 Senior Notes Indenture ).
Opco Indentures means (i) the Opco Secured Notes Indenture, (ii) the Opco 2020 Senior Notes Indenture and (iii) the Opco 2022 Senior Notes Indenture.
Opco Notes means (i) the Opco Secure Notes, (ii) the Opco 2020 Senior Notes and (iii) the Opco 2022 Senior Notes.
Opco Security Documents means the security agreements, pledge agreements, collateral assignments and related agreements, as amended, supplemented, restated, renewed, refunded, replaced, restructured, repaid, refinanced or otherwise modified from time to time, creating security interests in the collateral described therein as contemplated by the Credit Agreement, the Opco Term Loan Facility, the Opco Secured Notes and the RBL Facility.
Opco Secured Notes means the 6.875% Senior Secured Notes due 2019 issued by Opco and Everest Acquisition Finance Inc. on April 24, 2012 (including exchange notes issued in exchange therefor pursuant to a registration rights agreement dated April 24, 2012) pursuant to the Indenture dated as of April 24, 2012 by and among Opco and Everest Acquisition Finance Inc., the subsidiary guarantors party thereto, Wilmington Trust, National Association, as trustee, as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof (the Opco Secured Notes Indenture).
Opco Senior Notes means the Opco 2020 Senior Notes and the Opco 2022 Senior Notes.
Opco Term Loan Facility means the term loan agreement, dated as of April 24, 2012, by and among Opco, as borrower, the lenders party thereto in their capacities as lenders
thereunder and Citibank, N.A., as administrative agent and collateral agent, including any guarantees, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications or restatements thereof.
Opinion of Counsel means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to EPE Holdings.
Pari Passu Indebtedness means: (a) with respect to an Issuer, the Notes and any Indebtedness which ranks pari passu in right of payment to the Notes; and (b) with respect to any Subsidiary Guarantor, its Subsidiary Guarantee and any Indebtedness which ranks pari passu in right of payment to such Subsidiary Guarantors Subsidiary Guarantee.
Partial PIK Interest has the meaning set forth in Exhibit A hereto.
Permitted Business Investment means any Investment and/or expenditure made in the ordinary course of business or which are of a nature that is or shall have become customary in the Oil and Gas Business generally or in the geographic region in which such activities occur, including investments or expenditures for actively exploiting, exploring for, acquiring, developing, producing, processing, gathering, marketing, distributing, storing, or transporting oil, natural gas or other Hydrocarbons and minerals (including with respect to plugging and abandonment) through agreements, transactions, interests or arrangements which permit one to share risks or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties, including:
(1) Investments in ownership interests (including equity or other ownership interests) in oil, natural gas, other Hydrocarbons and minerals properties, liquefied natural gas facilities, processing facilities, gathering systems, pipelines, storage facilities or related systems or ancillary real property interests;
(2) Investments in the form of or pursuant to operating agreements, working interests, royalty interests, mineral leases, processing agreements, Farm-In Agreements, Farm-Out Agreements, contracts for the sale, transportation or exchange of oil, natural gas, other Hydrocarbons and minerals, production sharing agreements, participation agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling agreements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), subscription agreements, stock purchase agreements, stockholder agreements and other similar agreements (including for limited liability companies) with third parties; and
(3) Investments in direct or indirect ownership interests in drilling rigs and related equipment, including, without limitation, transportation equipment.
Permitted Holders means, at any time, each of (i) the Sponsors, (ii) the Management Group, (iii) any Person that has no material assets other than the Capital Stock of EPE Holdings and, directly or indirectly, holds or acquires 100% of the total voting power of the Voting Stock of EPE Holdings, and of which no other Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), other than
any of the other Permitted Holders specified in clauses (i) and (ii) above, holds more than 50% of the total voting power of the Voting Stock thereof and (iv) any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision) the members of which include any of the Permitted Holders specified in clauses (i) and (ii) above and that, directly or indirectly, hold or acquire beneficial ownership of the Voting Stock of EPE Holdings (a Permitted Holder Group), so long as (1) each member of the Permitted Holder Group has voting rights proportional to the percentage of ownership interests held or acquired by such member and (2) no Person or other group (other than Permitted Holders specified in clauses (i) and (ii) above) beneficially owns more than 50% on a fully diluted basis of the Voting Stock held by the Permitted Holder Group. Any Person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of this Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder.
Permitted Investments means:
(1) any Investment in EPE Holdings or any Restricted Subsidiary;
(2) any Investment in Cash Equivalents or Investment Grade Securities;
(3) any Investment by EPE Holdings or any Restricted Subsidiary in a Person if as a result of such Investment (a) such Person becomes a Restricted Subsidiary, or (b) such Person, in one transaction or a series of related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, EPE Holdings or a Restricted Subsidiary;
(4) any Investment in securities or other assets not constituting Cash Equivalents and received in connection with an Asset Sale made pursuant to Section 4.06 or any other disposition of assets not constituting an Asset Sale;
(5) any Investment existing on, or made pursuant to binding commitments existing on, the Issue Date or an Investment consisting of any extension, modification or renewal of any Investment existing on the Issue Date; provided that the amount of any such Investment may be increased (x) as required by the terms of such Investment as in existence on the Issue Date or (y) as otherwise permitted under this Indenture;
(6) advances to employees, taken together with all other advances made pursuant to this clause (6), not to exceed $25.0 million at any one time outstanding;
(7) any Investment acquired by EPE Holdings or any Restricted Subsidiary (a) in exchange for any other Investment or accounts receivable held by EPE Holdings or such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable, or (b) as a result of a foreclosure by EPE Holdings or any Restricted Subsidiary with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;
(8) Hedging Obligations permitted under Section 4.03(b)(x);
(9) any Investment by EPE Holdings or any Restricted Subsidiary in a Similar Business having an aggregate Fair Market Value (as determined in good faith by EPE Holdings), taken together with all other Investments made pursuant to this clause (9) that are at that time outstanding, not to exceed the greater of (x) $350.0 million and (y) 5% of Adjusted Consolidated Net Tangible Assets at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided , however , that if any Investment pursuant to this clause (9) is made in any Person that is not EPE Holdings or a Restricted Subsidiary at the date of the making of such Investment and such Person becomes EPE Holdings or a Restricted Subsidiary after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (9) for so long as such Person continues to be EPE Holdings or a Restricted Subsidiary;
(10) additional Investments by EPE Holdings or any Restricted Subsidiary having an aggregate Fair Market Value (as determined in good faith by EPE Holdings), taken together with all other Investments made pursuant to this clause (10) that are at that time outstanding, not to exceed the greater of (x) $350.0 million and (y) 5% of Adjusted Consolidated Net Tangible Assets at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided , however , that if any Investment pursuant to this clause (10) is made in any Person that is not EPE Holdings or a Restricted Subsidiary at the date of the making of such Investment and such Person becomes EPE Holdings or a Restricted Subsidiary after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (10) for so long as such Person continues to be EPE Holdings or a Restricted Subsidiary;
(11) loans and advances to officers, directors or employees for business-related travel expenses, moving expenses and other similar expenses, in each case Incurred in the ordinary course of business or consistent with past practice or to fund such persons purchase of Equity Interests of EPE Holdings or any direct or indirect parent of EPE Holdings;
(12) Investments the payment for which consists of Equity Interests of EPE Holdings (other than Disqualified Stock) or any direct or indirect parent of EPE Holdings, as applicable; provided , however , that such Equity Interests will not increase the amount available for Restricted Payments under clause (3) of the definition of Cumulative Credit;
(13) any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of Section 4.07(b) (except transactions described in clauses (ii), (iv), (vi), (ix)(B) and (xvi) of Section 4.07(b));
(14) Investments consisting of the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;
(15) (x) guarantees issued in accordance with Section 4.03 and Section 4.11 including, without limitation, any guarantee or other obligation issued or Incurred under the Credit Agreement in connection with any letter of credit issued for the account of EPE Holdings or any of its Subsidiaries (including with respect to the issuance of, or payments in respect of drawings under, such letters of credit) and (y) guarantees of performance or other obligations (other than Indebtedness) arising in the ordinary course in the Oil and Gas Business, including obligations under Hydrocarbon exploration, development, joint operating and related agreements and licenses, concessions or operating leases related to the Oil and Gas Business;
(16) Investments consisting of or to finance purchases and acquisitions of inventory, supplies, materials, services or equipment or purchases of contract rights or licenses or leases of intellectual property;
(17) any Investment in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Financing, including Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Receivables Financing or any related Indebtedness;
(18) any Investment in an entity which is not a Restricted Subsidiary to which a Restricted Subsidiary sells accounts receivable pursuant to a Receivables Financing;
(19) additional Investments in joint ventures not to exceed, at any one time in the aggregate outstanding under this clause (19), $100.0 million (with the Fair Market Value of each Investment being measured at the time such Investment is made and without giving effect to subsequent changes in value); provided , however , that if any Investment pursuant to this clause (19) is made in any Person that is not EPE Holdings or a Restricted Subsidiary at the date of the making of such Investment and such Person becomes EPE Holdings or a Restricted Subsidiary after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (19) for so long as such Person continues to be EPE Holdings or a Restricted Subsidiary;
(20) Investments of a Restricted Subsidiary acquired after the Issue Date or of an entity merged into, amalgamated with, or consolidated with EPE Holdings or a Restricted Subsidiary in a transaction that is not prohibited by Section 5.01 after the Issue Date to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation;
(21) any Investment in any Subsidiary of EPE Holdings or any joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business; and
(22) Permitted Business Investments.
Permitted Liens means, with respect to any Person:
(1) pledges or deposits by such Person under workmens compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure plugging and abandonment obligations or public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business;
(2) Liens imposed by law, such as landlords, carriers, warehousemens, mechanics, materialmens, repairmens, construction or other like Liens securing obligations that are not overdue by more than 30 days or that are being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review;
(3) Liens for taxes, assessments or other governmental charges not yet due or payable or that are being contested in good faith by appropriate proceedings;
(4) Liens in favor of issuers of performance and surety bonds or bid bonds or with respect to other regulatory requirements or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business;
(5) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(6) (A) Liens on assets of a Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary permitted to be Incurred pursuant to Section 4.03;
(B) Liens securing Indebtedness Incurred under the Credit Agreement, including any letter of credit facility relating thereto, that was permitted to be Incurred pursuant to Section 4.03(b)(i);
(C) Liens securing Indebtedness Incurred under the RBL Facility in excess of $2,000 million (and solely to the extent of such excess), including any letter of credit facility relating thereto, that was permitted to be Incurred under Section 4.03; and
(D) Liens securing Indebtedness permitted to be Incurred pursuant to clause (ii)(B), (iv), (xii), (xvi) or (xx) of Section 4.03(b) ( provided that in the case of clause (xx), such Lien does not extend to the property or assets of any Subsidiary of EPE Holdings other than a Restricted Subsidiary that is not a Subsidiary Guarantor).
(7) Liens existing on the Issue Date (other than Liens in favor of the lenders under the Credit Agreement, the holders of the Opco Secured Notes or the lenders under the Opco Term Loan Facility);
(8) Liens on assets, property or shares of stock of a Person at the time such Person becomes a Subsidiary; provided , however , that such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided , further , however , that such Liens may not extend to any other property owned by EPE Holdings or any Restricted Subsidiary;
(9) Liens on assets or property at the time EPE Holdings or a Restricted Subsidiary acquired the assets or property, including any acquisition by means of a merger, amalgamation or consolidation with or into EPE Holdings or any Restricted Subsidiary; provided , however , that such Liens (other than Liens to secure Indebtedness Incurred pursuant to Section 4.03(b)(xvi)) are not created or Incurred in connection with, or in contemplation of, such acquisition; provided , further , however , that the Liens (other than Liens to secure Indebtedness Incurred pursuant to Section 4.03(b)(xvi)) may not extend to any other property owned by EPE Holdings or any Restricted Subsidiary (other than pursuant to after-acquired property clauses in effect with respect to such Lien at the time of acquisition on property of the type that would have been subject to such Lien notwithstanding the occurrence of such acquisition);
(10) Liens securing Indebtedness or other obligations of EPE Holdings or a Restricted Subsidiary owing to EPE Holdings or another Restricted Subsidiary permitted to be Incurred in accordance with Section 4.03;
(11) Liens securing Hedging Obligations not Incurred in violation of this Indenture; provided that with respect to Hedging Obligations relating to Indebtedness, such Lien extends only to the property securing such Indebtedness;
(12) Liens on specific items of inventory or other goods and proceeds of any Person securing such Persons obligations in respect of bankers acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(13) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of EPE Holdings or any of the Restricted Subsidiaries;
(14) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by EPE Holdings and the Restricted Subsidiaries in the ordinary course of business;
(15) Liens in favor of EPE Holdings or any Restricted Subsidiary;
(16) Liens on accounts receivable and related assets of the type specified in the definition of Receivables Financing Incurred in connection with a Qualified Receivables Financing;
(17) deposits made in the ordinary course of business to secure liability to insurance carriers;
(18) Liens on the Equity Interests of Unrestricted Subsidiaries;
(19) grants of software and other technology licenses in the ordinary course of business;
(20) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (7), (8), (9), (10), (11) and (15); provided , however , that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien ( plus improvements on such property), and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (6), (7), (8), (9), (10), (11) and (15) at the time the original Lien became a Permitted Lien under this Indenture, and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement; provided further, however, that in the case of any Liens to secure any refinancing, refunding, extension or renewal of Indebtedness secured by a Lien referred to in clause (6)(B), the principal amount of any Indebtedness Incurred for such refinancing, refunding, extension or renewal shall be deemed secured by a Lien under clause (6)(B) and not this clause (20) for purposes of determining the principal amount of Indebtedness outstanding under clause (6)(B);
(21) Liens on equipment of EPE Holdings or any Restricted Subsidiary granted in the ordinary course of business to EPE Holdings or such Restricted Subsidiarys client at which such equipment is located;
(22) judgment and attachment Liens not giving rise to an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made;
(23) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business;
(24) Liens Incurred to secure cash management services or to implement cash pooling arrangements in the ordinary course of business;
(25) other Liens securing obligations the outstanding principal amount of which does not, taken together with the principal amount of all other obligations secured by Liens Incurred under this clause (25) that are at that time outstanding, exceed the greater of $350.0 million and 5% Adjusted Consolidated Net Tangible Assets at the time of Incurrence;
(26) any encumbrance or restriction (including put and call arrangements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;
(27) any amounts held by a trustee in the funds and accounts under an indenture securing any revenue bonds issued for the benefit of EPE Holdings or any Restricted Subsidiary, under any indenture or other debt agreement issued in escrow pursuant to customary escrow arrangements pending the release thereof, or under any indenture or other debt agreement pursuant to customary discharge, redemption or defeasance provisions;
(28) Liens arising by virtue of any statutory or common law provisions relating to bankers Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depository or financial institution;
(29) Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with any appeal or other proceedings for review;
(30) Liens (i) in favor of credit card companies pursuant to agreements therewith and (ii) in favor of customers;
(31) Liens in respect of Production Payments and Reserve Sales;
(32) Liens arising under Farm-Out Agreements, Farm-In Agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of Hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, joint venture agreements, partnership agreements, operating agreements, royalties, royalty trusts, master limited partnerships, working interests, net profits interests, joint interest billing arrangements, participation agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, and other agreements which are customary in the Oil and Gas Business; provided , however , in all instances that such Liens are limited to the assets that are the subject of the relevant agreement, program, order, trust, partnership or contract;
(33) Liens on pipelines or pipeline facilities that arise by operation of law;
(34) any (a) interest or title of a lessor or sublessor under any lease, liens reserved in oil, gas or other Hydrocarbons, minerals, leases for bonus, royalty or rental payments and for compliance with the terms of such leases; (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to (including, without limitation, ground leases or other prior leases of the demised premises, mortgages, mechanics liens, tax liens and easements); or (c) subordination of the interest of the lessee or sublessee under such lease to any restrictions or encumbrance referred to in the preceding clause (b); and
(35) Liens pursuant to the Opco Security Documents.
Person means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
PIK Interest has the meaning set forth in Exhibit A hereto.
Preferred Stock means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution, or winding up.
Production Payments and Reserve Sales means the grant or transfer by EPE Holdings or a Restricted Subsidiary to any Person of a royalty, overriding royalty, net profits interest, production payment (whether volumetric or dollar-denominated), partnership or other interest in Oil and Gas Properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such production or proceeds of production, subject to the obligation of the grantor or transferor to operate and maintain, or cause the subject interests to be operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business, including any such grants or transfers.
Qualified Receivables Financing means any Receivables Financing of a Receivables Subsidiary that meets the following conditions:
(1) the Board of Directors of EPE Holdings shall have determined in good faith that such Qualified Receivables Financing (including financing terms, covenants, termination events and other provisions) is in the aggregate economically fair and reasonable to EPE Holdings and the Receivables Subsidiary;
(2) all sales of accounts receivable and related assets to the Receivables Subsidiary are made at Fair Market Value (as determined in good faith by EPE Holdings); and
(3) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by EPE Holdings) and may include Standard Securitization Undertakings.
The grant of a security interest in any accounts receivable of EPE Holdings or any Restricted Subsidiary (other than a Receivables Subsidiary) to secure Bank Indebtedness, Indebtedness in respect of the Notes or any Refinancing Indebtedness with respect to the Notes shall not be deemed a Qualified Receivables Financing.
Rating Agency means (1) each of Moodys and S&P and (2) if Moodys or S&P ceases to rate the Notes for reasons outside of EPE Holdings control, a nationally recognized statistical rating organization within the meaning of Rule 15cs-1(c)(2)(vi)(F) under
the Exchange Act selected by EPE Holdings or any direct or indirect parent of EPE Holdings as a replacement agency for Moodys or S&P, as the case may be.
RBL Facility means the credit agreement dated as of May 24, 2012 by and among Opco, the guarantors named therein, the financial institutions named therein, and JPMorgan Chase Bank, N.A., as administrative agent, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or other lenders), restructured, repaid, refunded, refinanced or otherwise modified from time to time pursuant to any amendment thereto or pursuant to a new loan agreement with other lenders, governed by a borrowing base set by the lenders, extending the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or under any successor or replacement agreement or increasing the amount loaned thereunder or altering the maturity thereof.
Receivables Fees means distributions or payments made directly or by means of discounts with respect to any participation interests issued or sold in connection with, and all other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Receivables Financing.
Receivables Financing means any transaction or series of transactions that may be entered into by EPE Holdings or any of its Subsidiaries pursuant to which EPE Holdings or any of its Subsidiaries may sell, convey or otherwise transfer to (a) a Receivables Subsidiary (in the case of a transfer by EPE Holdings or any of its Subsidiaries); and (b) any other Person (in the case of a transfer by a Receivables Subsidiary), or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of EPE Holdings or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable and any Hedging Obligations entered into by EPE Holdings or any such Subsidiary in connection with such accounts receivable.
Receivables Repurchase Obligation means any obligation of a seller of receivables in a Qualified Receivables Financing to repurchase receivables arising as a result of a breach of a representation, warranty or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defense, dispute, off-set or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller.
Receivables Subsidiary means a Wholly Owned Restricted Subsidiary (or another Person formed for the purposes of engaging in Qualified Receivables Financing with EPE Holdings in which EPE Holdings or any Subsidiary of EPE Holdings makes an Investment and to which EPE Holdings or any such Subsidiary transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable of EPE Holdings and its Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or
related to such business, and which is designated by the Board of Directors of EPE Holdings (as provided below) as a Receivables Subsidiary and:
(a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by EPE Holdings or any other Subsidiary of EPE Holdings (excluding guarantees of obligations (other than the principal of and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates EPE Holdings or any other Subsidiary in any way other than pursuant to Standard Securitization Undertakings, or (iii) subjects any property or asset of EPE Holdings or any other Subsidiary, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings;
(b) with which neither EPE Holdings nor any Subsidiary has any material contract, agreement, arrangement or understanding other than on terms which EPE Holdings reasonably believes to be no less favorable to EPE Holdings or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of EPE Holdings; and
(c) to which neither EPE Holdings nor any Subsidiary has any obligation to maintain or preserve such entitys financial condition or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of EPE Holdings shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of EPE Holdings giving effect to such designation and an Officers Certificate certifying that such designation complied with the foregoing conditions.
Record Date has the meaning specified in Exhibit A hereto.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Subsidiary means, with respect to any Person, any Subsidiary of such Person other than an Unrestricted Subsidiary of such Person. Unless otherwise indicated in this Indenture, all references to Restricted Subsidiaries shall mean Restricted Subsidiaries of EPE Holdings.
Sale/Leaseback Transaction means an arrangement relating to property now owned or hereafter acquired by EPE Holdings or a Restricted Subsidiary whereby EPE Holdings or such Restricted Subsidiary transfers such property to a Person and EPE Holdings or such Restricted Subsidiary leases it from such Person, other than leases between EPE Holdings and a Restricted Subsidiary or between Restricted Subsidiaries.
S&P means Standard & Poors Ratings Group or any successor to the rating agency business thereof.
SEC means the Securities and Exchange Commission.
Secured Indebtedness means any Consolidated Total Indebtedness secured by a Lien.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Significant Subsidiary means any Restricted Subsidiary that would be a Significant Subsidiary of EPE Holdings within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC (or any successor provision).
Similar Business means a business, the majority of whose revenues are derived from the activities of EPE Holdings and its Subsidiaries as of the Issue Date or any business or activity that is reasonably similar or complementary thereto or a reasonable extension, development or expansion thereof or ancillary thereto.
Sponsor Management Agreement means the management agreement between certain of the management companies associated with the Sponsors, EP Energy Holding Company and EPE Acquisition, LLC.
Sponsors means (i) affiliates of each of investment funds managed by Apollo Global Management, LLC, Access Industries, Inc. and Riverstone Holdings, L.P. and other investors party to that certain Interim Investors Agreement dated as of February 24, 2012 (the Interim Investors Agreement ) and any other investors that became party to the Interim Investors Agreement prior to or upon the consummation of the Acquisition and any of their respective Affiliates other than any portfolio companies (collectively, the Equity Investor ) and (ii) any Person that forms a group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision) with the Equity Investor; provided that the Equity Investor (x) owns a majority of the voting power and (y) controls a majority of the Board of Directors of EPE Holdings.
Standard Securitization Undertakings means representations, warranties, covenants, indemnities and guarantees of performance entered into by EPE Holdings or any Subsidiary thereof which EPE Holdings has determined in good faith to be customary in a Receivables Financing including, without limitation, those relating to the servicing of the assets of a Receivables Subsidiary, it being understood that any Receivables Repurchase Obligation shall be deemed to be a Standard Securitization Undertaking.
Stated Maturity means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred).
Subordinated Indebtedness means (a) with respect to an Issuer, any Indebtedness of such Issuer which is by its terms subordinated in right of payment to the Notes, and (b) with respect to any Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor which is by its terms subordinated in right of payment to its Subsidiary Guarantee.
Subsidiary means, with respect to any Person, (1) any corporation, association or other business entity (other than a partnership, joint venture or limited liability company) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, and (2) any partnership, joint venture or limited liability company of which (x) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (y) such Person or any Subsidiary of such Person is a controlling general partner or otherwise controls such entity.
Subsidiary Guarantee means any guarantee of the obligations of the Issuers under this Indenture and the Notes by any Subsidiary Guarantor in accordance with the provisions of this Indenture.
Subsidiary Guarantor means any Subsidiary that Incurs a Subsidiary Guarantee; provided that upon the release or discharge of such Person from its Subsidiary Guarantee in accordance with this Indenture, such Subsidiary ceases to be a Subsidiary Guarantor.
Suspension Period means the period of time between a Covenant Suspension Event and the related Reversion Date.
Tax Distributions means any distributions described in Section 4.04(b)(xii).
TIA means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date of this Indenture.
Total Assets means the total consolidated assets of EPE Holdings and the Restricted Subsidiaries, as shown on the most recent balance sheet of EPE Holdings, without giving effect to any amortization of the amount of intangible assets since December 31, 2011, calculated on a pro forma basis after giving effect to any subsequent acquisition or disposition of a Person or business.
Transactions means the transactions described under SummaryRecent Events in the Offering Memorandum.
Treasury Rate means, as of the applicable redemption date, as determined by the Issuers, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to such redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such redemption date to December 15, 2013; provided , however , that if the period from such redemption date to December 15, 2013, as applicable, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
Trustee means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor.
Trust Officer means:
(1) any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such persons knowledge of and familiarity with the particular subject, and
(2) who shall have direct responsibility for the administration of this Indenture.
Uniform Commercial Code or UCC means the New York Uniform Commercial Code as in effect from time to time.
Unrestricted Subsidiary means:
(1) any Subsidiary of EPE Holdings that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of EPE Holdings in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary;
EPE Holdings may designate any Subsidiary of EPE Holdings (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on any property of, EPE Holdings or any other Subsidiary of EPE Holdings that is not a Subsidiary of the Subsidiary to be so designated; provided , however , that the Subsidiary to be so designated and its Subsidiaries do not at the time of designation have and do not thereafter Incur any Indebtedness pursuant to which the lender has recourse to any of the assets of EPE Holdings or any of the Restricted Subsidiaries (other than pursuant to customary Liens on related arrangements under any oil and gas royalty trust or master limited partnership); provided , further , however , that either:
(a) the Subsidiary to be so designated has total consolidated assets of $1,000 or less; or
(b) if such Subsidiary has consolidated assets greater than $1,000, then such designation would be permitted under Section 4.04.
EPE Holdings may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided , however , that immediately after giving effect to such designation:
(x) (1) EPE Holdings could Incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.03(a) or (2) the Fixed Charge
Coverage Ratio of EPE Holdings and its Restricted Subsidiaries would be greater than such ratio immediately prior to such designation, in each case on a pro forma basis taking into account such designation, and
(y) no Event of Default shall have occurred and be continuing.
Any such designation by EPE Holdings shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors or any committee thereof of EPE Holdings giving effect to such designation and an Officers Certificate certifying that such designation complied with the foregoing provisions.
Notwithstanding the foregoing, EPE Holdings may not designate Opco as an Unrestricted Subsidiary.
U.S. Government Obligations means securities that are:
(1) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged, or
(2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America,
which, in each case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depository receipt.
Volumetric Production Payments means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertaking and obligations in connection therewith.
Voting Stock of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness or Disqualified Stock or Preferred Stock, as the case may be, at any date, the quotient obtained by dividing (1) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock or Preferred Stock multiplied by the amount of such payment, by (2) the sum of all such payments.
Wholly Owned Restricted Subsidiary is any Wholly Owned Subsidiary that is a Restricted Subsidiary.
Wholly Owned Subsidiary of any Person means a Subsidiary of such Person 100% of the outstanding Capital Stock or other ownership interests of which (other than directors qualifying shares or shares required pursuant to applicable law) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02 Other Definitions .
Term |
|
Section |
$ |
|
1.03(j) |
Affiliate Transaction |
|
4.07(a) |
Agent Members |
|
Appendix A |
Asset Sale Offer |
|
4.06(b)(iii) |
Bankruptcy Law |
|
6.01 |
Change of Control Offer |
|
4.08(b) |
Co-Issuer |
|
Preamble |
covenant defeasance option |
|
8.01(b) |
Covenant Suspension Event |
|
4.15 |
Custodian |
|
6.01 |
Definitive Note |
|
Appendix A |
Depository |
|
Appendix A |
Event of Default |
|
6.01 |
Excess Proceeds |
|
4.06(b)(iii) |
Global Notes |
|
Appendix A |
Global Notes Legend |
|
Appendix A |
EPE Holdings |
|
Preamble |
IAI |
|
Appendix A |
Increased Amount |
|
4.12(d) |
Initial Notes |
|
Preamble |
Initial Purchasers |
|
Appendix A |
Issuers |
|
Preamble |
legal defeasance option |
|
8.01(b) |
Notes |
|
Preamble |
Notes Custodian |
|
Appendix A |
Notice of Default |
|
6.01 |
Offer Period |
|
4.06(d) |
Paying Agent |
|
2.04(a) |
PIK Notes |
|
2.01 |
PIK Payment |
|
2.01 |
protected purchaser |
|
2.08 |
QIB |
|
Appendix A |
Refinancing Indebtedness |
|
4.03(b)(xv) |
Refunding Capital Stock |
|
4.04(b)(ii) |
Registrar |
|
2.04(a) |
Regulation S |
|
Appendix A |
Term |
|
Section |
Regulation S Global Notes |
|
Appendix A |
Regulation S Notes |
|
Appendix A |
Reporting Entity |
|
4.02(c) |
Restricted Notes Legend |
|
Appendix A |
Restricted Payments |
|
4.04(a) |
Restricted Period |
|
Appendix A |
Retired Capital Stock |
|
4.04(b)(ii) |
Reversion Date |
|
4.15 |
Rule 144A |
|
Appendix A |
Rule 144A Global Notes |
|
Appendix A |
Rule 144A Notes |
|
Appendix A |
Rule 501 |
|
Appendix A |
Second Commitment |
|
4.06(b)(iii) |
Subsidiary Guaranteed Obligations |
|
12.01(a) |
Successor Holdco |
|
5.01(a)(i) |
Successor Subsidiary Guarantor |
|
5.01(b)(i) |
Suspended Covenants |
|
4.15 |
Transfer |
|
5.01(b)(ii) |
Transfer Restricted Definitive Notes |
|
Appendix A |
Transfer Restricted Global Notes |
|
Appendix A |
Transfer Restricted Notes |
|
Appendix A |
U.S. dollars |
|
1.03(j) |
Unrestricted Definitive Notes |
|
Appendix A |
Unrestricted Global Notes |
|
Appendix A |
SECTION 1.03 Rules of Construction . Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) or is not exclusive;
(d) including means including without limitation;
(e) words in the singular include the plural and words in the plural include the singular;
(f) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness;
(g) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP;
(h) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater;
(i) unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP;
(j) $ and U.S. dollars each refer to United States dollars, or such other money of the United States of America that at the time of payment is legal tender for payment of public and private debts; and
(k) this Indenture is not subject to the mandatory provisions of the TIA which are not incorporated by reference in or made a part of this Indenture unless specifically provided herein.
ARTICLE II
THE NOTES
SECTION 2.01 Amount of Notes . The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture on the Issue Date is $350,000,000.
In connection with the payment of PIK Interest or Partial PIK Interest in respect of the Notes, the Issuers are entitled to, without the consent of the holders, increase the outstanding principal amount of the Notes or issue additional Notes (the PIK Notes ) under this Indenture on the same terms and conditions as the Notes (in each case, the PIK Payment ). Unless the context otherwise requires, for all purposes of this Indenture and the Notes, references to the Notes includes any PIK Notes actually issued and references to principal amount of the Notes include any increase in the principal amount of the outstanding Notes (including PIK Notes) as a result of the payment of PIK Interest or Partial PIK Interest.
The Issuers may from time to time after the Issue Date issue Additional Notes under this Indenture in an unlimited principal amount, so long as (i) the Incurrence of the Indebtedness represented by such Additional Notes is at such time permitted by Section 4.03 and (ii) such Additional Notes are issued in compliance with the other applicable provisions of this Indenture. With respect to any Additional Notes issued after the Issue Date (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 2.07, 2.08, 2.09, 3.06, 4.06(e), 4.08(c) or Appendix A), there shall be (a) established in or pursuant to a resolution of the Board of Directors and (b) (i) set forth or determined in the manner provided in an Officers Certificate or (ii) established in one or more indentures supplemental hereto, prior to the issuance of such Additional Notes:
(1) the aggregate principal amount of such Additional Notes which may be authenticated and delivered under this Indenture;
(2) the issue price and issuance date of such Additional Notes, including the date from which interest on such Additional Notes shall accrue; and
(3) if applicable, that such Additional Notes shall be issuable in whole or in part in the form of one or more Global Notes and, in such case, the respective depositaries for such Global Notes, the form of any legend or legends which shall be borne by such Global Notes in addition to or in lieu of those set forth in Exhibit A hereto and any circumstances in addition to or in lieu of those set forth in Section 2.2 of Appendix A in which any such Global Note may be exchanged in whole or in part for Additional Notes registered, or any transfer of such Global Note in whole or in part may be registered, in the name or names of Persons other than the depositary for such Global Note or a nominee thereof.
If any of the terms of any Additional Notes are established by action taken pursuant to a resolution of the Board of Directors, a copy of an appropriate record of such action shall be certified by the Secretary or any Assistant Secretary of EPE Holdings and delivered to the Trustee at or prior to the delivery of the Officers Certificate or an indenture supplemental hereto setting forth the terms of the Additional Notes.
The Initial Notes and any PIK Notes, including any Additional Notes, may, at the Issuers option, be treated as a single class for all purposes under this Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase; provided that if the Additional Notes are not fungible with the Initial Notes for U.S. federal income tax purposes, the Additional Notes will have a separate CUSIP number, if applicable.
SECTION 2.02 Form and Dating . Provisions relating to the Initial Notes are set forth in Appendix A , which is hereby incorporated in and expressly made a part of this Indenture. The (i) Initial Notes and the Trustees certificate of authentication and (ii) any Additional Notes (if issued as Transfer Restricted Notes) and the Trustees certificate of authentication shall each be substantially in the form of Exhibit A hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Issuers or any Subsidiary Guarantor is subject, if any, or usage ( provided that any such notation, legend or endorsement is in a form acceptable to the Issuer). Each Note shall be dated the date of its authentication. The Notes shall be issuable only in registered form without interest coupons and in denominations of $2,000 and any integral multiples of $1,000 in excess thereof; provided that Notes may be issued in denominations of less than $2,000 solely to accommodate book-entry positions that have been created by the Depository in denominations of less than $2,000; provided further that PIK Notes will be issued in minimum denominations of $1.00 and integral multiples of $1.00, and thereafter, the minimum denominations of the Notes will be $1.00 and integral multiples of $1.00 in excess thereof.
SECTION 2.03 Execution and Authentication . The Trustee shall authenticate and make available for delivery upon a written order of the Issuers signed by one Officer of each Issuer (a) Initial Notes for original issue on the date hereof in an aggregate principal amount of $350,000,000, (b) subject to the terms of this Indenture, Additional Notes in an aggregate principal amount to be determined at the time of issuance and specified therein and
(c) any PIK Notes issued in payment of PIK Interest or Partial PIK Interest. Such order shall specify the amount of separate Note certificates to be authenticated, the principal amount of each of the Notes to be authenticated, the date on which the original issue of Notes is to be authenticated, whether the Notes are to be Initial Notes, Additional Notes or PIK Notes, the registered holder of each of the Notes and delivery instructions. Notwithstanding anything to the contrary in this Indenture or Appendix A, any issuance of Additional Notes after the Issue Date shall be in a principal amount of at least $2,000 and integral multiples of $1,000 in excess thereof and any issuance of PIK Notes shall be in principal amount of at least $1.00 and integral multiples of $1.00 in excess thereof.
One Officer shall sign the Notes for each of the Issuers by manual or facsimile signature.
If an Officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless.
A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee may appoint one or more authenticating agents reasonably acceptable to EPE Holdings to authenticate the Notes. Any such appointment shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to EPE Holdings. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands.
On any Interest Payment Date on which the Issuers pay PIK Interest or Partial PIK Interest with respect to a Global Note, the Trustee shall increase the principal amount of such Global Note by an amount equal to the interest payable, rounded up to the nearest $1.00, for the relevant Interest Period on the principal amount of such Global Note as of the relevant Record Date for such Interest Payment Date, to the credit of the holders on such Record Date, pro rata to the extent practicable, or by such other method that the Depository deems appropriate, in accordance with their interests, and an adjustment shall be made on the books and records of the Trustee (if it is then the Note Custodian for such Global Note) with respect to such Global Note, by the Trustee or the Note Custodian, to reflect such increase. On any Interest Payment Date on which the Issuers pay PIK Interest or Partial PIK Interest by issuing certificated PIK Notes, the principal amount of any such PIK Notes issued to any holder, for the relevant Interest Period as of the relevant Record Date for such Interest Payment Date, shall be rounded up to the nearest $1.00.
SECTION 2.04 Registrar and Paying Agent .
(a) The Issuers shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange (the Registrar ) and (ii) an office or agency where Notes may be presented for payment (the Paying Agent ). The Registrar shall
keep a register of the Notes and of their transfer and exchange. The Issuers may have one or more co-registrars and one or more additional paying agents. The term Registrar includes any co-registrars. The term Paying Agent includes the Paying Agent and any additional paying agents. The Issuers initially appoint the Trustee as Registrar, Paying Agent and the Notes Custodian with respect to the Global Notes.
(b) The Issuers may enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such agent. EPE Holdings shall notify the Trustee in writing of the name and address of any such agent. If the Issuers fail to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. EPE Holdings or any of its domestically organized Wholly Owned Subsidiaries may act as Paying Agent or Registrar.
(c) The Issuers may remove any Registrar or Paying Agent upon written notice to such Registrar or Paying Agent and to the Trustee; provided , however , that no such removal shall become effective until (i) if applicable, acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into by the Issuers and such successor Registrar or Paying Agent, as the case may be, and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (i) above. The Registrar or Paying Agent may resign at any time upon written notice to the Issuers and the Trustee; provided , however , that the Trustee may resign as Paying Agent or Registrar only if the Trustee also resigns as Trustee in accordance with Section 7.08.
SECTION 2.05 Paying Agent to Hold Money in Trust . Prior to each due date of the principal of and interest on any Note, the Issuers shall deposit with each Paying Agent (or if EPE Holdings or a Wholly Owned Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay such principal and interest when so becoming due. The Issuers shall require each Paying Agent (other than the Trustee) to agree in writing that a Paying Agent shall hold in trust for the benefit of holders or the Trustee all money held by a Paying Agent for the payment of principal of and interest on the Notes, and shall notify the Trustee of any default by the Issuers in making any such payment. If EPE Holdings or a Wholly Owned Subsidiary of EPE Holdings acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it in trust for the benefit of the Persons entitled thereto. The Issuers at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section, a Paying Agent shall have no further liability for the money delivered to the Trustee.
SECTION 2.06 Holder Lists . The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of holders. If the Trustee is not the Registrar, EPE Holdings shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at least five Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of holders.
SECTION 2.07 Transfer and Exchange . The Notes shall be issued in registered form and shall be transferable only upon the surrender of a Note for registration of transfer and in compliance with Appendix A . When a Note is presented to the Registrar with a request to register a transfer, the Registrar shall register the transfer as requested if its requirements therefor are met. When Notes are presented to the Registrar with a request to exchange them for an equal principal amount of Notes of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Issuers shall execute and the Trustee shall authenticate Notes at the Registrars request. The Issuers may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Issuers shall not be required to make, and the Registrar need not register, transfers or exchanges of Notes selected for redemption (except, in the case of Notes to be redeemed in part, the portion thereof not to be redeemed) or of any Notes for a period of 15 days before a selection of Notes to be redeemed.
Prior to the due presentation for registration of transfer of any Note, the Issuers, the Subsidiary Guarantors, the Trustee, the Paying Agent and the Registrar may deem and treat the Person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Issuers, the Subsidiary Guarantors, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary.
Any holder of a beneficial interest in a Global Note shall, by acceptance of such beneficial interest, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by (a) the holder of such Global Note (or its agent) or (b) any holder of a beneficial interest in such Global Note, and that ownership of a beneficial interest in such Global Note shall be required to be reflected in a book entry.
All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.
The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depository participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
None of the Trustee, Registrar or Paying Agent shall have any responsibility for any actions taken or not taken by the Depository.
SECTION 2.08 Replacement Notes . If a mutilated Note is surrendered to the Registrar or if the holder of a Note claims that the Note has been lost, destroyed or
wrongfully taken, the Issuers shall issue and the Trustee shall authenticate a replacement Note if the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the holder (a) satisfies the Issuers and the Trustee within a reasonable time after such holder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (b) makes such request to the Issuers and the Trustee prior to the Note being acquired by a protected purchaser as defined in Section 8-303 of the Uniform Commercial Code (a protected purchaser ) and (c) satisfies any other reasonable requirements of the Issuers and the Trustee. If required by the Trustee or the Issuers, such holder shall furnish an indemnity bond sufficient in the judgment of the Trustee to protect itself and the Issuers to protect the Issuers, the Trustee, the Paying Agent and the Registrar from any loss or liability that any of them may suffer if a Note is replaced and subsequently presented or claimed for payment. The Issuers and the Trustee may charge the holder for their expenses in replacing a Note (including without limitation, attorneys fees and disbursements in replacing such Note). In the event any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Issuers in their discretion may pay such Note instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Issuers.
The provisions of this Section 2.08 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, lost, destroyed or wrongfully taken Notes.
SECTION 2.09 Outstanding Notes . Notes outstanding at any time are all Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to Section 14.04, a Note does not cease to be outstanding because one of the Issuers or an Affiliate of one of the Issuers holds the Note.
If a Note is replaced pursuant to Section 2.08 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee and the Issuers receive proof satisfactory to them that the replaced Note is held by a protected purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.08.
If a Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Notes (or portions thereof) to be redeemed or maturing, as the case may be, and no Paying Agent is prohibited from paying such money to the holders on that date pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue.
SECTION 2.10 Cancellation . The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and each Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment or cancellation and shall dispose of canceled Notes in accordance with its customary procedures.
The Issuers may not issue new Notes to replace Notes they have redeemed, paid or delivered to the Trustee for cancellation. The Trustee shall not authenticate Notes in place of canceled Notes other than pursuant to the terms of this Indenture.
SECTION 2.11 Defaulted Interest . If the Issuers default in a payment of interest on the Notes, the Issuers shall pay the defaulted interest then borne by the Notes ( plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Issuers may pay the defaulted interest to the Persons who are holders on a subsequent special record date. The Issuers shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail, or cause to be mailed, by first-class mail, or otherwise delivered in accordance with the procedures of the Depository, to each affected holder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.12 CUSIP Numbers, ISINs, Etc . The Issuers in issuing the Notes may use CUSIP numbers, ISINs and Common Code numbers (if then generally in use), and the Trustee shall use any such CUSIP numbers, ISINs and Common Code numbers in notices of redemption as a convenience to holders; provided , however , that any such notice may state that no representation is made as to the correctness of such numbers, either as printed on the Notes or as contained in any notice of a redemption that reliance may be placed only on the other identification numbers printed on the Notes and that any such redemption shall not be affected by any defect in or omission of such numbers. The Issuers shall advise the Trustee of any change in any such CUSIP numbers, ISINs and Common Code numbers.
SECTION 2.13 Calculation of Principal Amount of Notes . The aggregate principal amount of the Notes, at any date of determination, shall be the principal amount of the Notes at such date of determination. With respect to any matter requiring consent, waiver, approval or other action of the holders of a specified percentage of the principal amount of all the Notes, such percentage shall be calculated, on the relevant date of determination, by dividing (a) the principal amount, as of such date of determination, of Notes, the holders of which have so consented, by (b) the aggregate principal amount, as of such date of determination, of the Notes then outstanding, in each case, as determined in accordance with the preceding sentence, Section 2.09 and Section 14.04 of this Indenture. Any calculation of the Applicable Premium or made pursuant to this Section 2.13 shall be made by EPE Holdings and delivered to the Trustee pursuant to an Officers Certificate.
ARTICLE III
REDEMPTION
SECTION 3.01 Redemption . The Notes may be redeemed, in whole or from time to time in part, subject to the conditions and at the redemption prices set forth in Paragraph 5 of the forms of Notes set forth in Exhibit A hereto, which are hereby incorporated by reference and made a part of this Indenture, together with accrued and unpaid interest, if any, to the redemption date.
SECTION 3.02 Applicability of Article . Redemption of Notes at the election of the Issuers or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article III.
SECTION 3.03 Notices to Trustee . If the Issuers elect to redeem Notes pursuant to the optional redemption provisions of Paragraph 5 of the Note, EPE Holdings shall notify the Trustee in an Officers Certificate of (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. EPE Holdings shall give notice to the Trustee provided for in this paragraph at least 30 days but not more than 60 days before a redemption date if the redemption is an optional redemption pursuant to Paragraph 5 of the Note. EPE Holdings may also include a request in such Officers Certificate that the Trustee give the notice of redemption in the Issuers name and at their expense and setting forth the information to be stated in such notice as provided in Section 3.05. Any such notice may be canceled at any time prior to notice of such redemption being mailed to any holder or otherwise delivered in accordance with the applicable procedures of the Depository and shall thereby be void and of no effect. The Issuers shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Notes to be redeemed pursuant to Section 3.04.
SECTION 3.04 Selection of Notes to Be Redeemed . In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or if the Notes are not so listed, on a pro rata basis to the extent practicable or by lot or by such other method the Trustee shall deem fair and appropriate (and, in such manner that complies with the applicable legal requirements and the requirements of the Depository, if applicable); provided that no Notes of $2,000 (and integral multiples of $1,000 in excess thereof) or less shall be redeemed in part, or if a PIK Payment has occurred, no Notes of $1.00 (and integral multiples of $1.00 in excess thereof) or less shall be redeemed in part. The Trustee shall make the selection from outstanding Notes not previously called for redemption. The Trustee may select for redemption portions of the principal of Notes that have denominations larger than $2,000, or if a PIK Payment has occurred, denominations larger than $1.00. Notes and portions of them the Trustee selects shall be in amounts of $2,000 or integral multiples of $1,000 in excess thereof, or if a PIK Payment has occurred, in amounts of $1.00 or integral multiples of $1.00 in excess thereof. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Issuers promptly of the Notes or portions of Notes to be redeemed.
SECTION 3.05 Notice of Optional Redemption .
(a) At least 30 but not more than 60 days before a redemption date pursuant to Paragraph 5 of the Note, the Issuers shall mail or cause to be mailed by first-class mail, or otherwise deliver in accordance with the procedures of the Depository, a notice of redemption to each holder whose Notes are to be redeemed at its registered address (with a copy to the Trustee), except that redemption notices may be mailed or otherwise delivered more than 60 days prior to the redemption date if the notice is issued in connection with a defeasance of the Notes, a satisfaction and discharge of this Indenture pursuant to Article VIII.
Any such notice shall identify the Notes to be redeemed and shall state:
(i) the redemption date;
(ii) the redemption price and the amount of accrued interest to the redemption date;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price, plus accrued and unpaid interest, if any;
(v) if fewer than all the outstanding Notes are to be redeemed, the certificate numbers and principal amounts of the particular Notes to be redeemed, the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption;
(vi) that, unless the Issuers default in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Notes (or portion thereof) called for redemption ceases to accrue on and after the redemption date;
(vii) the CUSIP number, ISIN and/or Common Code number, if any, printed on the Notes being redeemed; and
(viii) that no representation is made as to the correctness or accuracy of the CUSIP number or ISIN and/or Common Code number, if any, listed in such notice or printed on the Notes.
(b) At EPE Holdings request, the Trustee shall deliver the notice of redemption in the Issuers name and at the Issuers expense. In such event, EPE Holdings shall notify the Trustee of such request at least three (3) Business Days prior to the date such notice is to be provided to holders. Such notice may not be canceled once delivered to holders of Notes.
SECTION 3.06 Effect of Notice of Redemption . Once notice of redemption is mailed or otherwise delivered in accordance with Section 3.05, Notes called for redemption become due and payable on the redemption date and at the redemption price stated in the notice, except as provided in the final sentence of paragraph 5 of the Notes. Upon surrender to the Paying Agent, such Notes shall be paid at the redemption price stated in the notice, plus accrued and unpaid interest, if any, to, but not including, the redemption date; provided , however , that if the redemption date is after a regular Record Date and on or prior to the Interest Payment Date, the accrued interest shall be payable to the holder of the redeemed Notes registered on the relevant Record Date. Failure to give notice or any defect in the notice to any holder shall not affect the validity of the notice to any other holder.
SECTION 3.07 Deposit of Redemption Price . With respect to any Notes, prior to 10:00 a.m., New York City time, on the redemption date, the Issuers shall deposit with the Paying Agent (or, if EPE Holdings or a Wholly Owned Subsidiary of EPE Holdings is the
Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued and unpaid interest, if any, on all Notes or portions thereof to be redeemed on that date other than Notes or portions of Notes called for redemption that have been delivered by the Issuers to the Trustee for cancellation. On and after the redemption date, interest shall cease to accrue on Notes or portions thereof called for redemption so long as the Issuers have deposited with the Paying Agent funds sufficient to pay the principal of, plus accrued and unpaid interest, if any, on, the Notes to be redeemed, unless the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture.
SECTION 3.08 Notes Redeemed in Part . If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. Upon surrender of a Note that is redeemed in part, the Issuers shall execute and the Trustee shall authenticate for the holder (at the Issuers expense) a new Note equal in principal amount to the unredeemed portion of the Note surrendered.
ARTICLE IV
COVENANTS
SECTION 4.01 Payment of Notes . The Issuers shall promptly pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. An installment of principal of or interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds as of 12:00 p.m. New York City time money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the holders on that date pursuant to the terms of this Indenture.
The Issuers shall pay interest on overdue principal at the rate specified therefor in the Notes, and it shall pay interest on overdue installments of interest at the same rate borne by the Notes to the extent lawful.
SECTION 4.02 Reports and Other Information .
(a) So long as any Notes are outstanding, EPE Holdings will furnish to the Trustee and the holders:
(i) within 15 days after the time period specified in the SECs rules and regulations for non-accelerated filers, annual reports of the Reporting Entity for such fiscal year containing the information that would have been required to be contained in an annual report on Form 10-K (or any successor or comparable form) if the Reporting Entity had been a reporting company under the Exchange Act, except to the extent permitted to be excluded by the SEC;
(ii) within 15 days after the time period specified in the SECs rules and regulations for non-accelerated filers, quarterly reports of the Reporting Entity for such fiscal quarter containing the information that would have been required to be contained in a quarterly report on Form 10-Q (or any successor or comparable form) if the Reporting
Entity had been a reporting company under the Exchange Act, except to the extent permitted to be excluded by the SEC; and
(iii) within 15 days after the time specified in the SECs rules and regulations for filing current reports on Form 8-K, current reports containing substantially all of the information that would be required to be filed in a Current Report on Form 8-K under the Exchange Act on the Issue Date pursuant to Sections 1, 2 and 4, Item 5.01, 5.02 (other than compensation information), 5.03(b) and Item 9.01 (only to the extent relating to any of the foregoing) of Form 8-K if EPE Holdings had been a reporting company under the Exchange Act; provided , however, that no such current reports will be required to be furnished if EPE Holdings determines in its good faith judgment that such event is not material to holders or the business, assets, operations, financial position or prospectus of EPE Holdings and its Restricted Subsidiaries, taken as a whole.
In addition to providing such information to the Trustee, EPE Holdings shall make available to the holders, prospective investors, market makers affiliated with any initial purchaser of the Notes and securities analysts the information required to be provided pursuant to the foregoing clauses (i), (ii) or (iii), by posting such information to its website or on IntraLinks or any comparable online data system or website.
If EPE Holdings has designated any of its Subsidiaries as an Unrestricted Subsidiary and if any such Unrestricted Subsidiary or group of Unrestricted Subsidiaries, if taken together as one Subsidiary, would constitute a Significant Subsidiary of EPE Holdings, then the annual and quarterly information required to be provided by clauses (i) and (ii) of this Section 4.02(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of EPE Holdings and its Restricted Subsidiaries separate from the financial condition and results of operations of such Unrestricted Subsidiaries.
(b) Notwithstanding the foregoing, (i) EPE Holdings will not be required to furnish any information, certificates or reports that would otherwise be required by (A) Section 302 or Section 404 of the Sarbanes-Oxley Act of 2002, or related Items 307 or 308 of Regulation S-K, or (B) Item 10(e) of Regulation S-K promulgated by the SEC with respect to any non-generally accepted accounting principles financial measures contained therein, (ii) such reports will not be required to contain the separate financial information for guarantors or Subsidiaries whose securities are pledged to secure the notes contemplated by Rule 3-10 or Rule 3-16 of Regulation S-X, and (iii) such reports shall not be required to present compensation or beneficial ownership information.
(c) The financial statements, information and other documents required to be provided as described above, may be those of (i) EPE Holdings, (ii) Opco or (iii) any direct or indirect parent of EPE Holdings (any such entity, a Reporting Entity ), so long as in the case of (ii) and (iii), EPE Holdings or such direct or indirect parent of EPE Holdings shall not conduct, transact or otherwise engage, or commit to conduct, transact or otherwise engage, in any business or operations other than its direct or indirect ownership of all of the Equity Interests in, and its management of Opco; provided that, if the financial information so furnished relates to Opco or such direct or indirect parent of EPE Holdings, the same is accompanied by a
reasonably detailed description of the quantitative differences between the information relating to Opco or to such parent, on the one hand, and information relating EPE Holdings and its Restricted Subsidiaries on a standalone basis, on the other hand. In addition, EPE Holdings will make such information available to prospective investors upon request.
(d) In addition, EPE Holdings shall, for so long as any Notes remain outstanding during any period when it is not subject to Section 13 or 15(d) of the Exchange Act, or otherwise permitted to furnish the SEC with certain information pursuant to Rule 12g3-2(b) of the Exchange Act, furnish to the holders of the Notes and to prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EPE Holdings will also hold quarterly conference calls, beginning with the fiscal quarter ending March 31, 2013, for all holders and securities analysts to discuss such financial information no later than five business days after the distribution of such information required by Sections 4.02(a)(i) and (ii) and prior to the date of each such conference call, announcing the time and date of such conference call and either including all information necessary to access the call or informing holder of Notes, prospective investors, market makers affiliated with any initial purchaser of the Notes and securities analysts how they can obtain such information, including, without limitation, the applicable password or other login information; provided that quarterly conference calls held by Opco shall be deemed to satisfy the requirement in this clause (d).
(e) Notwithstanding the foregoing, EPE Holdings will be deemed to have furnished the reports referred to in this Section 4.02 to the Trustee and the holders if EPE Holdings or another Reporting Entity has filed such reports with the SEC via the EDGAR filing system and such reports are publicly available. In addition, the requirements of this Section 4.02 shall be deemed satisfied by the posting of reports that would be required to be provided to the holders on Opcos website (or that of any of Opcos parent companies).
(f) Delivery of such reports, information and documents to the Trustee pursuant to this Section 4.02 is for informational purposes only, and the Trustees receipt thereof shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers compliance with any of their covenants under this Indenture (as to which the Trustee is entitled to rely exclusively on Officers Certificates).
SECTION 4.03 Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock .
(a) (i) EPE Holdings shall not, and shall not permit any of the Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness) or issue any shares of Disqualified Stock; and (ii) EPE Holdings shall not permit any of the Restricted Subsidiaries (other than a Subsidiary Guarantor) to issue any shares of Preferred Stock; provided , however , that (A) EPE Holdings and any Restricted Subsidiary (other than Opco and any Restricted Subsidiary of Opco) may Incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock, and any Restricted Subsidiary (other than Opco and any Restricted Subsidiary of Opco) may issue shares of Preferred Stock, in each case if the Fixed Charge Coverage Ratio of EPE Holdings for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on
which such additional Indebtedness is Incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00 and (B) Opco and any Restricted Subsidiary of Opco may Incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock or Preferred Stock, in each case if the Fixed Charge Coverage Ratio of Opco for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00, in the case of each of clauses (A) and (B), determined on a pro forma basis (including a pro forma application of the net proceeds therefrom) as if the additional Indebtedness had been Incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period.
(b) The limitations set forth in Section 4.03(a) shall not apply to:
(i) the Incurrence by EPE Holdings or any Restricted Subsidiary of Indebtedness under the Credit Agreement and the issuance and creation of letters of credit and bankers acceptances thereunder up to an aggregate principal amount outstanding at any time that does not exceed the greatest of (1) $3.0 billion, (2) the sum of (x) $500.0 million and (y) 30% of Adjusted Consolidated Net Tangible Assets of EPE Holdings and the Restricted Subsidiaries at the time of Incurrence and (3) the Borrowing Base at the time of Incurrence;
(ii) (A) the Incurrence by the Issuers and the Subsidiary Guarantors of Indebtedness represented by the Notes and any Subsidiary Guarantees, as applicable (not including any Additional Notes but including any PIK Notes issued as interest from time to time and any Subsidiary Guarantee thereof) and (B) the Incurrence by Opco and its Restricted Subsidiaries of Indebtedness, including in respect of the Opco Secured Notes and the Opco Term Loan Facility (including any guarantees thereof), in an aggregate principal amount for this clause (ii)(B) outstanding at any time that, together with any Refinancing Indebtedness in respect thereof Incurred pursuant to clause (xv) below, does not exceed $1,500 million (plus, in the case of any Refinancing Indebtedness, the Additional Refinancing Amount);
(iii) Indebtedness existing on the Issue Date (other than Indebtedness described in clauses (i) and (ii) of this Section 4.03(b)), including, without limitation, the Opco Senior Notes and any guarantees thereof;
(iv) Indebtedness (including Capitalized Lease Obligations) Incurred by EPE Holdings or any Restricted Subsidiary, Disqualified Stock issued by EPE Holdings or any Restricted Subsidiary and Preferred Stock issued by any Restricted Subsidiary to finance (whether prior to or within 270 days after) the acquisition, lease, construction, repair, replacement or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) in an aggregate principal amount that, when aggregated with the principal amount or liquidation preference of all other Indebtedness, Disqualified Stock or Preferred Stock then outstanding and Incurred pursuant to this clause (iv), together with any Refinancing Indebtedness in respect thereof Incurred pursuant to clause (xv) below, does not exceed
the greater of $350.0 million and 5% of Adjusted Consolidated Net Tangible Assets at the time of Incurrence (plus, in the case of any Refinancing Indebtedness, the Additional Refinancing Amount);
(v) Indebtedness Incurred by EPE Holdings or any Restricted Subsidiary constituting reimbursement obligations with respect to letters of credit and bank guarantees issued in the ordinary course of business, including without limitation letters of credit in respect of workers compensation claims, health, disability or other benefits to employees or former employees or their families or property, casualty or liability insurance or self-insurance, and letters of credit in connection with the maintenance of, or pursuant to the requirements of, environmental or other permits or licenses from governmental authorities, or other Indebtedness with respect to reimbursement type obligations regarding workers compensation claims;
(vi) Indebtedness arising from agreements of EPE Holdings or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred in connection with the Transactions, any acquisition or disposition of any business, assets or a Subsidiary in accordance with the terms of this Indenture, other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition;
(vii) Indebtedness of EPE Holdings to a Restricted Subsidiary; provided that (except in respect of intercompany current liabilities Incurred in the ordinary course of business in connection with the cash management, tax and accounting operations of EPE Holdings and its Subsidiaries) any such Indebtedness owed to a Restricted Subsidiary that is not a Subsidiary Guarantor is subordinated in right of payment to the obligations of EPE Holdings under the Notes; provided , further , that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to EPE Holdings or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien but not the transfer thereof upon foreclosure) shall be deemed, in each case, to be an Incurrence of such Indebtedness not permitted by this clause (vii);
(viii) shares of Preferred Stock of a Restricted Subsidiary issued to EPE Holdings or another Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary that holds such shares of Preferred Stock of another Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to EPE Holdings or another Restricted Subsidiary) shall be deemed, in each case, to be an issuance of shares of Preferred Stock not permitted by this clause (viii);
(ix) Indebtedness of a Restricted Subsidiary to EPE Holdings or another Restricted Subsidiary; provided that if a Subsidiary Guarantor incurs such Indebtedness to a Restricted Subsidiary that is not an Issuer or a Subsidiary Guarantor (except in
respect of intercompany current liabilities Incurred in the ordinary course of business in connection with the cash management, tax and accounting operations of EPE Holdings and its Subsidiaries), such Indebtedness is subordinated in right of payment to the Subsidiary Guarantee of such Subsidiary Guarantor; provided , further , that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary holding such Indebtedness ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to EPE Holdings or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien but not the transfer thereof upon foreclosure) shall be deemed, in each case, to be an Incurrence of such Indebtedness not permitted by this clause (ix);
(x) Hedging Obligations that are not Incurred for speculative purposes but (A) for the purpose of fixing or hedging interest rate risk with respect to any Indebtedness that is permitted by the terms of this Indenture to be outstanding; (B) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency exchanges; or (C) for the purpose of fixing or hedging commodity price risk with respect to any commodity purchases or sales (including, without limitation, any commodity Hedging Obligation that is intended in good faith, at inception of execution, to hedge or manage any of the risks related to existing and/or forecasted Hydrocarbon production (whether or not contracted)) and, in each case, extensions or replacements thereof;
(xi) obligations (including reimbursement obligations with respect to letters of credit and bank guarantees) in respect of performance, bid, appeal and surety bonds and completion guarantees provided by EPE Holdings or any Restricted Subsidiary in the ordinary course of business or consistent with past practice or industry practice;
(xii) Indebtedness or Disqualified Stock of EPE Holdings or Indebtedness, Disqualified Stock or Preferred Stock of any Restricted Subsidiary not otherwise permitted hereunder in an aggregate principal amount or liquidation preference which, when aggregated with the principal amount or liquidation preference of all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding and Incurred pursuant to this clause (xii), together with any Refinancing Indebtedness in respect thereof Incurred pursuant to clause (xv) below, does not exceed the greater of $500.0 million and 7% of Adjusted Consolidated Net Tangible Assets at the time of Incurrence (plus, in the case of any Refinancing Indebtedness, the Additional Refinancing Amount) (it being understood that any Indebtedness Incurred pursuant to this clause (xii) shall cease to be deemed Incurred or outstanding for purposes of this clause (xii) but shall be deemed Incurred for purposes of Section 4.03(a) from and after the first date on which EPE Holdings, or the Restricted Subsidiary, as the case may be, could have Incurred such Indebtedness under Section 4.03(a) without reliance upon this clause (xii));
(xiii) Indebtedness or Disqualified Stock of EPE Holdings or any Restricted Subsidiary and Preferred Stock of any Restricted Subsidiary not otherwise permitted hereunder in an aggregate principal amount or liquidation preference at any time outstanding not greater than 100.0% of (A) the net cash proceeds received by EPE
Holdings and its Restricted Subsidiaries since immediately after May 24, 2012 plus (B) the amount of net cash proceeds received by EPE Holdings in excess of $3,200 million prior to or on May 24, 2012, in each case from the issue or sale of Equity Interests of EPE Holdings or any direct or indirect parent entity of EPE Holdings (which proceeds are contributed to EPE Holdings or its Restricted Subsidiary) or cash contributed to the capital of EPE Holdings (in each case other than proceeds of Disqualified Stock or sales of Equity Interests to, or contributions received from, EPE Holdings or any of its Subsidiaries) to the extent such net cash proceeds or cash have not been applied pursuant to such clauses to make Restricted Payments or to make other Investments, payments or exchanges pursuant to Section 4.04(b) or to make Permitted Investments (other than Permitted Investments specified in clauses (1) and (3) of the definition thereof);
(xiv) any guarantee by EPE Holdings or any Restricted Subsidiary of Indebtedness or other obligations of EPE Holdings or any Restricted Subsidiary so long as the Incurrence of such Indebtedness Incurred by EPE Holdings or such Restricted Subsidiary is permitted under the terms of this Indenture; provided that (A) if such Indebtedness is by its express terms subordinated in right of payment to the Notes or the Subsidiary Guarantee of such Restricted Subsidiary, as applicable, any such guarantee with respect to such Indebtedness shall be subordinated in right of payment to the Notes or such Subsidiary Guarantee, as applicable, substantially to the same extent as such Indebtedness is subordinated to the Notes or the Subsidiary Guarantee, as applicable and (B) if such guarantee is of Indebtedness of EPE Holdings, such guarantee is Incurred in accordance with, or not in contravention of, Section 4.11, solely to the extent Section 4.11 is applicable;
(xv) the Incurrence by EPE Holdings or any of the Restricted Subsidiaries of Indebtedness or Disqualified Stock or Preferred Stock of a Restricted Subsidiary that serves to refund, refinance or defease any Indebtedness Incurred or Disqualified Stock or Preferred Stock issued as permitted under Section 4.03(a) and clauses (ii), (iii), (iv), (xii), (xiii), (xv) and (xvi) of this Section 4.03(b) up to the outstanding principal amount (or, if applicable, the liquidation preference face amount, or the like) or, if greater, committed amount (only to the extent the committed amount could have been Incurred on the date of initial Incurrence) of such Indebtedness or Disqualified Stock or Preferred Stock, in each case at the time such Indebtedness was Incurred or Disqualified Stock or Preferred Stock was issued pursuant to Section 4.03(a) or clauses (ii), (iii), (iv), (xii), (xiii), (xv) and (xvi) of this Section 4.03(b), or any Indebtedness, Disqualified Stock or Preferred Stock Incurred to so refund or refinance such Indebtedness, Disqualified Stock or Preferred Stock, including any additional Indebtedness, Disqualified Stock or Preferred Stock Incurred to pay premiums (including tender premiums), expenses, defeasance costs and fees in connection therewith (subject to the following proviso, Refinancing Indebtedness ) prior to its respective maturity; provided , however , that such Refinancing Indebtedness:
(1) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is Incurred which is not less than the shorter of (x) the remaining Weighted Average Life to Maturity of the Indebtedness, Disqualified Stock or Preferred Stock
being refunded, refinanced or defeased and (y) the Weighted Average Life to Maturity that would result if all payments of principal on the Indebtedness, Disqualified Stock and Preferred Stock being refunded or refinanced that were due on or after the date that is one year following the maturity date of any Notes then outstanding were instead due on such date ( provided that this subclause (1) will not apply to any refunding or refinancing of any Secured Indebtedness or any Indebtedness of Opco and its Restricted Subsidiaries);
(2) to the extent such Refinancing Indebtedness refinances (a) Indebtedness junior to the Notes or a Subsidiary Guarantee, as applicable, such Refinancing Indebtedness is junior to the Notes or the Subsidiary Guarantee, as applicable, or (b) Disqualified Stock or Preferred Stock, such Refinancing Indebtedness is Disqualified Stock or Preferred Stock; and
(3) shall not include (x) Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness of a Subsidiary Guarantor, or (y) Indebtedness of EPE Holdings or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary;
(xvi) Indebtedness, Disqualified Stock or Preferred Stock of (A) EPE Holdings or any Restricted Subsidiary Incurred to finance an acquisition or (B) Persons that are acquired by EPE Holdings or any Restricted Subsidiary or merged, consolidated or amalgamated with or into EPE Holdings or any Restricted Subsidiary in accordance with the terms of this Indenture; provided that after giving effect to such acquisition or merger, consolidation or amalgamation, either:
(1) in the case of Indebtedness, Disqualified Stock or Preferred Stock Incurred by EPE Holdings or any of its Restricted Subsidiaries (other than Opco or any Restricted Subsidiary of Opco), (x) EPE Holdings would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.03(a)(ii)(A) or (y) the Fixed Charge Coverage Ratio of EPE Holdings would be greater than immediately prior to such acquisition or merger, consolidation or amalgamation; or
(2) in the case of Indebtedness, Disqualified Stock or Preferred Stock Incurred by Opco or any Restricted Subsidiary of Opco, (x) Opco would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.03(a)(ii)(B) or (y) the Fixed Charge Coverage Ratio of Opco would be greater than immediately prior to such acquisition or merger, consolidation or amalgamation;
(xvii) Indebtedness Incurred by a Receivables Subsidiary in a Qualified Receivables Financing that is not recourse to EPE Holdings or any Restricted Subsidiary other than a Receivables Subsidiary (except for Standard Securitization Undertakings);
(xviii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the
ordinary course of business; provided that such Indebtedness is extinguished within five Business Days of its Incurrence;
(xix) Indebtedness of EPE Holdings or any Restricted Subsidiary supported by a letter of credit or bank guarantee issued pursuant to Bank Indebtedness, in a principal amount not in excess of the stated amount of such letter of credit;
(xx) Indebtedness of Restricted Subsidiaries that are not Subsidiary Guarantors and Indebtedness Incurred on behalf of, or representing guarantees of Indebtedness of, joint ventures of EPE Holdings and any Restricted Subsidiary; provided , however , that the aggregate principal amount of Indebtedness Incurred under this clause (xx), when aggregated with the principal amount of all other Indebtedness then outstanding and Incurred pursuant to this clause (xx), does not exceed the greater of $150.0 million and 2% of Adjusted Consolidated Net Tangible Assets at the time of Incurrence (it being understood that any Indebtedness Incurred pursuant to this clause (xx) shall cease to be deemed Incurred or outstanding for purposes of this clause (xx) but shall be deemed Incurred for the purposes of Section 4.03(a) from and after the first date on which such Restricted Subsidiary could have Incurred such Indebtedness under Section 4.03(a) without reliance upon this clause (xx));
(xxi) Indebtedness of EPE Holdings or any Restricted Subsidiary consisting of (A) the financing of insurance premiums or (B) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business; and
(xxii) Indebtedness consisting of Indebtedness issued by EPE Holdings or a Restricted Subsidiary to current or former officers, directors and employees thereof or any direct or indirect parent thereof, their respective estates, spouses or former spouses, in each case to finance the purchase or redemption of Equity Interests of EPE Holdings or any direct or indirect parent of EPE Holdings to the extent described in Section 4.04(b)(iv).
For purposes of determining compliance with this Section 4.03:
(1) in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) meets the criteria of more than one of the categories of permitted Indebtedness described in clauses (i) through (xxii) of Section 4.03(b) above or is entitled to be Incurred pursuant to Section 4.03(a), then EPE Holdings shall, in its sole discretion, classify or reclassify, or later divide, classify or reclassify, such item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) in any manner that complies with this Section 4.03 ; provided , that (A) only Indebtedness outstanding under the Credit Agreement in excess of $2,000 million may be classified or reclassified as not Incurred under Section 4.03(b)(i) and (B) the Opco Secured Notes and the Opco Term Loan Facility (including any guarantees thereof) outstanding on May 24, 2012 shall at all times be treated as Incurred pursuant to Section 4.03(b)(ii)(B);
(2) at the time of Incurrence, EPE Holdings will be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described
in Section 4.03(a) and (b) without giving pro forma effect to the Indebtedness Incurred pursuant to Section 4.03(b) when calculating the amount of Indebtedness that may be Incurred pursuant to Section 4.03(a);
(3) if any Indebtedness denominated in U.S. dollars is exchanged, converted or refinanced into Indebtedness denominated in a foreign currency, then (in connection with such exchange, conversion or refinancing, and thereafter), the U.S. dollar amount limitations set forth in any of clauses (i) through (xxii) of Section 4.03(b) above with respect to such exchange, conversion or refinancing shall be deemed to be the amount of such foreign currency, as applicable, into which such Indebtedness has been exchanged, converted or refinanced at the time of such exchange, conversion or refinancing; and
(4) if any Indebtedness denominated in a foreign currency is exchanged, converted or refinanced into Indebtedness denominated in U.S. dollars, then (in connection with such exchange, conversion or refinancing, and thereafter), the U.S. dollar amount limitations set forth in any of clauses (i) through (xxii) of Section 4.03(b) with respect to such exchange, conversion or refinancing shall be deemed to be the amount of U.S. dollars into which such Indebtedness has been exchanged, converted or refinanced at the time of such exchange, conversion or refinancing.
Accrual of interest, the accretion of accreted value, the payment of interest or dividends in the form of additional Indebtedness (including any increase to the principal amount of the Notes as a result of the payment of PIK Interest or Partial PIK Interest), Disqualified Stock or Preferred Stock, as applicable, amortization of original issue discount, the accretion of liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies will not be deemed to be an Incurrence of Indebtedness, Disqualified Stock or Preferred Stock for purposes of this Section 4.03. 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 in the determination of such amount of Indebtedness; provided that the Incurrence of the Indebtedness represented by such guarantee or letter of credit, as the case may be, was in compliance with this Section 4.03.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness other than as provided in clauses (3) and (4) above, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term debt, or first committed or first Incurred (whichever yields the lower U.S. dollar equivalent), in the case of revolving credit debt.
Notwithstanding any other provision of this Section 4.03, the maximum amount of Indebtedness that EPE Holdings and its Restricted Subsidiaries may Incur pursuant to this Section 4.03 shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, solely as a result of fluctuations in the exchange rate of currencies.
SECTION 4.04 Limitation on Restricted Payments .
(a) EPE Holdings shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of any of EPE Holdings or any of the Restricted Subsidiaries Equity Interests, including any payment made in connection with any merger, amalgamation or consolidation involving EPE Holdings (other than (A) dividends or distributions payable solely in Equity Interests (other than Disqualified Stock) of EPE Holdings; or (B) dividends or distributions by a Restricted Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary, EPE Holdings or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities);
(ii) purchase or otherwise acquire or retire for value any Equity Interests of EPE Holdings or any direct or indirect parent of EPE Holdings;
(iii) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case prior to any scheduled repayment or scheduled maturity, any Subordinated Indebtedness of an Issuer or any Subsidiary Guarantor (other than the payment, redemption, repurchase, defeasance, acquisition or retirement of (A) Subordinated Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such payment, redemption, repurchase, defeasance, acquisition or retirement and (B) Indebtedness permitted under clauses (vii) and (ix) of Section 4.03(b)); or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as Restricted Payments ), unless, at the time of such Restricted Payment:
(1) no Default shall have occurred and be continuing or would occur as a consequence thereof;
(2) (x) with respect to a Restricted Payment by EPE Holdings or any Restricted Subsidiary of EPE Holdings (other than Opco and any Restricted Subsidiary of Opco) immediately after giving effect to such transaction on a pro forma basis, EPE Holdings could Incur $1.00 of additional Indebtedness under Section 4.03(a)(ii)(A) and (y) with respect to a Restricted Payment by Opco or any Restricted Subsidiary of Opco, immediately after giving effect to such transaction on a pro forma basis, Opco could Incur $1.00 of additional Indebtedness under Section 4.03(a)(ii)(B); and
(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by EPE Holdings and the Restricted Subsidiaries after the Issue Date (including Restricted Payments permitted by clauses (i), (ii) (with respect to the payment of dividends on Refunding Capital Stock (as defined below) pursuant to
clause (C) thereof), (vi)(C), (viii) and (xiii)(B) of Section 4.04(b), but excluding all other Restricted Payments permitted by Section 4.04(b)), is less than the amount equal to the Cumulative Credit.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) the payment of any dividend or distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration thereof, if at the date of declaration or the giving notice of such irrevocable redemption, as applicable, such payment would have complied with the provisions of this Indenture;
(ii) (A) the redemption, repurchase, retirement or other acquisition of any Equity Interests ( Retired Capital Stock ) or Subordinated Indebtedness of EPE Holdings, any direct or indirect parent of EPE Holdings or any Subsidiary Guarantor in exchange for, or out of the proceeds of, the substantially concurrent sale of, Equity Interests of EPE Holdings or any direct or indirect parent of EPE Holdings or contributions to the equity capital of EPE Holdings (other than any Disqualified Stock or any Equity Interests sold to a Subsidiary of EPE Holdings) (collectively, including any such contributions, Refunding Capital Stock ),
(B) the declaration and payment of dividends on the Retired Capital Stock out of the proceeds of the substantially concurrent sale (other than to a Subsidiary of EPE Holdings) of Refunding Capital Stock, and
(C) if immediately prior to the retirement of Retired Capital Stock, the declaration and payment of dividends thereon was permitted under clause (vi) of this Section 4.04(b) and not made pursuant to clause (ii)(B), the declaration and payment of dividends on the Refunding Capital Stock (other than Refunding Capital Stock the proceeds of which were used to redeem, repurchase, retire or otherwise acquire any Equity Interests of any direct or indirect parent of EPE Holdings) in an aggregate amount per year no greater than the aggregate amount of dividends per annum that were declarable and payable on such Retired Capital Stock immediately prior to such retirement;
(iii) the redemption, repurchase, defeasance, or other acquisition or retirement of Subordinated Indebtedness of an Issuer or any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, new Indebtedness of an Issuer or a Subsidiary Guarantor which is Incurred in accordance with Section 4.03 so long as:
(A) the principal amount (or accreted value, if applicable) of such new Indebtedness does not exceed the principal amount (or accreted value, if applicable), plus any accrued and unpaid interest, of the Subordinated Indebtedness being so redeemed, repurchased, defeased, acquired or retired for value (plus the amount of any premium required to be paid under the terms of the instrument governing the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired, any tender premiums, plus any defeasance costs, fees and expenses Incurred in connection therewith),
(B) such Indebtedness is subordinated to the Notes or the related Subsidiary Guarantee, as the case may be, at least to the same extent as such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, defeased, acquired or retired for value,
(C) such Indebtedness has a final scheduled maturity date equal to or later than the earlier of (x) the final scheduled maturity date of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired and (y) 91 days following the last maturity date of any Notes then outstanding, and
(D) such Indebtedness has a Weighted Average Life to Maturity at the time Incurred which is not less than the shorter of (x) the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness being so redeemed, repurchased, defeased, acquired or retired and (y) the Weighted Average Life to Maturity that would result if all payments of principal on the Subordinated Indebtedness being redeemed, repurchased, defeased, acquired or retired that were due on or after the date that is one year following the last maturity date of any Notes then outstanding were instead due on such date;
(iv) a Restricted Payment to pay for the repurchase, retirement or other acquisition for value of Equity Interests of EPE Holdings or any direct or indirect parent of EPE Holdings held by any future, present or former employee, director or consultant of EPE Holdings or any direct or indirect parent of EPE Holdings or any Subsidiary of EPE Holdings pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or other agreement or arrangement; provided , however , that the aggregate Restricted Payments made under this clause (iv) do not exceed $50.0 million in any calendar year (which shall increase to $100.0 million subsequent to the consummation of an underwritten public Equity Offering of common stock), with unused amounts in any calendar year being permitted to be carried over to succeeding calendar years subject to a maximum of $75.0 million in any calendar year (which shall increase to $150.0 million subsequent to the consummation of an underwritten public Equity Offering of common stock); provided , further , however , that such amount in any calendar year may be increased by an amount not to exceed:
(A) the cash proceeds received by EPE Holdings or any of the Restricted Subsidiaries from the sale of Equity Interests (other than Disqualified Stock) of EPE Holdings or any direct or indirect parent of EPE Holdings (to the extent contributed to EPE Holdings) to members of management, directors or consultants of EPE Holdings and the Restricted Subsidiaries or any direct or indirect parent of EPE Holdings that occurs after the Issue Date ( provided that the amount of such cash proceeds utilized for any such repurchase, retirement, other acquisition or dividend will not increase the amount available for Restricted Payments under Section 4.04(a)(iii)), plus
(B) the cash proceeds of key man life insurance policies received by EPE Holdings or any direct or indirect parent of EPE Holdings (to the extent contributed to EPE Holdings) or the Restricted Subsidiaries after the Issue Date;
provided that EPE Holdings may elect to apply all or any portion of the aggregate increase contemplated by clauses (A) and (B) above in any calendar year; and provided , further , that cancellation of Indebtedness owing to EPE Holdings or any Restricted Subsidiary from any present or former employees, directors, officers or consultants of EPE Holdings, any Restricted Subsidiary or the direct or indirect parents of EPE Holdings in connection with a repurchase of Equity Interests of EPE Holdings or any of its direct or indirect parents will not be deemed to constitute a Restricted Payment for purposes of this Section 4.04 or any other provision of this Indenture;
(v) the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Stock of EPE Holdings or any Restricted Subsidiary issued or Incurred in accordance with Section 4.03;
(vi) (A) the declaration and payment of dividends or distributions to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued after the Issue Date;
(B) a Restricted Payment to any direct or indirect parent of EPE Holdings, the proceeds of which will be used to fund the payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) of any direct or indirect parent of EPE Holdings issued after the Issue Date; provided that the aggregate amount of dividends declared and paid pursuant to this clause (B) does not exceed the net cash proceeds actually received by EPE Holdings from any such sale of Designated Preferred Stock (other than Disqualified Stock) issued after the Issue Date; and
(C) the declaration and payment of dividends on Refunding Capital Stock that is Preferred Stock in excess of the dividends declarable and payable thereon pursuant to Section 4.04(b)(ii);
provided , however , in the case of each of clauses (A) and (C) above of this clause (vi), that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock, after giving effect to such issuance (and the payment of dividends or distributions) on a pro forma basis (including a pro forma application of the net proceeds therefrom), (1) in the case of Designated Preferred Stock of EPE Holdings or any Restricted Subsidiary of EPE Holdings (other than Opco and any Restricted Subsidiary of Opco), EPE Holdings would have had a Fixed Charge Coverage Ratio of at least 2.00 to 1.00 and (2) in the case of Designated Preferred Stock of Opco and any Restricted Subsidiary of Opco, Opco would have had a Fixed Charge Coverage Ratio of at least 2.00 to 1.00;
(vii) Investments in Unrestricted Subsidiaries having an aggregate Fair Market Value (as determined in good faith by EPE Holdings), taken together with all other Investments made pursuant to this clause (vii) that are at that time outstanding, not to exceed the greater of $175.0 million and 2.5% of Adjusted Consolidated Net Tangible Assets at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(viii) the payment of dividends after a public offering of Capital Stock of EPE Holdings or any direct or indirect parent of EPE Holdings on EPE Holdings Capital Stock (or a Restricted Payment to any such direct or indirect parent of EPE Holdings to fund the payment by such direct or indirect parent of EPE Holdings of dividends on such entitys Capital Stock) of up to 6% per annum of the total market capitalization of EPE Holdings or any such direct or indirect parent of EPE Holdings as of the date of such public offering, other than public offerings with respect to EPE Holdings (or such direct or indirect parents) Capital Stock registered on Form S-4 or Form S-8 and other than any public sale constituting an Excluded Contribution;
(ix) Restricted Payments that are made with Excluded Contributions;
(x) other Restricted Payments in an aggregate amount, when taken together with all other Restricted Payments made pursuant to this clause (x) that are at that time outstanding, not to exceed the greater of $225.0 million and 3% of Adjusted Consolidated Net Tangible Assets at the time made;
(xi) the distribution, as a dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to EPE Holdings or a Restricted Subsidiary by, Unrestricted Subsidiaries;
(xii) (A) with respect to any taxable period for which EPE Holdings and/or any of its Subsidiaries are members of a consolidated, combined, affiliated, unitary or similar income tax group for U.S. federal and/or applicable state or local income tax purposes of which a direct or indirect parent of EPE Holdings is the common parent, or for which EPE Holdings is a partnership or disregarded entity for U.S. federal income tax purposes that is wholly-owned (directly or indirectly) by a C corporation for U.S. federal and/or applicable state or local income tax purposes, distributions to any direct or indirect parent of EPE Holdings in an amount not to exceed the amount of any U.S. federal, state and/or local income taxes that EPE Holdings and/or its Subsidiaries, as applicable, would have paid for such taxable period had EPE Holdings and/or its Subsidiaries, as applicable, been a stand-alone corporate taxpayer or a stand-alone corporate group, and (B) with respect to any taxable period ending after the Issue Date for which EPE Holdings is a partnership or disregarded entity for U.S. federal income tax purposes (other than a partnership or disregarded entity described in clause (A)), distributions to any direct or indirect parent of EPE Holdings in an amount necessary to permit such direct or indirect parent of EPE Holdings to make a pro rata distribution to its owners such that each direct or indirect owner of EPE Holdings receives an amount from such pro rata distribution sufficient to enable such owner to pay its U.S. federal, state and/or local income taxes (as
applicable) attributable to its direct or indirect ownership of EPE Holdings and its Subsidiaries with respect to such taxable period (assuming that each owner is subject to tax at the highest combined marginal federal, state, and/or local income tax rate applicable to any owner for such taxable period and taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes (and any limitations thereon), the alternative minimum tax, any cumulative net taxable loss of EPE Holdings for prior taxable periods ending after the Issue Date to the extent such loss is of a character that would allow such loss to be available to reduce taxes in the current taxable period (taking into account any limitations on the utilization of such loss to reduce such taxes and assuming such loss had not already been utilized) and the character (e.g., long-term or short-term capital gain or ordinary or exempt) of the applicable income);
(xiii) any Restricted Payment, if applicable:
(A) in amounts required for any direct or indirect parent of EPE Holdings to pay fees and expenses (including franchise or similar taxes) required to maintain its corporate existence, customary salary, bonus and other benefits payable to, and indemnities provided on behalf of, officers and employees of any direct or indirect parent of EPE Holdings and general corporate operating and overhead expenses of any direct or indirect parent of EPE Holdings in each case to the extent such fees and expenses are attributable to the ownership or operation of EPE Holdings, if applicable, and its Subsidiaries;
(B) in amounts required for any direct or indirect parent of EPE Holdings, if applicable, to pay interest and/or principal on Indebtedness the proceeds of which have been contributed to EPE Holdings or any Restricted Subsidiary and that has been guaranteed by, or is otherwise considered Indebtedness of, EPE Holdings Incurred in accordance with Section 4.03; and
(C) in amounts required for any direct or indirect parent of EPE Holdings to pay fees and expenses related to any unsuccessful equity or debt offering of such parent;
(xiv) repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;
(xv) purchases of receivables pursuant to a Receivables Repurchase Obligation in connection with a Qualified Receivables Financing and the payment or distribution of Receivables Fees;
(xvi) Restricted Payments by EPE Holdings or any Restricted Subsidiary to allow the payment of cash in lieu of the issuance of fractional shares upon the exercise of options or warrants or upon the conversion or exchange of Capital Stock of any such Person;
(xvii) the repurchase, redemption or other acquisition or retirement for value of any Subordinated Indebtedness pursuant to provisions similar to those described in
Section 4.06 and Section 4.08; provided that all Notes tendered by holders of the Notes in connection with a Change of Control Offer or Asset Sale Offer, as applicable, have been repurchased, redeemed or acquired for value;
(xviii) payments or distributions to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, amalgamation, merger or transfer of all or substantially all of the assets of EPE Holdings and the Restricted Subsidiaries, taken as a whole, that complies with Section 5.01; provided that as a result of such consolidation, amalgamation, merger or transfer of assets, EPE Holdings shall have made a Change of Control Offer (if required by this Indenture) and that all Notes tendered by holders in connection with such Change of Control Offer have been repurchased, redeemed or acquired for value;
(xix) any Restricted Payment used to fund the Transactions and the payment of fees and expenses incurred in connection with the Transactions or owed by Opco or any direct or indirect parent of Opco or Restricted Subsidiaries of Opco to Affiliates, and any other payments made, including any such payments made to any direct or indirect parent of Opco to enable it to make payments in connection with the consummation of the Transactions, whether payable on the Issue Date or thereafter, in each case to the extent permitted by Section 4.07; and
(xx) any Restricted Payments made using a portion of the net proceeds of the Notes as described under Use of Proceeds in the Offering Memorandum.
provided , however , that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (vi)(B), (vii), (x), (xi) and (xiii)(B) of this Section 4.04(b), no Default shall have occurred and be continuing or would occur as a consequence thereof; provided , further that any Restricted Payments made with property other than cash shall be calculated using the Fair Market Value (as determined in good faith by EPE Holdings) of such property.
(c) As of the Issue Date, all of the Subsidiaries of EPE Holdings will be Restricted Subsidiaries. EPE Holdings will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the definition of Unrestricted Subsidiary. For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by EPE Holdings and the Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of Investments. Such designation will only be permitted if a Restricted Payment or Permitted Investment in such amount would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
SECTION 4.05 Dividend and Other Payment Restrictions Affecting Subsidiaries . EPE Holdings shall not, and shall not permit any of the Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of the Co-Issuer or any Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to EPE Holdings or any Restricted Subsidiary (1) on its Capital Stock; or (2) with respect to any other interest or participation in, or measured by, its profits; or (ii) pay any Indebtedness owed to EPE Holdings or any Restricted Subsidiary;
(b) make loans or advances to EPE Holdings or any Restricted Subsidiary; or
(c) sell, lease or transfer any of its properties or assets to EPE Holdings or any Restricted Subsidiary;
except in each case for such encumbrances or restrictions existing under or by reason of:
(1) (A) contractual encumbrances or restrictions in effect on the Issue Date, including pursuant to the Opco Notes (including any guarantee thereof) and the Opco Term Loan Facility (including any guarantee thereof) and (B) contractual encumbrances or restrictions pursuant to the Credit Agreement and the other Credit Agreement Documents and, in each case, any similar contractual encumbrances effected by any amendments, modifications, restatements, renewals, supplements, refundings, replacements or refinancings of such agreements or instruments;
(2) this Indenture, the Notes or the Subsidiary Guarantees;
(3) applicable law or any applicable rule, regulation or order;
(4) any agreement or other instrument of a Person acquired by EPE Holdings or any Restricted Subsidiary which was in existence at the time of such acquisition (but not created in contemplation thereof or to provide all or any portion of the funds or credit support utilized to consummate such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired;
(5) contracts or agreements for the sale of assets, including any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of the Capital Stock or assets of such Restricted Subsidiary;
(6) Secured Indebtedness otherwise permitted to be Incurred pursuant to Section 4.03 and Section 4.12 that limit the right of the debtor to dispose of the assets securing such Indebtedness;
(7) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;
(8) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business;
(9) purchase money obligations for property acquired and Capitalized Lease Obligations in the ordinary course of business that impose restrictions of the nature discussed in clause (c) above on the property so acquired;
(10) customary provisions contained in leases, licenses and other similar agreements entered into in the ordinary course of business;
(11) in the case of clause (c) above, any encumbrance or restriction that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease (including leases governing leasehold interests or Farm-In Agreements or Farm-Out Agreements relating to leasehold interests in Oil and Gas Properties), license or similar contract, or the assignment or transfer of any such lease (including leases governing leasehold interests or Farm-In Agreements or Farm-Out Agreements relating to leasehold interests in Oil and Gas Properties), license (including without limitations, licenses of intellectual property) or other contracts;
(12) any encumbrance or restriction of a Receivables Subsidiary effected in connection with a Qualified Receivables Financing; provided , however , that such restrictions apply only to such Receivables Subsidiary;
(13) other Indebtedness, Disqualified Stock or Preferred Stock of EPE Holdings or any Restricted Subsidiary, provided that such Indebtedness, Disqualified Stock or Preferred Stock is permitted to be Incurred subsequent to the Issue Date pursuant to Section 4.03;
(14) any Restricted Investment not prohibited by Section 4.04 and any Permitted Investment;
(15) any customary encumbrances or restrictions imposed pursuant to any agreement of the type described in the definition of Permitted Business Investment; or
(16) any encumbrances or restrictions of the type referred to in Section 4.05(a), (b) or (c) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (15) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of EPE Holdings, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.
For purposes of determining compliance with this Section 4.05, (i) the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock shall not be deemed a restriction on the ability to make distributions on Capital Stock and (ii) the subordination of loans or advances made to EPE Holdings or a Restricted Subsidiary to other Indebtedness Incurred by EPE
Holdings or any such Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances.
SECTION 4.06 Asset Sales .
(a) EPE Holdings shall not, and shall not permit any of the Restricted Subsidiaries to, cause or make an Asset Sale, unless (x) EPE Holdings or any Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value (as determined in good faith by EPE Holdings) of the assets sold or otherwise disposed of, and (y) at least 75% of the consideration therefor received by EPE Holdings or such Restricted Subsidiary, as the case may be, is in the form of Cash Equivalents or Additional Assets; provided that the amount of:
(i) any liabilities (as shown on EPE Holdings or a Restricted Subsidiarys most recent balance sheet or in the notes thereto) of EPE Holdings or a Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets or that are otherwise cancelled or terminated in connection with the transaction with such transferee,
(ii) any notes or other obligations or other securities or assets received by EPE Holdings or such Restricted Subsidiary from such transferee that are converted by EPE Holdings or such Restricted Subsidiary into cash within 180 days of the receipt thereof (to the extent of the cash received),
(iii) with respect to any Asset Sale of Oil and Gas Properties by EPE Holdings or any Restricted Subsidiary, the costs and expenses related to the exploration, development, completion or production of such Oil and Gas Properties and activities related thereto agreed to be assumed by the transferee (or an Affiliate thereof), and
(iv) any Designated Non-cash Consideration received by EPE Holdings or any Restricted Subsidiary in such Asset Sale having an aggregate Fair Market Value (as determined in good faith by EPE Holdings), taken together with all other Designated Non-cash Consideration received pursuant to this Section 4.06(a)(iv) that is at that time outstanding, not to exceed the greater of 4% of Adjusted Consolidated Net Tangible Assets and $300.0 million 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 measured at the time received and without giving effect to subsequent changes in value),
shall be deemed to be Cash Equivalents for the purposes of this Section 4.06(a).
(b) Within 395 days after EPE Holdings or any Restricted Subsidiarys receipt of the Net Proceeds of any Asset Sale, EPE Holdings or such Restricted Subsidiary may apply the Net Proceeds from such Asset Sale, at its option:
(i) to repay (A) Indebtedness that is secured by a Lien permitted under this Indenture (and, if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto), (B) Indebtedness of a
Restricted Subsidiary that is not a Subsidiary Guarantor, (C) Obligations under the Notes or (D) other Pari Passu Indebtedness ( provided that if an Issuer or any Subsidiary Guarantor shall so reduce Obligations under unsecured Pari Passu Indebtedness, the Issuers will equally and ratably reduce Obligations under the Notes pursuant to Section 3.01, through open-market purchases ( provided that such purchases are at or above 100% of the principal amount thereof or, in the event that the Notes were issued with significant original issue discount, 100% of the accreted value thereof) or by making an offer (in accordance with the procedures set forth below for an Asset Sale Offer) to all holders to purchase at a purchase price equal to 100% of the principal amount thereof (or, in the event that the Notes were issued with significant original issue discount, 100% of the accreted value thereof), plus accrued and unpaid interest, if any, the pro rata principal amount of Notes, in each case other than Indebtedness owed to EPE Holdings or an Affiliate of EPE Holdings; provided , however , that if an offer to repay or repurchase any Indebtedness of any Restricted Subsidiary is made in accordance with the terms of such Indebtedness, the obligation to permanently repay Indebtedness of a Restricted Subsidiary shall be deemed to be satisfied to the extent of the amount of the offer, whether or not accepted by the holders thereof, and no Excess Proceeds in the amount of such offer will be deemed to exist following such offer;
(ii) to make an Investment in any one or more businesses ( provided that if such Investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of EPE Holdings), assets, or property or capital expenditures, in each case (A) used or useful in a Similar Business or (B) that replace the properties and assets that are the subject of such Asset Sale; or
(iii) to invest in Additional Assets.
In the case of Section 4.06(b)(ii), a binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment until the 18-month anniversary of the date of the receipt of such Net Proceeds; provided that in the event such binding commitment is later canceled or terminated for any reason before such Net Proceeds are so applied, then such Net Proceeds shall constitute Excess Proceeds unless EPE Holdings or such Restricted Subsidiary enters into another binding commitment (a Second Commitment ) within six months of such cancellation or termination of the prior binding commitment; provided , further , that EPE Holdings or such Restricted Subsidiary may only enter into a Second Commitment under the foregoing provision one time with respect to each Asset Sale and to the extent such Second Commitment is later cancelled or terminated for any reason before such Net Proceeds are applied or are not applied within 180 days of such Second Commitment, then such Net Proceeds shall constitute Excess Proceeds.
Pending the final application of any such Net Proceeds, EPE Holdings or such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving credit facility, if any, or otherwise invest such Net Proceeds in any manner not prohibited by this Indenture. Any Net Proceeds from any Asset Sale that are not applied as provided and within the time period set forth in the first sentence of this Section 4.06(b) (it being understood that any portion of such Net Proceeds used to make an offer to purchase Notes, as described in clause (i) of this Section
4.06(b), shall be deemed to have been invested whether or not such offer is accepted) will be deemed to constitute Excess Proceeds . When the aggregate amount of Excess Proceeds exceeds $50.0 million, the Issuers shall make an offer to all holders of Notes (and, at the option of the Issuers, to holders of any Pari Passu Indebtedness) (an Asset Sale Offer ) to purchase the maximum principal amount of Notes (and such Pari Passu Indebtedness), that is at least $2,000 and an integral multiple of $1,000 in excess thereof, or if PIK Payment has occurred, Notes will be purchased that is at least $1.00 and an integral multiple of $1.00 in excess thereof, that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof (or, in the event the Notes or such Pari Passu Indebtedness was issued with significant original issue discount, 100% of the accreted value thereof), plus accrued and unpaid interest, if any (or, in respect of such Pari Passu Indebtedness, such lesser price, if any, as may be provided for by the terms of such Pari Passu Indebtedness), to the date fixed for the closing of such offer, in accordance with the procedures set forth in this Section 4.06; provided , however , notwithstanding the foregoing, in the case of an Asset Sale by Opco or any Restricted Subsidiary of Opco, the Issuers shall not be required to make an Asset Sale Offer to the extent Opco is not permitted pursuant to the terms of its outstanding Indebtedness, any other agreement or applicable law to dividend or distribute an amount at least equal to such Excess Proceeds to EPE Holdings. The Issuers will commence an Asset Sale Offer with respect to Excess Proceeds within ten (10) Business Days after the date that Excess Proceeds exceeds $50.0 million by mailing the notice required pursuant to the terms of Sections 3.05 and 4.06(f), with a copy to the Trustee. To the extent that the aggregate amount of Notes (and such Pari Passu Indebtedness) tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, EPE Holdings and its Restricted Subsidiaries may use any remaining Excess Proceeds for any purpose that is not prohibited by this Indenture. If the aggregate principal amount of Notes (and such Pari Passu Indebtedness) surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee, upon receipt of notice from the Issuers of the aggregate principal amount to be selected, shall select the Notes to be purchased in the manner described in Section 4.06(e). Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
(c) The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof.
(d) Not later than the date upon which written notice of an Asset Sale Offer is delivered to the Trustee as provided above, EPE Holdings shall deliver to the Trustee an Officers Certificate as to (i) the amount of the Excess Proceeds, (ii) the allocation of the Net Proceeds from the Asset Sales pursuant to which such Asset Sale Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.06(b). On such date, the Issuers shall also irrevocably deposit with the Trustee or with a paying agent (or, if an Issuer or a Wholly Owned Restricted Subsidiary is acting as the Paying Agent, segregate and hold in trust) an amount equal to the Excess Proceeds to be invested in Cash Equivalents, as directed in writing by EPE Holdings and to be held for payment in accordance with the provisions of this Section 4.06. Upon the expiration of the period for which the Asset Sale Offer remains open (the Offer Period ), the Issuers shall deliver to the Trustee for cancellation the Notes or portions
thereof that have been properly tendered to and are to be accepted by the Issuers. The Trustee (or the Paying Agent, if not the Trustee) shall, on the date of purchase, mail or deliver payment to each tendering holder in the amount of the purchase price. In the event that the Excess Proceeds delivered by the Issuers to the Trustee are greater than the purchase price of the Notes tendered, the Trustee shall deliver the excess to the Issuers immediately after the expiration of the Offer Period for application in accordance with this Section 4.06.
(e) Holders electing to have a Note purchased shall be required to surrender the Note, with an appropriate form duly completed, to the Issuers at the address specified in the notice at least three Business Days prior to the purchase date. Holders shall be entitled to withdraw their election if the Trustee or an Issuer receives not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Note which was delivered by the holder for purchase and a statement that such holder is withdrawing his election to have such Note purchased. If at the end of the Offer Period more Notes (and such Pari Passu Indebtedness) are tendered pursuant to an Asset Sale Offer than the Issuers are required to purchase, selection of such Notes for purchase shall be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed, or if such Notes are not so listed, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate (and in such manner as complies with applicable legal requirements); provided that no Notes of $2,000 or less shall be purchased in part, or if PIK Payment has occurred, Notes will be purchased that is at least $1.00 and an integral multiple of $1.00 in excess thereof . Selection of such Pari Passu Indebtedness shall be made pursuant to the terms of such Pari Passu Indebtedness.
(f) Notices of an Asset Sale Offer shall be mailed by the Issuers, or the Issuers shall cause to be mailed, by first class mail, postage prepaid, or delivered electronically if held at DTC, at least 30 but not more than 60 days before the purchase date to each holder of Notes at such holders registered address. If any Note is to be purchased in part only, any notice of purchase that relates to such Note shall state the portion of the principal amount thereof that has been or is to be purchased.
SECTION 4.07 Transactions with Affiliates .
(a) EPE Holdings shall not, and shall not permit any of the Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction or series of transactions, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of EPE Holdings (each of the foregoing, an Affiliate Transaction ) involving aggregate consideration in excess of $20.0 million, unless:
(i) such Affiliate Transaction is on terms that are not materially less favorable to EPE Holdings or the relevant Restricted Subsidiary than those that could have been obtained in a comparable transaction by EPE Holdings or such Restricted Subsidiary with an unrelated Person; and
(ii) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $40.0 million, EPE Holdings delivers to the Trustee a resolution adopted in good faith by the majority of the Board of Directors of EPE Holdings, approving such Affiliate Transaction and set forth in an Officers Certificate certifying that such Affiliate Transaction complies with clause (i) above.
(b) The provisions of Section 4.07(a) shall not apply to the following:
(i) transactions between or among EPE Holdings and/or any of the Restricted Subsidiaries (or an entity that becomes a Restricted Subsidiary as a result of such transaction) and any merger, consolidation or amalgamation of EPE Holdings and any direct parent of EPE Holdings; provided that such parent shall have no material liabilities and no material assets other than cash, Cash Equivalents and the Capital Stock of EPE Holdings and such merger, consolidation or amalgamation is otherwise in compliance with the terms of this Indenture and effected for a bona fide business purpose;
(ii) Restricted Payments permitted by Section 4.04 and Permitted Investments;
(iii) the payment of reasonable and customary fees and reimbursement of expenses paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of EPE Holdings, any Restricted Subsidiary, or any direct or indirect parent of EPE Holdings;
(iv) transactions in which EPE Holdings or any Restricted Subsidiary, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to EPE Holdings or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (i) of Section 4.07(a);
(v) payments or loans (or cancellation of loans) to officers, directors, employees or consultants which are approved by a majority of the Board of Directors of EPE Holdings in good faith;
(vi) any agreement as in effect as of the Issue Date or any amendment thereto (so long as any such agreement together with all amendments thereto, taken as a whole, is not more disadvantageous to the holders of the Notes in any material respect than the original agreement as in effect on the Issue Date) or any transaction contemplated thereby as determined in good faith by EPE Holdings;
(vii) the existence of, or the performance by EPE Holdings or any Restricted Subsidiary of its obligations under the terms of any stockholders or limited liability company agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date, and any transaction, agreement or arrangement described in the Offering Memorandum and, in each case, any amendment thereto or similar transactions, agreements or arrangements which it may enter into thereafter; provided , however , that the existence of, or the performance by EPE Holdings or any Restricted Subsidiary of its obligations under, any future amendment to any such existing transaction, agreement or arrangement or under any similar transaction,
agreement or arrangement entered into after the Issue Date shall only be permitted by this clause (vii) to the extent that the terms of any such existing transaction, agreement or arrangement together with all amendments thereto, taken as a whole, or new transaction, agreement or arrangement are not otherwise more disadvantageous to the holders of the Notes in any material respect than the original transaction, agreement or arrangement as in effect on the Issue Date;
(viii) the execution of the Transactions, and the payment of all fees and expenses related to the Transactions, including fees paid to the Sponsors;
(ix) (A) transactions with customers, clients, suppliers or purchasers or sellers of goods or services, or transactions otherwise relating to the purchase or sale of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture, which are fair to EPE Holdings and the Restricted Subsidiaries in the reasonable determination of the Board of Directors or the senior management of EPE Holdings, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party or (B) transactions with joint ventures or Unrestricted Subsidiaries entered into in the ordinary course of business and consistent with past practice or industry norm;
(x) any transaction effected as part of a Qualified Receivables Financing;
(xi) the issuance of Equity Interests (other than Disqualified Stock) of EPE Holdings to any Person;
(xii) the issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock option and stock ownership plans or similar employee benefit plans approved by the Board of Directors of EPE Holdings or any direct or indirect parent of EPE Holdings or of a Restricted Subsidiary, as appropriate, in good faith;
(xiii) the entering into of any tax sharing agreement or arrangement that complies with Section 4.04(b)(xii);
(xiv) any contribution to the capital of EPE Holdings;
(xv) transactions permitted by, and complying with, Section 5.01;
(xvi) transactions between EPE Holdings or any Restricted Subsidiary and any Person, a director of which is also a director of EPE Holdings or any direct or indirect parent of EPE Holdings; provided , however , that such director abstains from voting as a director of EPE Holdings or such direct or indirect parent, as the case may be, on any matter involving such other Person;
(xvii) pledges of Equity Interests of Unrestricted Subsidiaries;
(xviii) the formation and maintenance of any consolidated group or subgroup for tax, accounting or cash pooling or management purposes in the ordinary course of business;
(xix) any employment agreements entered into by EPE Holdings or any Restricted Subsidiary in the ordinary course of business;
(xx) the payment of management, consulting, monitoring and advisory fees and related expenses (including indemnification and other similar amounts) to the Sponsors pursuant to the Sponsor Management Agreement ( plus any unpaid management, consulting, monitoring, advisory and other fees and related expenses (including indemnification and other similar amounts) accrued in any prior year) and the termination fees pursuant to the Sponsor Management Agreement, in each case as in effect on the Issue Date or any amendment or modification thereto (so long as, in the good faith judgment of the Board of Directors of EPE Holdings, any such amendment or modification is not more disadvantageous, taken as a whole, to holders in any material respect as compared to the Sponsor Management Agreement in effect on the Issue Date);
(xxi) payments by EPE Holdings or any of its Restricted Subsidiaries to any of the Sponsors made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by a majority of the Board of Directors of EPE Holdings in good faith;
(xxii) transactions undertaken in good faith (as certified by a responsible financial or accounting officer of EPE Holdings in an Officers Certificate) for the purpose of improving the consolidated tax efficiency of EPE Holdings and its Subsidiaries and not for the purpose of circumventing any covenant set forth in this Indenture;
(xxiii) investments by the Sponsors in securities of EPE Holdings or any Restricted Subsidiary (and payment of reasonable out-of-pocket expenses incurred by the Sponsors in connection therewith) so long as (i) the investment is being generally offered to other investors on the same or more favorable terms and (ii) the investment constitutes less than 5% of the proposed or outstanding issue amount of such class of securities; and
(xxiv) customary agreements and arrangements with oil and gas royalty trusts and master limited partnership agreements that comply with the affiliate transaction provisions of such royalty trust or master limited partnership agreement.
Notwithstanding the foregoing provisions of this Section 4.07, if and to the extent any action by Opco or any of its Restricted Subsidiaries is not deemed to be an Affiliate Transaction (as defined in the applicable Opco Indenture) or is otherwise permitted under an Opco Indenture as in effect on the Issue Date to the extent the Opco Notes thereunder were outstanding at such time, such action by Opco or its Restricted Subsidiaries, as the case may be, shall not be deemed to be an Affiliate Transaction or shall be permitted under this Indenture and, therefore, will not be subject to the provisions of this Section 4.07.
SECTION 4.08 Change of Control .
(a) Upon the occurrence of a Change of Control, each holder shall have the right to require the Issuers to repurchase all or any part of such holders Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of the holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), in accordance with the terms contemplated in this Section 4.08; provided, however, that notwithstanding the occurrence of a Change of Control, the Issuer shall not be obligated to purchase any Notes pursuant to this Section 4.08 in the event that it has exercised its right to redeem such Notes in accordance with Article III of this Indenture. In the event that at the time of such Change of Control, the terms of the Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this Section 4.08, then prior to the mailing of the notice to the holders provided for in Section 4.08(b) but in any event within 30 days following any Change of Control, the Issuers shall (i) repay in full all Bank Indebtedness or, if doing so will allow the purchase of Notes, offer to repay in full all Bank Indebtedness and repay the Bank Indebtedness of each lender and/or noteholder who has accepted such offer, or (ii) obtain the requisite consent under the agreements governing the Bank Indebtedness to permit the repurchase of the Notes as provided for in Section 4.08(b).
(b) Within 30 days following any Change of Control, except to the extent that the Issuers have exercised their right to redeem the Notes in accordance with Article III of this Indenture, the Issuers shall mail, or cause to be mailed, by first-class mail, or otherwise delivered in accordance with the procedures of the Depository, a notice (a Change of Control Offer ) to each holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such holder has the right to require the Issuers to repurchase such holders Notes at a repurchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, to the date of repurchase (subject to the right of the holders of record on the relevant Record Date to receive interest on the relevant Interest Payment Date);
(ii) the circumstances and relevant facts and financial information regarding such Change of Control;
(iii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and
(iv) the instructions determined by the Issuers, consistent with this Section 4.08, that a holder must follow in order to have its Notes purchased.
(c) Holders electing to have a Note purchased shall be required to surrender the Note, with an appropriate form duly completed, to the Issuers at the address specified in the notice at least three Business Days prior to the purchase date. The holders shall be entitled to withdraw their election if the Trustee or the Issuers receive not later than one Business Day prior to the purchase date a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Note which was delivered for purchase by the holder and a statement that such holder is withdrawing his election to have such Note purchased. Holders
whose Notes are purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered.
(d) On the purchase date, all Notes purchased by the Issuers under this Section 4.08 shall be delivered to the Trustee for cancellation, and the Issuers shall pay the purchase price plus accrued and unpaid interest to the holders entitled thereto.
(e) A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making of the Change of Control Offer.
(f) Notwithstanding the foregoing provisions of this Section 4.08, the Issuers shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.08 applicable to a Change of Control Offer made by the Issuers and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
(g) Notes repurchased by the Issuers pursuant to a Change of Control Offer will have the status of Notes issued but not outstanding or will be retired and canceled at the option of the Issuers. Notes purchased by a third party pursuant to the preceding clause (f) will have the status of Notes issued and outstanding.
(h) At the time the Issuers deliver Notes to the Trustee which are to be accepted for purchase, EPE Holdings shall also deliver an Officers Certificate stating that such Notes are to be accepted by the Issuers pursuant to and in accordance with the terms of this Section 4.08. A Note shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering holder.
(i) Prior to any Change of Control Offer, EPE Holdings shall deliver to the Trustee an Officers Certificate stating that all conditions precedent contained herein to the right of the Issuers to make such offer have been complied with.
(j) The Issuers shall 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 Notes pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.08, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof.
SECTION 4.09 Compliance Certificate . EPE Holdings shall deliver to the Trustee within 120 days after the end of each fiscal year of EPE Holdings, beginning with the fiscal year ending on December 31, 2012, an Officers Certificate stating that in the course of the performance by the signers of their duties as Officers of EPE Holdings they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If any Officer does, the certificate shall describe the Default, its status and what action the Issuers are taking or propose to take with respect thereto. Except with respect to
receipt of payments of principal and interest on the Notes and any Default or Event of Default information contained in the Officers Certificate delivered to it pursuant to this Section 4.09, the Trustee shall have no duty to review, ascertain or confirm the Issuers compliance with or the breach of any representation, warranty or covenant made in this Indenture.
SECTION 4.10 Further Instruments and Acts . Upon request of the Trustee, the Issuers shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.
SECTION 4.11 Future Subsidiary Guarantors . EPE Holdings shall cause each Wholly Owned Restricted Subsidiary that is not an Excluded Subsidiary and that guarantees any Indebtedness of an Issuer to execute and deliver to the Trustee a supplemental indenture substantially in the form of Exhibit C hereto pursuant to which such Wholly Owned Restricted Subsidiary will guarantee the Issuers Obligations under the Notes and this Indenture.
SECTION 4.12 Liens .
(a) Neither Issuer will, directly or indirectly, create, Incur or suffer to exist any Lien (except Permitted Liens) on any asset or property of such Issuer securing Indebtedness of such Issuer unless the Notes are equally and ratably secured with (or on a senior basis to, in the case of obligations subordinated in right of payment to the Notes) the obligations so secured until such time as such obligations are no longer secured by a Lien.
(b) Section 4.12(a) shall not require an Issuer to secure the Notes if the Lien consists of a Permitted Lien. Any Lien that is granted to secure the Notes under Section 4.12(a) shall be automatically released and discharged at the same time as the release of the Lien that gave rise to the obligation to secure the Notes under such Section 4.12(a).
(c) For purposes of determining compliance with this Section 4.12, (i) a Lien securing an item of Indebtedness need not be permitted solely by reference to one category of permitted Liens described in the definition of Permitted Liens or pursuant to Section 4.12(a) but may be permitted in part under any combination thereof and (ii) in the event that a Lien securing an item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) meets the criteria of one or more of the categories of permitted Liens described in the definition of Permitted Liens or pursuant to Section 4.12(a), EPE Holdings shall, in its sole discretion, classify or reclassify, or later divide, classify or reclassify, such Lien securing such item of Indebtedness (or any portion thereof) in any manner that complies with this covenant and will only be required to include the amount and type of such Lien or such item of Indebtedness secured by such Lien in one of the clauses of the definition of Permitted Liens and such Lien securing such item of Indebtedness will be treated as being Incurred or existing pursuant to only one of such clauses or pursuant to Section 4.12(a).
(d) With respect to any Lien securing Indebtedness that was permitted to secure such Indebtedness at the time of the Incurrence of such Indebtedness, such Lien shall also be permitted to secure any Increased Amount of such Indebtedness. The Increased Amount of any Indebtedness shall mean any increase in the amount of such Indebtedness in connection with any accrual of interest, the accretion of accreted value, the amortization of original issue
discount, the payment of interest in the form of additional Indebtedness with the same terms or in the form of common stock of EPE Holdings, the payment of dividends on Preferred Stock in the form of additional shares of Preferred Stock of the same class, accretion of original issue discount or liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies or increases in the value of property securing Indebtedness described in clause (3) of the definition of Indebtedness.
SECTION 4.13 [Intentionally Omitted] .
SECTION 4.14 Maintenance of Office or Agency .
(a) The Issuers shall maintain an office or agency (which may be an office of the Trustee or an affiliate of the Trustee or Registrar) where Notes may be surrendered for registration of transfer or for exchange. The Issuers shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuers shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations and surrenders may be made at the Corporate Trust Office of the Trustee as set forth in Section 14.01.
(b) The Issuers may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided , however , that no such designation or rescission shall in any manner relieve an Issuer of its obligation to maintain an office or agency for such purposes. The Issuers shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
(c) The Issuers hereby designates the Corporate Trust Office of the Trustee or its agent as such office or agency of the Issuers in accordance with Section 2.04.
SECTION 4.15 Covenant Suspension . If on any date following the Issue Date, (i) the Notes have Investment Grade Ratings from both Rating Agencies, and (ii) no Default has occurred and is continuing under this Indenture, then, beginning on that day (the occurrence of the events described in the foregoing clauses (i) and (ii) being collectively referred to as a Covenant Suspension Event ), and subject to the provisions of the following paragraph, the Issuers and the Restricted Subsidiaries shall not be subject to Sections 4.03, 4.04, 4.05, 4.06, 4.07, 4.11 and 5.01(a)(iv) (collectively the Suspended Covenants ). The Issuers shall provide the Trustee with written notice of a Covenant Suspension Event within five Business Days of the occurrence of such Covenant Suspension Event.
In the event that EPE Holdings and its Restricted Subsidiaries are not subject to the Suspended Covenants under this Indenture for any period of time as a result of the foregoing, and on any subsequent date (the Reversion Date ) one or both of the Rating Agencies withdraw their Investment Grade Rating or downgrade the rating assigned to the Notes below an Investment Grade Rating, then EPE Holdings and its Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants under this Indenture with respect to future events. The
Issuers shall provide the Trustee with written notice of the Reversion Date within five Business Days of the occurrence of such Reversion Date.
On each Reversion Date, all Indebtedness Incurred, or Disqualified Stock or Preferred Stock issued, during the Suspension Period will be classified as having been Incurred or issued pursuant to Sections 4.03(a) and (b) (to the extent such Indebtedness or Disqualified Stock or Preferred Stock would be permitted to be Incurred or issued thereunder as of the Reversion Date and after giving effect to Indebtedness Incurred or issued prior to the Suspension Period and outstanding on the Reversion Date). To the extent such Indebtedness or Disqualified Stock or Preferred Stock would not be so permitted to be Incurred or issued pursuant to Sections 4.03(a) and (b), such Indebtedness or Disqualified Stock or Preferred Stock will be deemed to have been outstanding on the Issue Date, so that it is classified as permitted under Section 4.03(b)(iii). Calculations made after the Reversion Date of the amount available to be made as Restricted Payments under Section 4.04 will be made as though Section 4.04 had been in effect since the Issue Date and prior to, but not during, the Suspension Period. Accordingly, Restricted Payments made during the Suspension Period will not reduce the amount available to be made as Restricted Payments under Section 4.04(a). As described above, however, no Default or Event of Default will be deemed to have occurred on the Reversion Date as a result of any actions taken by EPE Holdings or its Restricted Subsidiaries during the Suspension Period. Within 30 days of such Reversion Date, the Issuers must comply with the terms of Section 4.11.
For purposes of Section 4.06, on the Reversion Date, the unutilized Excess Proceeds amount will be reset to zero.
ARTICLE V
SUCCESSOR COMPANY
SECTION 5.01 When Issuers May Merge or Transfer Assets .
(a) EPE Holdings may not, directly or indirectly, consolidate, amalgamate or merge with or into or wind up or convert into (whether or not EPE Holdings is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to any Person unless:
(i) EPE Holdings is the surviving person or the Person formed by or surviving any such consolidation, amalgamation, merger, winding up or conversion (if other than EPE Holdings) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation, partnership or limited liability company organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (EPE Holdings or such Person, as the case may be, being herein called the Successor Holdco ); provided that in the case where the surviving Person is not a corporation, a co-obligor of the Notes is a corporation;
(ii) the Successor Holdco (if other than EPE Holdings) expressly assumes all the obligations of EPE Holdings under this Indenture pursuant to supplemental indentures;
(iii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Holdco, or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Holdco, or such Issuer or such Restricted Subsidiary at the time of such transaction) no Default shall have occurred and be continuing;
(iv) immediately after giving pro forma effect to such transaction, as if such transaction had occurred at the beginning of the applicable four-quarter period (and treating any Indebtedness which becomes an obligation of the Successor Holdco, or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Holdco, or such Restricted Subsidiary at the time of such transaction), either
(1) the Successor Holdco would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.03(a)(ii)(A); or
(2) the Fixed Charge Coverage Ratio for the Successor Holdco and its Restricted Subsidiaries would be greater than such ratio for EPE Holdings and its Restricted Subsidiaries immediately prior to such transaction;
(v) if EPE Holdings is not the Successor Holdco, each Subsidiary Guarantor, unless it is the other party to the transactions described above, shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to such Persons obligations under this Indenture and the Notes; and
(vi) the Successor Holdco shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger, amalgamation or transfer and such supplemental indentures (if any) comply with this Indenture.
The Successor Holdco (if other than EPE Holdings) will succeed to, and be substituted for, EPE Holdings under this Indenture and the Notes, and in such event EPE Holdings will automatically be released and discharged from its obligations under this Indenture and the Notes. Notwithstanding the foregoing clauses (iii) and (iv) of this Section 5.01, (a) EPE Holdings or any Restricted Subsidiary may merge, consolidate or amalgamate with or transfer all or part of its properties and assets to EPE Holdings or to a Restricted Subsidiary, and (b) EPE Holdings may merge, consolidate or amalgamate with an Affiliate incorporated solely for the purpose of reincorporating EPE Holdings in another state of the United States, the District of Columbia or any territory of the United States or may convert into a corporation, partnership or limited liability company, so long as the amount of Indebtedness of EPE Holdings and the Restricted Subsidiaries is not increased thereby. This Article V will not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among EPE Holdings and the Restricted Subsidiaries.
(b) Subject to the provisions of Section 12.02(b)(i), no Subsidiary Guarantor shall, and EPE Holdings shall not permit any Subsidiary Guarantor to, consolidate, amalgamate or merge with or into or wind up into (whether or not such Subsidiary Guarantor is the surviving
Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person unless:
(i) either (A) such Subsidiary Guarantor is the surviving Person or the Person formed by or surviving any such consolidation, amalgamation or merger (if other than such Subsidiary Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a company, corporation, partnership or limited liability company (in the case of such Subsidiary Guarantor) or similar entity organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such Subsidiary Guarantor or such Person, as the case may be, being herein called the Successor Subsidiary Guarantor ) and the Successor Subsidiary Guarantor (if other than such Subsidiary Guarantor) expressly assumes all the obligations of such Subsidiary Guarantor under this Indenture and the Notes or the Subsidiary Guarantee, as applicable, pursuant to a supplemental indenture, or (B) such sale or disposition or consolidation, amalgamation or merger is not in violation of Section 4.06; and
(ii) the Successor Subsidiary Guarantor (if other than such Subsidiary Guarantor) shall have delivered or caused to be delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, amalgamation, merger or transfer and such supplemental indenture (if any) comply with this Indenture.
Except as otherwise provided in this Indenture, the Successor Subsidiary Guarantor (if other than such Subsidiary Guarantor) will succeed to, and be substituted for, such Subsidiary Guarantor under this Indenture and the Notes or the Subsidiary Guarantee, as applicable, and such Subsidiary Guarantor will automatically be released and discharged from its obligations under this Indenture and its Subsidiary Guarantee. Notwithstanding the foregoing, (1) a Subsidiary Guarantor may merge, amalgamate or consolidate with an Affiliate incorporated solely for the purpose of reincorporating such Subsidiary Guarantor in another state of the United States, the District of Columbia or any territory of the United States or may convert into a limited liability company, corporation, partnership or similar entity organized or existing under the laws of another state of the United States, the District of Columbia or any territory of the United States so long as the amount of Indebtedness of such Subsidiary Guarantor is not increased thereby and (2) a Subsidiary Guarantor may merge, amalgamate or consolidate with an Issuer or another Subsidiary Guarantor.
In addition, notwithstanding the foregoing, a Subsidiary Guarantor may consolidate, amalgamate or merge with or into or wind up into, liquidate, dissolve, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets (collectively, a Transfer ) to an Issuer or any Subsidiary Guarantor.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default . An Event of Default occurs with respect to Notes if:
(a) there is a default in any payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days,
(b) there is a default in the payment of principal or premium, if any, of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise,
(c) there is a failure by EPE Holdings for 120 days after receipt of written notice given by the Trustee or the holders of not less than 30% in aggregate principal amount of the Notes then outstanding (with a copy to the Trustee) to comply with any of its obligations, covenants or agreements in Section 4.02,
(d) there is a failure by EPE Holdings or any Restricted Subsidiary for 60 days after written notice given by the Trustee or the holders of not less than 30% in principal amount of the Notes then outstanding (with a copy to the Trustee) to comply with its other obligations, covenants or agreements (other than a default referred to in clauses (a), (b) and (c) above) contained in the Notes or this Indenture,
(e) there is a failure by EPE Holdings or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) to pay any Indebtedness (other than Indebtedness owing to EPE Holdings or a Restricted Subsidiary) within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, in each case, if the total amount of such Indebtedness unpaid or accelerated exceeds $125.0 million or its foreign currency equivalent,
(f) EPE Holdings or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in an involuntary case;
(iii) consents to the appointment of a Custodian of it or for any substantial part of its property; or
(iv) makes a general assignment for the benefit of its creditors or takes any comparable action under any foreign laws relating to insolvency,
(g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against EPE Holdings or any Significant Subsidiary in an involuntary case;
(ii) appoints a Custodian of EPE Holdings or any Significant Subsidiary or for any substantial part of its property; or
(iii) orders the winding up or liquidation of EPE Holdings or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days,
(h) there is a failure by EPE Holdings or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) to pay final judgments aggregating in excess of $125.0 million or its foreign currency equivalent (net of any amounts which are covered by enforceable insurance policies issued by solvent carriers), which judgments are not discharged, waived or stayed for a period of 60 days, or
(i) the Subsidiary Guarantee of a Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) with respect to the Notes ceases to be in full force and effect (except as contemplated by the terms thereof) or an Issuer or any Subsidiary Guarantor that qualifies as a Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) denies or disaffirms its obligations under this Indenture or any Subsidiary Guarantee with respect to the Notes and such Default continues for 10 days.
The foregoing shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.
However, a default under clause (c) or (d) above shall not constitute an Event of Default until the Trustee or the holders of 30% in principal amount of outstanding Notes notify the Issuers, with a copy to the Trustee, of the default and the Issuers do not cure such default within the time specified in clauses (c) or (d) hereof after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a Notice of Default . EPE Holdings shall deliver to the Trustee, within five Business Days after the occurrence thereof, written notice in the form of an Officers Certificate of any event which is, or with the giving of notice or the lapse of time or both would become, an Event of Default, its status and what action the Issuers are taking or propose to take with respect thereto.
The term Bankruptcy Law means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term Custodian means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.
SECTION 6.02 Acceleration . If an Event of Default (other than an Event of Default specified in Section 6.01(f) or (g) hereof with respect to EPE Holdings) occurs with respect to the Notes and is continuing, the Trustee or the holders of at least 30% in principal
amount of outstanding Notes (with a copy to the Trustee) by notice to the Issuers may declare the principal of, premium, if any, and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(f) or (g) with respect to EPE Holdings occurs, the principal of, premium, if any, and interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any holders. Under certain circumstances, the holders of a majority in principal amount of outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.
In the event of any Event of Default specified in Section 6.01(e), such Event of Default and all consequences thereof (excluding, however, any resulting payment default) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the holders of the Notes, if within 20 days after such Event of Default arose EPE Holdings delivers an Officers Certificate to the Trustee stating that (x) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged or (y) the holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default or (z) the default that is the basis for such Event of Default has been cured, it being understood that in no event shall an acceleration of the principal amount of the Notes as described above be annulled, waived or rescinded upon the happening of any such events.
SECTION 6.03 Other Remedies . If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy at law or in equity to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes, this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. To the extent required by law, all available remedies are cumulative.
SECTION 6.04 Waiver of Past Defaults . Provided the Notes are not then due and payable by reason of a declaration of acceleration, the holders of a majority in principal amount of the Notes by written notice to the Trustee may waive an existing Default and its consequences except (a) a Default in the payment of the principal of or interest on a Note, (b) a Default arising from the failure to redeem or purchase any Note when required pursuant to the terms of this Indenture or (c) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each holder affected. When a Default is waived, it is deemed cured and the Issuers, the Trustee and the holders will be restored to their former positions and rights under this Indenture, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.
SECTION 6.05 Control by Majority . The holders of a majority in principal amount of Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, if the Trustee, being advised by counsel, determines that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith shall determine that the action or proceeding so directed would involve the Trustee in personal liability or expense for which it is not adequately indemnified, or subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under this Indenture, the Trustee shall be entitled to indemnification satisfactory to it against all losses and expenses caused by taking or not taking such action.
SECTION 6.06 Limitation on Suits .
(a) Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder may pursue any remedy with respect to this Indenture or the Notes unless:
(i) such holder has previously given the Trustee notice that an Event of Default is continuing,
(ii) holders of at least 30% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy,
(iii) such holders have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity, and
(v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period.
(b) A holder may not use this Indenture to prejudice the rights of another holder or to obtain a preference or priority over another holder.
SECTION 6.07 Rights of the Holders to Receive Payment . Notwithstanding any other provision of this Indenture, the right of any holder to receive payment of principal of and interest on the Notes held by such holder, on or after the respective due dates expressed or provided for in the Notes, or to bring 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.
SECTION 6.08 Collection Suit by Trustee . If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuers or any other obligor on the Notes for the whole amount then due and owing (together with interest on overdue principal and (to the extent lawful) on any unpaid interest at the rate provided for in the Notes) and the amounts provided for in Section 7.07.
SECTION 6.09 Trustee May File Proofs of Claim . The Trustee may file such proofs of claim, statements of interest and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation, expenses disbursements and advances of the Trustee (including counsel, accountants, experts or such other professionals as the Trustee deems necessary, advisable or appropriate)) and the holders allowed in any judicial proceedings relative to the Issuer, the Subsidiary Guarantors, their creditors or their property, shall be entitled to participate as a member, voting or otherwise, of any official committee of creditors appointed in such matters and, unless prohibited by law or applicable regulations, may vote on behalf of the holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any holder, or to authorize the Trustee to vote in respect of the claim of any holder in any such proceeding.
SECTION 6.10 Priorities . Any money or property collected by the Trustee pursuant to this Article VI and any other money or property distributable in respect of the Issuers or any Subsidiary Guarantors obligations under this Indenture after an Event of Default shall be applied in the following order:
FIRST: to the Trustee for amounts due hereunder;
SECOND: to the holders for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and
THIRD: to the Issuers or, to the extent the Trustee collects any amount for any Subsidiary Guarantor, to such Subsidiary Guarantor.
The Trustee may fix a record date and payment date for any payment to the holders pursuant to this Section 6.10. At least 15 days before such record date, the Trustee shall mail, or otherwise deliver in accordance with the procedures of the Depository, to each holder and the Issuers a notice that states the record date, the payment date and the amount to be paid.
SECTION 6.11 Undertaking for Costs . In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Article VI does not apply to a suit by the Trustee, a suit by a holder pursuant to Section 6.07 or a suit by holders of more than 10% in principal amount of the Notes.
SECTION 6.12 Waiver of Stay or Extension Laws . Neither the Issuers nor any Subsidiary Guarantor (to the extent it may lawfully do so) shall at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuers and the Subsidiary Guarantors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE VII
TRUSTEE
SECTION 7.01 Duties of Trustee .
(a) The Trustee, prior to the occurrence of an Event of Default with respect to the Notes and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such persons own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee (it being agreed that the permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty); and
(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee shall be under no duty to make any investigation as to any statement contained in any such instance, but may accept the same as conclusive evidence of the truth and accuracy of such statement or the correctness of such opinions. However, in the case of certificates or opinions required by any provision hereof to be provided to it, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05; and
(iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise Incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers.
(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuer.
(f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 7.01(c).
SECTION 7.02 Rights of Trustee .
(a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officers Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be responsible or liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided , however , that the Trustees conduct does not constitute willful misconduct or negligence.
(e) The Trustee may consult with counsel of its own selection and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect of any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document unless requested in writing to do so by the holders of not less than a majority in principal amount of the Notes at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers, personally or by agent or attorney, at the expense of the Issuers and shall Incur no liability of any kind by reason of such inquiry or investigation.
(g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the holders pursuant to this Indenture, unless such holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be Incurred by it in compliance with such request or direction.
(h) The rights, privileges, protections, immunities and benefits given to the Trustee, including its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
(i) The Trustee shall not be responsible or liable for any action taken or omitted by it in good faith at the direction of the holders of not less than a majority in principal amount of the Notes as to the time, method and place of conducting any proceedings for any remedy available to the Trustee or the exercising of any power conferred by this Indenture.
(j) Any action taken, or omitted to be taken, by the Trustee in good faith pursuant to this Indenture upon the request or authority or consent of any person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding upon future holders of Notes and upon Notes executed and delivered in exchange therefor or in place thereof.
(k) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a Default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture.
(l) The Trustee may request that the Issuers deliver an Officers Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers Certificate may be signed by any Person authorized to sign an Officers Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded.
(m) The Trustee shall not be responsible or liable for punitive, special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to,
loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of actions.
(n) The Trustee shall not be required to give any bond or surety in respect of the execution of the trusts and powers under this Indenture.
(o) The Trustee shall not be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fire; flood; terrorism; wars and other military disturbances; sabotage; epidemics; riots; interruptions; loss or malfunction of utilities, computer (hardware or software) or communication services; accidents; labor disputes; and acts of civil or military authorities and governmental action.
SECTION 7.03 Individual Rights of Trustee . The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuers or their Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent or Registrar may do the same with like rights. However, the Trustee must comply with Section 7.10 and 7.11.
SECTION 7.04 Trustees Disclaimer . The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Subsidiary Guarantees or the Notes, it shall not be accountable for the Issuers use of the proceeds from the Notes, and it shall not be responsible for any statement of the Issuers or any Subsidiary Guarantor in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustees certificate of authentication. The Trustee shall not be charged with knowledge of any Default or Event of Default under Sections 6.01(c), (d), (e), (f), (g), (h) or (i) or of the identity of any Significant Subsidiary unless either (a) a Trust Officer shall have actual knowledge thereof or (b) the Trustee shall have received written notice thereof in accordance with Section 14.01 hereof from the Issuers, any Subsidiary Guarantor or any holder. In accepting the trust hereby created, the Trustee acts solely as Trustee under this Indenture and not in its individual capacity and all persons, including without limitation the holders of Notes and the Issuers having any claim against the Trustee arising from this Indenture shall look only to the funds and accounts held by the Trustee hereunder for payment except as otherwise provided herein.
SECTION 7.05 Notice of Defaults . If a Default occurs and is continuing and is actually known to a Trust Officer or the Trustee, the Trustee shall mail to each holder of the Notes notice of the Default within the earlier of 90 days after it occurs or 30 days after it is actually known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default in the payment of principal of, premium (if any) or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of the noteholders. EPE Holdings is required to deliver to the Trustee, annually, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. EPE Holdings also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event
which would constitute certain Defaults, their status and what action EPE Holdings is taking or proposes to take in respect thereof.
SECTION 7.06 [Intentionally Omitted] .
SECTION 7.07 Compensation and Indemnity . The Issuers shall pay to the Trustee from time to time compensation for the Trustees acceptance of this Indenture and its services hereunder. The Trustees compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuers shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses Incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustees agents, counsel, accountants and experts. The Issuers and the Subsidiary Guarantors, jointly and severally, shall indemnify the Trustee or any predecessor Trustee and their directors, officers, employees and agents against any and all loss, liability, claim, damage or expense (including reasonable attorneys fees and expenses and including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) Incurred by or in connection with the acceptance or administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture or Subsidiary Guarantee against any Issuer or any Subsidiary Guarantor (including this Section 7.07) and defending itself against or investigating any claim (whether asserted by any Issuer, any Subsidiary Guarantor, any holder or any other Person). The obligation to pay such amounts shall survive the payment in full or defeasance of the Notes or the removal or resignation of the Trustee. The Trustee shall notify the Issuers of any claim for which it may seek indemnity promptly upon obtaining actual knowledge thereof; provided , however , that any failure so to notify the Issuers shall not relieve any Issuer or any Subsidiary Guarantor of its indemnity obligations hereunder. The Issuers shall defend the claim and the indemnified party shall provide reasonable cooperation at the Issuers expense in the defense. Such indemnified parties may have separate counsel and the Issuers and such Subsidiary Guarantor, as applicable, shall pay the fees and expenses of such counsel; provided , however , that the Issuers shall not be required to pay such fees and expenses if it assumes such indemnified parties defense and, in such indemnified parties reasonable judgment, there is no actual or potential conflict of interest between the Issuers and the Subsidiary Guarantor, as applicable, and such parties in connection with such defense. The Issuers need not reimburse any expense or indemnify against any loss, liability or expense Incurred by an indemnified party through such partys own willful misconduct, negligence or bad faith.
To secure the Issuers and the Subsidiary Guarantors payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Notes.
The Issuers and the Subsidiary Guarantors payment obligations pursuant to this Section 7.07 shall survive the satisfaction or discharge of this Indenture, any rejection or termination of this Indenture under any bankruptcy law or the resignation or removal of the Trustee. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee Incurs expenses after the occurrence of a Default specified in Section 6.01(f) or
(g) with respect to the Issuer, the expenses are intended to constitute expenses of administration under the Bankruptcy Law.
No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise Incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if repayment of such funds or adequate indemnity against such risk or liability is not assured to its satisfaction.
SECTION 7.08 Replacement of Trustee .
(a) The Trustee may resign at any time by so notifying the Issuer. The holders of a majority in principal amount of the Notes may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Issuers shall remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
(b) If the Trustee resigns, is removed by the Issuers or by the holders of a majority in principal amount of the Notes and such holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Issuers shall promptly appoint a successor Trustee.
(c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail, or otherwise deliver in accordance with the procedures of the Depository, a notice of its succession to the holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 7.07.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the holders of 10% in principal amount of the Notes may petition at the expense of the Issuers any court of competent jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee fails to comply with Section 7.10 , unless the Trustees duty to resign is stayed as provided in Section 310(b) of the TIA, any holder who has been a bona fide holder of a Note for at least six months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) Notwithstanding the replacement of the Trustee pursuant to this Section, the Issuers obligations under Section 7.07 shall continue for the benefit of the retiring Trustee.
SECTION 7.09 Successor Trustee by Merger . If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation or banking association without any further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have.
SECTION 7.10 Eligibility; Disqualification . The Trustee shall at all times satisfy the requirements of Section 310(a) of the TIA. The Trustee shall have a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. The Trustee shall comply with Section 310(b) of the TIA, subject to its right to apply for a stay of its duty to resign under the penultimate paragraph of Section 310(b) of the TIA; provided , however , that there shall be excluded from the operation of Section 310(b)(1) of the TIA any series of securities issued under this Indenture and any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Issuers are outstanding if the requirements for such exclusion set forth in Section 310(b)(1) of the TIA are met.
SECTION 7.11 Preferential Collection of Claims Against the Issuers . The Trustee shall comply with Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated.
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01 Discharge of Liability on Notes; Defeasance .
(a) This Indenture shall be discharged and shall cease to be of further effect (except as to surviving rights and immunities of the Trustee and rights of registration of transfer or exchange of Notes, as expressly provided for in this Indenture) as to all outstanding Notes when:
(i) either (A) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by
the Issuers and thereafter repaid to the Issuers or discharged from such trust) have been delivered to the Trustee for cancellation or (B) all of the Notes (1) have become due and payable, (2) will become due and payable at their stated maturity within one year or (3) if redeemable at the option of the Issuers, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuers, and the Issuers have irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Issuers directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;
(ii) the Issuers and/or the Subsidiary Guarantors have paid all other sums payable under this Indenture; and
(iii) the Issuers have delivered to the Trustee an Officers Certificate and an Opinion of Counsel stating that all conditions precedent under this Indenture relating to the satisfaction and discharge of this Indenture have been complied with.
(b) Subject to Sections 8.01(c) and 8.02, the Issuers at any time may terminate (i) all of their obligations under the Notes and this Indenture with respect to the holders of the Notes ( legal defeasance option ), and (ii) their obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.11, 4.12 and 4.15 and the operation of Section 5.01 for the benefit of the holders of the Notes, and Sections 6.01(c), 6.01(d), 6.01(e), 6.01(f), 6.01(g) (in the case of Sections 6.01(f) and 6.01(g) with respect to Significant Subsidiaries of the Issuers only), 6.01(h) and 6.01(i) ( covenant defeasance option ). The Issuers may exercise their legal defeasance option notwithstanding their prior exercise of their covenant defeasance option. In the event that the Issuers terminate all of their obligations under the Notes and this Indenture (with respect to such Notes) by exercising their legal defeasance option or their covenant defeasance option, the obligations of each Subsidiary Guarantor with respect to its Subsidiary Guarantee shall be terminated simultaneously with the termination of such obligations.
If the Issuers exercises their legal defeasance option, payment of the Notes so defeased may not be accelerated because of an Event of Default. If the Issuers exercise their covenant defeasance option, payment of the Notes so defeased may not be accelerated because of an Event of Default specified in Sections 6.01(c), 6.01(d), 6.01(e), 6.01(f), 6.01(g) (with respect to Significant Subsidiaries of EPE Holdings only), 6.01(h) and 6.01(i) or because of the failure of EPE Holdings to comply with Section 5.01.
Upon satisfaction of the conditions set forth herein and upon request of the Issuers, the Trustee shall acknowledge in writing the discharge of those obligations that the Issuers terminate.
(c) Notwithstanding clauses (a) and (b) above, the Issuers obligations in Sections 2.04, 2.05, 2.06, 2.07, 2.08 and 2.09 and Article VII, including, without limitation, Sections 7.07, 7.08 and 7.09, and in this Article VIII and the rights and immunities of the Trustee
under this Indenture shall survive until the Notes have been paid in full. Thereafter, the Issuers obligations in Sections 7.07, 7.08, 8.05 and 8.06 and the rights and immunities of the Trustee under this Indenture shall survive such satisfaction and discharge.
SECTION 8.02 Conditions to Defeasance .
(a) The Issuers may exercise their legal defeasance option or their covenant defeasance option only if:
(i) the Issuers irrevocably deposit in trust with the Trustee cash in U.S. Dollars, U.S. Government Obligations or a combination thereof sufficient, or a combination thereof sufficient, to pay the principal of and premium (if any) and interest on the Notes when due at maturity or redemption, as the case may be;
(ii) the Issuers deliver to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal, premium, if any, and interest when due on all the Notes to maturity or redemption, as the case may be;
(iii) no Default specified in Section 6.01(f) or (g) with respect to the Issuers shall have occurred or is continuing on the date of such deposit;
(iv) the deposit does not constitute a default under any other material agreement or instrument binding on the Issuers;
(v) in the case of the legal defeasance option, the Issuers shall have delivered to the Trustee an Opinion of Counsel stating that (1) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling, or (2) since the date of this Indenture there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. Notwithstanding the foregoing, the Opinion of Counsel required by the immediately preceding sentence with respect to a legal defeasance need not be delivered if all of the Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable or (y) will become due and payable at their Stated Maturity within one year under arrangements for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuer;
(vi) such exercise does not impair the right of any holder to receive payment of principal of, premium, if any, and interest on such holders Notes on or after the due dates therefore or to institute suit for the enforcement of any payment on or with respect to such holders Notes;
(vii) in the case of the covenant defeasance option, the Issuers shall have delivered to the Trustee an Opinion of Counsel to the effect that the holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and
(viii) the Issuers deliver to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes to be so defeased and discharged as contemplated by this Article VIII have been complied with.
(b) Before or after a deposit, the Issuers may make arrangements satisfactory to the Trustee for the redemption of such Notes at a future date in accordance with Article III.
SECTION 8.03 Application of Trust Money . The Trustee shall hold in trust money or U.S. Government Obligations (including proceeds thereof) deposited with it pursuant to this Article VIII. The Trustee shall apply the deposited money and the money from U.S. Government Obligations through each Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Notes so discharged or defeased.
SECTION 8.04 Repayment to Issuer . Each of the Trustee and each Paying Agent shall promptly turn over to the Issuers upon request any money or U.S. Government Obligations held by it as provided in this Article VIII that, in the written opinion of a nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent discharge or defeasance in accordance with this Article VIII.
Subject to any applicable abandoned property law, the Trustee and each Paying Agent shall pay to the Issuers upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, holders entitled to the money must look to the Issuers for payment as general creditors, and the Trustee and each Paying Agent shall have no further liability with respect to such monies.
SECTION 8.05 Indemnity for U.S. Government Obligations . The Issuers shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations.
SECTION 8.06 Reinstatement . If the Trustee or any Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuers obligations under this Indenture and the Notes so discharged or defeased shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or any Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article VIII; provided , however , that, if the Issuers have made any payment of principal of, or interest on, any such Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or any Paying Agent.
ARTICLE IX
AMENDMENTS AND WAIVERS
SECTION 9.01 Without Consent of the Holders .
(a) The Issuers and the Trustee may amend this Indenture, the Notes and the Subsidiary Guarantees without notice to or consent of any holder:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to provide for the assumption by a Successor (with respect to an Issuer) of the obligations of an Issuer under this Indenture and the Notes;
(iii) to provide for the assumption by a Successor Subsidiary Guarantor (with respect to any Subsidiary Guarantor), as the case may be, of the obligations of a Subsidiary Guarantor under this Indenture and its Subsidiary Guarantee;
(iv) to provide for uncertificated Notes in addition to or in place of certificated Notes, provided , however , that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated notes are described in Section 163(f)(2)(B) of the Code;
(v) to conform the text of this Indenture, the Notes or the Subsidiary Guarantees to any provision of the Description of Notes in the Offering Memorandum to the extent that such provision in this Indenture, the Notes or the Subsidiary Guarantees was intended by the Issuers to be verbatim recitation of a provision in the Description of Notes in the Offering Memorandum, as stated in an Officers Certificate;
(vi) to add a Subsidiary Guarantee with respect to the Notes,
(vii) [intentionally omitted];
(viii) to release a Subsidiary Guarantee as permitted by this Indenture;
(ix) [intentionally omitted];
(x) to add to the covenants of the Issuers for the benefit of the holders or to surrender any right or power herein conferred upon the Issuers;
(xi) to comply with any requirement of the SEC in connection with qualifying or maintaining the qualification of, this Indenture under the TIA;
(xii) to make any change that does not adversely affect the rights of any holder;
(xiii) to provide for the issuance of Additional Notes, which shall have terms substantially identical in all material respects to the Initial Notes, and which shall be treated, together with any outstanding Initial Notes, as a single issue of securities; or
(xiv) in the event that PIK Notes are issued in certificated form, to make appropriate changes to this Indenture to reflect an approximate minimum denomination of certificated PIK Notes and to establish minimum redemption amounts for certificated PIK Notes.
(b) [Intentionally Omitted].
(c) After an amendment under this Section 9.01 becomes effective, the Issuers shall mail, or otherwise deliver in accordance with the procedures of the Depository, to the holders a notice briefly describing such amendment. The failure to give such notice to all holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.01.
SECTION 9.02 With Consent of the Holders . The Issuers and the Trustee may amend this Indenture, the Notes and the Subsidiary Guarantees with the consent of the Issuers and the holders of at least a majority in principal amount of the Notes then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange for the Notes). However, without the consent of each holder of an outstanding Note affected, an amendment may not:
(1) reduce the amount of Notes whose holders must consent to an amendment,
(2) reduce the rate of or extend the time for payment of interest on any Note,
(3) reduce the principal of or change the Stated Maturity of any Note,
(4) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed in accordance with Article III,
(5) make any Note payable in money other than that stated in such Note,
(6) expressly subordinate the Notes or any related Subsidiary Guarantee to any other Indebtedness of an Issuer or any Subsidiary Guarantor,
(7) impair the right of any holder to receive payment of principal of, premium, if any, and interest on such holders Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holders Notes, or
(8) make any change in the amendment provisions which require each holders consent or in the waiver provisions.
Except as expressly provided by this Indenture, without the consent of holders of at least 66.67% in aggregate principal amount of Notes then outstanding, no amendment may modify or release the Subsidiary Guarantee of any Significant Subsidiary in any manner adverse to the holders of the Notes.
It shall not be necessary for the consent of the holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section 9.02 becomes effective, the Issuers shall mail, or otherwise deliver in accordance with the procedures of the Depository, to the holders a notice briefly describing such amendment. The failure to give such notice to all holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.02.
SECTION 9.03 Revocation and Effect of Consents and Waivers .
(a) A consent to an amendment or a waiver by a holder of a Note shall bind the holder and every subsequent holder of that Note or portion of the Note that evidences the same debt as the consenting holders Note, even if notation of the consent or waiver is not made on the Note. However, any such holder or subsequent holder may revoke the consent or waiver as to such holders Note or portion of the Note if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers Certificate from EPE Holdings certifying that the requisite principal amount of Notes have consented. After an amendment or waiver becomes effective, it shall bind every holder. An amendment or waiver becomes effective upon the (i) receipt by the Issuers or the Trustee of consents by the holders of the requisite principal amount of securities, (ii) satisfaction of conditions to effectiveness as set forth in this Indenture and any indenture supplemental hereto containing such amendment or waiver and (iii) execution of such amendment or waiver (or supplemental indenture) by the Issuers and the Trustee.
(b) The Issuers may, but shall not be obligated to, fix a record date for the purpose of determining the holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date.
SECTION 9.04 Notation on or Exchange of Notes . If an amendment, supplement or waiver changes the terms of a Note, the Issuers may require the holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the holder. Alternatively, if the Issuers or the Trustee so determine, the Issuers in exchange for the Note shall issue and, upon written order of each Issuer signed by an Officer, the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment, supplement or waiver.
SECTION 9.05 Trustee to Sign Amendments . The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment, the Trustee shall be entitled to receive indemnity satisfactory to it and shall be provided with, and (subject to Section 7.01) shall be fully protected in relying upon, (i) an Officers Certificate, (ii) an Opinion of Counsel stating that such amendment, supplement or waiver is authorized or permitted by this Indenture and that such amendment, supplement or waiver is the legal, valid and binding obligation of the Issuers and any Subsidiary Guarantors, enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof, (iii) a copy of the resolution of the Board of Directors, certified by the Secretary or Assistant Secretary of EPE Holdings, authorizing the execution of such amendment, supplement or waiver and (iv) if such amendment, supplement or waiver is executed pursuant to Section 9.02, evidence reasonably satisfactory to the Trustee of the consent of the holders required to consent thereto.
SECTION 9.06 Additional Voting Terms; Calculation of Principal Amount . All Notes issued under this Indenture shall vote and consent together on all matters (as to which any of such Notes may vote) as one class and no Notes will have the right to vote or consent as a separate class on any matter. Determinations as to whether holders of the requisite aggregate principal amount of Notes have concurred in any direction, waiver or consent shall be made in accordance with this Article IX and Section 2.13.
ARTICLE X
[INTENTIONALLY OMITTED]
ARTICLE XI
[INTENTIONALLY OMITTED]
ARTICLE XII
GUARANTEE
SECTION 12.01 Guarantee .
(a) Although initially there are no Subsidiary Guarantees under this Indenture, this Article XII describes the terms of any Subsidiary Guarantee that may be required to be issued hereunder from time to time pursuant to Section 4.11 hereof and will apply to any Person only from and after the date it becomes a Subsidiary Guarantor. Each Subsidiary Guarantor (if any) hereby jointly and severally, irrevocably and unconditionally guarantees, on a senior unsecured basis from the Issue Date, as a primary obligor and not merely as a surety, to each holder and to the Trustee and its successors and assigns (i) the performance and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Issuers under this Indenture and the Notes, whether for payment of principal of, premium, if any, or interest on the Notes and all other monetary obligations of the Issuers under this Indenture and the Notes and (ii) the full and punctual performance within applicable grace
periods of all other obligations of the Issuers whether for fees, expenses, indemnification or otherwise under this Indenture and the Notes (all the foregoing being hereinafter collectively called the Subsidiary Guaranteed Obligations ). Each Subsidiary Guarantor further agrees that the Subsidiary Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from any Subsidiary Guarantor, and that each Subsidiary Guarantor shall remain bound under this Article XII notwithstanding any extension or renewal of any Subsidiary Guaranteed Obligation.
(b) Each Subsidiary Guarantor waives presentation to, demand of payment from and protest to the Issuers of any of the Subsidiary Guaranteed Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Notes or the Subsidiary Guaranteed Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be affected by (i) the failure of any holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Issuers or any other Person under this Indenture, the Notes or any other agreement or otherwise; (ii) any extension or renewal of this Indenture, the Notes or any other agreement; (iii) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Notes or any other agreement; (iv) the release of any security held by any holder or the Trustee for the Subsidiary Guaranteed Obligations or each Subsidiary Guarantor; (v) the failure of any holder or Trustee to exercise any right or remedy against any other guarantor of the Subsidiary Guaranteed Obligations; or (vi) any change in the ownership of each Subsidiary Guarantor, except as provided in Section 12.02(b). Each Subsidiary Guarantor hereby waives any right to which it may be entitled to have its obligations hereunder divided among the Subsidiary Guarantors, such that such Subsidiary Guarantors obligations would be less than the full amount claimed.
(c) Each Subsidiary Guarantor hereby waives any right to which it may be entitled to have the assets of the Issuers first be used and depleted as payment of the Issuers or such Subsidiary Guarantors obligations hereunder prior to any amounts being claimed from or paid by such Subsidiary Guarantor hereunder. Each Subsidiary Guarantor hereby waives any right to which it may be entitled to require that the Issuers be sued prior to an action being initiated against such Subsidiary Guarantor.
(d) Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any holder or the Trustee to any security held for payment of the Subsidiary Guaranteed Obligations.
(e) The Subsidiary Guarantee of each Subsidiary Guarantor is, to the extent and in the manner set forth in Article XII, equal in right of payment to all existing and future Pari Passu Indebtedness, senior in right of payment to all existing and future Subordinated Indebtedness of such Subsidiary Guarantor and subordinated and subject in right of payment to the prior payment in full of the principal of and premium, if any, and interest on all Secured Indebtedness of the relevant Subsidiary Guarantor and is made subject to such provisions of this Indenture.
(f) Except as expressly set forth in Sections 8.01(b), 12.02 and 12.06, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Subsidiary Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Notes or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Subsidiary Guarantor or would otherwise operate as a discharge of any Subsidiary Guarantor as a matter of law or equity.
(g) Each Subsidiary Guarantor agrees that its Subsidiary Guarantee shall remain in full force and effect until payment in full of all the Subsidiary Guaranteed Obligations. Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Subsidiary Guaranteed Obligation is rescinded or must otherwise be restored by any holder or the Trustee upon the bankruptcy or reorganization of the Issuers or otherwise.
(h) In furtherance of the foregoing and not in limitation of any other right which any holder or the Trustee has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Issuers to pay the principal of or interest on any Subsidiary Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Subsidiary Guaranteed Obligation, each Subsidiary Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the holders or the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Subsidiary Guaranteed Obligations, (ii) accrued and unpaid interest on such Subsidiary Guaranteed Obligations (but only to the extent not prohibited by applicable law) and (iii) all other monetary obligations of the Issuers to the holders and the Trustee.
(i) Each Subsidiary Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the holders in respect of any Subsidiary Guaranteed Obligations guaranteed hereby until payment in full of all Subsidiary Guaranteed Obligations. Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the holders and the Trustee, on the other hand, (i) the maturity of the Subsidiary Guaranteed Obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of the Subsidiary Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Subsidiary Guaranteed Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Subsidiary Guaranteed Obligations as provided in Article VI, such Subsidiary Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purposes of this Section 12.01.
(j) Each Subsidiary Guarantor also agrees to pay any and all costs and expenses (including reasonable out-of-pocket attorneys fees and expenses) Incurred by the Trustee or any holder in enforcing any rights under this Section 12.01.
(k) Upon request of the Trustee, each Subsidiary Guarantor shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.
SECTION 12.02 Limitation on Liability .
(a) Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of the Subsidiary Guaranteed Obligations guaranteed hereunder by each Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed by the applicable Subsidiary Guarantor without rendering this Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally or capital maintenance or corporate benefit rules applicable to guarantees for obligations of affiliates.
(b) A Subsidiary Guarantee as to any Restricted Subsidiary that executes a supplemental indenture in accordance with Section 4.11 hereof and provides a guarantee shall terminate and be of no further force or effect and such Subsidiary Guarantee shall be deemed to be released from all obligations under this Article XII upon:
(i) the sale, disposition, exchange or other transfer (including through merger, consolidation, amalgamation or otherwise) of the Capital Stock (including any sale, disposition or other transfer following which the applicable Subsidiary Guarantor is no longer a Restricted Subsidiary), of the applicable Subsidiary Guarantor if such sale, disposition, exchange or other transfer is made in a manner not in violation of this Indenture;
(ii) the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with the provisions of Section 4.04 and the definition of Unrestricted Subsidiary;
(iii) the release or discharge of the guarantee by such Subsidiary Guarantor of the Credit Agreement or other Indebtedness or the guarantee of any other Indebtedness which resulted in the obligation to guarantee the Notes;
(iv) the Issuers exercise of their legal defeasance option or covenant defeasance option under Article VIII or if the Issuers obligations under this Indenture are discharged in accordance with the terms of this Indenture;
(v) such Restricted Subsidiary ceasing to be a Subsidiary as a result of any foreclosure of any pledge or security interest securing Bank Indebtedness or other exercise of remedies in respect thereof; and
(vi) the occurrence of a Covenant Suspension Event.
SECTION 12.03 [Intentionally Omitted] .
SECTION 12.04 Successors and Assigns . This Article XII shall be binding upon each Subsidiary Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the holders and, in the event of any transfer or assignment of rights by any holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Notes shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture.
SECTION 12.05 No Waiver . Neither a failure nor a delay on the part of either the Trustee or the holders in exercising any right, power or privilege under this Article XII shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article XII at law, in equity, by statute or otherwise.
SECTION 12.06 Modification . No modification, amendment or waiver of any provision of this Article XII, nor the consent to any departure by any Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Subsidiary Guarantor in any case shall entitle any Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances.
SECTION 12.07 Execution of Supplemental Indenture for Future Guarantors . Each Subsidiary which is required to become a Subsidiary Guarantor of the Notes pursuant to Section 4.11 shall promptly execute and deliver to the Trustee a supplemental indenture in the form of Exhibit C hereto pursuant to which such Subsidiary shall become a Subsidiary Guarantor under this Article XII and shall guarantee the Notes. Concurrently with the execution and delivery of such supplemental indenture, EPE Holdings shall deliver to the Trustee an Opinion of Counsel and an Officers Certificate certifying that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and that, subject to the application of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and other similar laws relating to creditors rights generally and to the principles of equity, whether considered in a proceeding at law or in equity, the Subsidiary Guarantee of such Subsidiary Guarantor is a valid and binding obligation of such Subsidiary Guarantor, enforceable against such Subsidiary Guarantor in accordance with its terms and/or to such other matters as the Trustee may reasonably request.
SECTION 12.08 Non-Impairment . The failure to endorse a Subsidiary Guarantee on any Note shall not affect or impair the validity thereof.
ARTICLE XIII
[INTENTIONALLY OMITTED]
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01 Notices .
(a) Any notice or communication required or permitted hereunder shall be in writing and delivered in person, via facsimile or mailed by first-class mail addressed as follows:
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if to the Issuers or a Subsidiary Guarantor: |
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c/o EP Energy LLC |
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1001 Louisiana Street |
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Houston, TX 77002 |
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Attention: |
Dane Whitehead, Chief Financial Officer |
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Marguerite Woung-Chapman, General Counsel |
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Fax: 713-420-6603 |
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with copies to: |
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c/o Apollo Management, L.P. |
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9 West 57th Street, 43rd Floor |
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New York, NY 10019 |
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Attention: Sam Oh and Chief Legal Officer |
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Fax: 646-417-6651 |
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and |
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Paul, Weiss, Rifkind, Wharton & Garrison LLP |
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1285 Avenue of the Americas |
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New York, NY 10019 |
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Gregory Ezring |
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Monica Thurmond |
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Fax: 212-757-3990 |
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if to the Trustee: |
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Wilmington Trust, National Association |
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Corporate Client Services |
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50 South Sixth Street, Suite 1290 |
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Minneapolis, MN 55402 |
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Attention: |
EPE Holdings /EP Energy BondCo |
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Administrator |
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Fax: 612-217-5651 |
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The Issuers or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.
(b) Any notice or communication mailed to a holder shall be mailed, first class mail, to the holder at the holders address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed.
(c) Failure to mail a notice or communication to a holder or any defect in it shall not affect its sufficiency with respect to other holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it, except that notices to the Trustee are effective only if received.
The Trustee may, in its sole discretion, agree to accept and act upon instructions or directions pursuant to this Indenture sent by e-mail, facsimile transmission or other similar electronic methods. If the party elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustees understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustees reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The party providing electronic instructions agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk or interception and misuse by third parties.
Notwithstanding anything to the contrary contained herein, as long as the Notes are in the form of a Global Note, notice to the holders may be made electronically in accordance with procedures of the Depository.
SECTION 14.02 Certificate and Opinion as to Conditions Precedent . Upon any request or application by the Issuers to the Trustee to take or refrain from taking any action under this Indenture, the Issuers shall furnish to the Trustee at the request of the Trustee:
(a) an Officers Certificate in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with.
SECTION 14.03 Statements Required in Certificate or Opinion . Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture (other than pursuant to Section 4.09) shall include:
(a) a statement that the individual making such certificate or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with; provided , however , that with respect to matters of fact an Opinion of Counsel may rely on an Officers Certificate or certificates of public officials.
SECTION 14.04 When Notes Disregarded . In determining whether the holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuers, the Subsidiary Guarantors or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuers or the Subsidiary Guarantors shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which the Trustee actually knows are so owned shall be so disregarded. Subject to the foregoing, only Notes outstanding at the time shall be considered in any such determination.
SECTION 14.05 Rules by Trustee, Paying Agent and Registrar . The Trustee may make reasonable rules for action by or a meeting of the holders. The Registrar and a Paying Agent may make reasonable rules for their functions.
SECTION 14.06 Legal Holidays . If a payment date is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue on any amount that would have been otherwise payable on such payment date if it were a Business Day for the intervening period. If a regular Record Date is not a Business Day, the Record Date shall not be affected.
SECTION 14.07 GOVERNING LAW . THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 14.08 No Recourse Against Others . No director, officer, employee, manager, incorporator or holder of any Equity Interests in EPE Holdings or of any Subsidiary Guarantor or any direct or indirect parent companies, as such, shall have any liability for any obligations of the Issuers or any Subsidiary Guarantor under the Notes, the Subsidiary Guarantees or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
SECTION 14.09 Successors . All agreements of the Issuers and the Subsidiary Guarantors in this Indenture and the Notes shall bind such persons successors. All agreements of the Trustee in this Indenture shall bind its successors.
SECTION 14.10 Multiple Originals . The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture.
SECTION 14.11 Table of Contents; Headings . The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.
SECTION 14.12 Indenture Controls . If and to the extent that any provision of the Notes limits, qualifies or conflicts with a provision of this Indenture, such provision of this Indenture shall control.
SECTION 14.13 Severability . In case any provision in this Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 14.14 Waiver of Jury Trial . EACH OF THE ISSUERS, THE SUBSIDIARY GUARANTORS AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY.
[ Remainder of page intentionally left blank. ]
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above.
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EPE HOLDINGS LLC |
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/s/ Sam Oh |
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Name: |
Sam Oh |
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Vice President |
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EP ENERGY BONDCO INC. |
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/s/ Sam Oh |
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Name: |
Sam Oh |
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Title: |
Vice President |
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[Signature Page to Indenture]
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WILMINGTON TRUST, NATIONAL |
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ASSOCIATION , not in its individual capacity, but |
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solely as Trustee |
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By: |
/s/ Timothy P. Mowdy |
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Name: |
Timothy P. Mowdy |
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Title: |
Administrative Vice President |
[Signature Page to Indenture]
APPENDIX A
PROVISIONS RELATING TO INITIAL NOTES AND ADDITIONAL NOTES
1. Definitions.
1.1 Definitions.
For the purposes of this Appendix A the following terms shall have the meanings indicated below:
Definitive Note means a certificated Initial Note or Additional Note (bearing the Restricted Notes Legend if the transfer of such Note is restricted by applicable law) that does not include the Global Notes Legend.
Depository means The Depository Trust Company, its nominees and their respective successors.
Global Notes Legend means the legend set forth under that caption in the applicable Exhibit to this Indenture.
IAI means an institutional accredited investor as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
Initial Purchasers means Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBC Capital Markets, LLC, Nomura Securities International, Inc., Morgan Stanley & Co. LLC, BMO Capital Markets Corp., Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Apollo Global Securities, LLC, Capital One Southcoast, Inc., CIBC World Markets Corp., Comerica Securities, Inc., DNB Markets, Inc., ING Financial Markets LLC, Lloyds Securities Inc., Mitsubishi UFJ Securities (USA), Inc., Mizuho Securities USA Inc., RBS Securities Inc., Scotia Capital (USA) Inc., SG Americas Securities, LLC, SMBC Nikko Capital Markets Limited, SunTrust Robinson Humphrey, Inc., TD Securities (USA) LLC and UBS Securities LLC.
Notes Custodian means the custodian with respect to a Global Note (as appointed by the Depository) or any successor person thereto, who shall initially be the Trustee.
QIB means a qualified institutional buyer as defined in Rule 144A.
Regulation S means Regulation S under the Securities Act.
Regulation S Notes means all Initial Notes offered and sold outside the United States in reliance on Regulation S.
Restricted Notes Legend means the legend set forth in Section 2.2(f)(i) herein.
Restricted Period , with respect to any Notes, means the period of 40 consecutive days beginning on and including the later of (a) the day on which such Notes are
first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S, notice of which day shall be promptly given by the Issuers to the Trustee, and (b) the Issue Date, and with respect to any Additional Notes that are Transfer Restricted Notes, it means the comparable period of 40 consecutive days.
Rule 501 means Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
Rule 144A means Rule 144A under the Securities Act.
Rule 144A Notes means all Initial Notes offered and sold to QIBs in reliance on Rule 144A.
Transfer Restricted Definitive Notes means Definitive Notes that bear or are required to bear or are subject to the Restricted Notes Legend.
Transfer Restricted Global Notes means Global Notes that bear or are required to bear or are subject to the Restricted Notes Legend.
Transfer Restricted Notes means the Transfer Restricted Definitive Notes and Transfer Restricted Global Notes.
Unrestricted Definitive Notes means Definitive Notes that are not required to bear, or are not subject to, the Restricted Notes Legend.
Unrestricted Global Notes means Global Notes that are not required to bear, or are not subject to, the Restricted Notes Legend.
1.2 Other Definitions .
Term: |
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Defined in Section: |
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Agent Members |
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2.1(b) |
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Global Notes |
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2.1(b) |
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Regulation S Global Notes |
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2.1(b) |
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Rule 144A Global Notes |
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2.1(b) |
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2. The Notes.
2.1 Form and Dating; Global Notes.
(a) The Initial Notes issued on the date hereof will be (i) privately placed by the Issuers pursuant to the Offering Memorandum and (ii) sold, initially only to (1) QIBs in reliance on Rule 144A and (2) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S. Such Initial Notes may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and, except as set forth below, IAIs in accordance with Rule 501. Additional Notes offered after the date hereof may be offered and sold by the Issuers from time to time pursuant to one or more agreements in accordance with applicable law.
(b) Global Notes . (i) Except as provided in clause (d) below, Rule 144A Notes initially shall be represented by one or more Notes in definitive, fully registered, global form without interest coupons (collectively, the Rule 144A Global Notes ).
Regulation S Notes initially shall be represented by one or more Notes in fully registered, global form without interest coupons (collectively, the Regulation S Global Notes ), which shall be registered in the name of the Depository or the nominee of the Depository for the accounts of designated agents holding on behalf of Euroclear or Clearstream.
The term Global Notes means the Rule 144A Global Notes and the Regulation S Global Notes. The Global Notes shall bear the Global Note Legend. The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, in each case for credit to an account of an Agent Member, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear the Restricted Notes Legend.
Members of, or direct or indirect participants in, the Depository (collectively, the Agent Members ) shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Notes. The Depository may be treated by the Issuers, the Trustee and any agent of the Issuers or the Trustee as the absolute owner of the Global Notes for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the Trustee or any agent of the Issuers or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository, or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note.
(ii) Transfers of Global Notes shall be limited to transfer in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Definitive Notes only in accordance with the applicable rules and procedures of the Depository and the provisions of Section 2.2. In addition, a Global Note shall be exchangeable for Definitive Notes if (x) the Depository (1) notifies the Issuers that it is unwilling or unable to continue as depository for such Global Note and the Issuers thereupon fail to appoint a successor depository or (2) has ceased to be a clearing agency registered under the Exchange Act or (y) there shall have occurred and be continuing an Event of Default with respect to such Global Note and a request has been made for such exchange; provided that in no event shall the Regulation S Global Note be exchanged by the Issuers for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act. In all cases, Definitive Notes delivered in exchange for any Global Note or beneficial interests therein shall be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depository in accordance with its customary procedures.
(iii) In connection with the transfer of a Global Note as an entirety to beneficial owners pursuant to subsection (i) of this Section 2.1(b), such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Issuers shall execute, and, upon written order of each Issuer signed by an Officer, the Trustee shall authenticate and make available for delivery, to each beneficial owner identified by the Depository in
writing in exchange for its beneficial interest in such Global Note, an equal aggregate principal amount of Definitive Notes of authorized denominations.
(iv) Any Transfer Restricted Note delivered in exchange for an interest in a Global Note pursuant to Section 2.2 shall, except as otherwise provided in Section 2.2, bear the Restricted Notes Legend.
(v) Notwithstanding the foregoing, through the Restricted Period, a beneficial interest in a Regulation S Global Note may be held only through Euroclear or Clearstream unless delivery is made in accordance with the applicable provisions of Section 2.2.
(vi) The holder of any Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a holder is entitled to take under this Indenture or the Notes.
2.2 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes . A Global Note may not be transferred as a whole except as set forth in Section 2.1(b). Global Notes will not be exchanged by the Issuers for Definitive Notes except under the circumstances described in Section 2.1(b)(ii). Global Notes also may be exchanged or replaced, in whole or in part, as provided in Section 2.08 of this Indenture. Beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.2(b).
(b) Transfer and Exchange of Beneficial Interests in Global Notes . The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depository, in accordance with the provisions of this Indenture and the applicable rules and procedures of the Depository. Beneficial interests in Transfer Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Beneficial interests in Global Notes shall be transferred or exchanged only for beneficial interests in Global Notes. Transfers and exchanges of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note . Beneficial interests in any Transfer Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Transfer Restricted Global Note in accordance with the transfer restrictions set forth in the Restricted Notes Legend; provided , however , that prior to the expiration of the Restricted Period, transfers of beneficial interests in a Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person. A beneficial interest in an Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.2(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes . In connection with all transfers and exchanges of beneficial interests in any Global Note that is not subject to Section 2.2(b)(i), the transferor of such beneficial interest must deliver to the Registrar (1) a written order from an Agent Member given to the Depository in accordance with the applicable rules and procedures of the Depository directing the Depository to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the applicable rules and procedures of the Depository containing information regarding the Agent Member account to be credited with such increase. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note pursuant to Section 2.2(i).
(iii) Transfer of Beneficial Interests to Another Restricted Global Note . A beneficial interest in a Transfer Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Transfer Restricted Global Note if the transfer complies with the requirements of Section 2.2(b)(ii) above and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest in a Rule 144A Global Note, then the transferor must deliver a certificate in the form attached to the applicable Note; and
(B) if the transferee will take delivery in the form of a beneficial interest in a Regulation S Global Note, then the transferor must deliver a certificate in the form attached to the applicable Note.
(iv) Transfer and Exchange of Beneficial Interests in a Transfer Restricted Global Note for Beneficial Interests in an Unrestricted Global Note . A beneficial interest in a Transfer Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.2(b)(ii) above and the Registrar receives the following:
(A) if the holder of such beneficial interest in a Transfer Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form attached to the applicable Note; or
(B) if the holder of such beneficial interest in a Transfer Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form attached to the applicable Note,
and, in each such case, if the Issuers or the Registrar so request or if the applicable rules and procedures of the Depository so require, an Opinion of Counsel in form reasonably acceptable to the Issuers and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Restricted Notes Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer or exchange is effected pursuant to this subparagraph (iv) at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an written order of EPE Holdings in the form of an Officers Certificate in accordance with Section 2.01, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred or exchanged pursuant to this subparagraph (iv).
(v) Transfer and Exchange of Beneficial Interests in an Unrestricted Global Note for Beneficial Interests in a Transfer Restricted Global Note . Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Transfer Restricted Global Note.
(c) Transfer and Exchange of Beneficial Interests in Global Notes for Definitive Notes . A beneficial interest in a Global Note may not be exchanged for a Definitive Note except under the circumstances described in Section 2.1(b)(ii). A beneficial interest in a Global Note may not be transferred to a Person who takes delivery thereof in the form of a Definitive Note except under the circumstances described in Section 2.1(b)(ii). In any case, beneficial interests in Global Notes shall be transferred or exchanged only for Definitive Notes.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests in Global Notes . Transfers and exchanges of Definitive Notes for beneficial interests in the Global Notes also shall require compliance with either subparagraph (i), (ii) or (iii) below, as applicable:
(i) Transfer Restricted Definitive Notes to Beneficial Interests in Transfer Restricted Global Notes . If any holder of a Transfer Restricted Definitive Note proposes to exchange such Transfer Restricted Definitive Note for a beneficial interest in a Transfer Restricted Global Note or to transfer such Transfer Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such Transfer Restricted Definitive Note proposes to exchange such Transfer Restricted Note for a beneficial interest in a Transfer Restricted Global Note, a certificate from such holder in the form attached to the applicable Note;
(B) if such Transfer Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate from such holder in the form attached to the applicable Note;
(C) if such Transfer Restricted Definitive Note is being transferred to a Non U.S. Person in an offshore transaction in accordance with Rule 903 or Rule
904 under the Securities Act, a certificate from such holder in the form attached to the applicable Note;
(D) if such Transfer Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate from such holder in the form attached to the applicable Note;
(E) if such Transfer Restricted Definitive Note is being transferred to an IAI in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate from such holder in the form attached to the applicable Note, including the certifications, certificates and Opinion of Counsel, if applicable; or
(F) if such Transfer Restricted Definitive Note is being transferred to EPE Holdings or a Subsidiary thereof, a certificate from such holder in the form attached to the applicable Note;
the Trustee shall cancel the Transfer Restricted Definitive Note, and increase or cause to be increased the aggregate principal amount of the appropriate Transfer Restricted Global Note.
(ii) Transfer Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A holder of a Transfer Restricted Definitive Note may exchange such Transfer Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note or transfer such Transfer Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if the Registrar receives the following:
(A) if the holder of such Transfer Restricted Definitive Note proposes to exchange such Transfer Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form attached to the applicable Note; or
(B) if the holder of such Transfer Restricted Definitive Notes proposes to transfer such Transfer Restricted Definitive Note to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form attached to the applicable Note,
and, in each such case, if the Issuers or the Registrar so request or if the applicable rules and procedures of the Depository so require, an Opinion of Counsel in form reasonably acceptable to the Issuers and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Restricted Notes Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of this subparagraph (ii), the Trustee shall cancel the Transfer Restricted Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. If any such transfer or exchange is effected pursuant to this subparagraph
(ii) at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an written order of EPE Holdings in the form of an Officers Certificate, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of Transfer Restricted Notes transferred or exchanged pursuant to this subparagraph (ii).
(iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A holder of an Unrestricted Definitive Note may exchange such Unrestricted Definitive Note for a beneficial interest in an Unrestricted Global Note or transfer such Unrestricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such transfer or exchange is effected pursuant to this subparagraph (iii) at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an written order of EPE Holdings in the form of an Officers Certificate, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of Unrestricted Definitive Notes transferred or exchanged pursuant to this subparagraph (iii).
(iv) Unrestricted Definitive Notes to Beneficial Interests in Transfer Restricted Global Notes . An Unrestricted Definitive Note cannot be exchanged for, or transferred to a Person who takes delivery thereof in the form of, a beneficial interest in a Transfer Restricted Global Note.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes . Upon request by a holder of Definitive Notes and such holders compliance with the provisions of this Section 2.2(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such holder or by its attorney, duly authorized in writing. In addition, the requesting holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.2(e).
(i) Transfer Restricted Definitive Notes to Transfer Restricted Definitive Notes . A Transfer Restricted Note may be transferred to and registered in the name of a Person who takes delivery thereof in the form of a Transfer Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form attached to the applicable Note;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904 under the Securities Act, then the transferor must deliver a certificate in the form attached to the applicable Note;
(C) if the transfer will be made pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate in the form attached to the applicable Note;
(D) if the transfer will be made to an IAI in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (A) through (D) above, a certificate in the form attached to the applicable Note; and
(E) if such transfer will be made to EPE Holdings or a Subsidiary thereof, a certificate in the form attached to the applicable Note.
(ii) Transfer Restricted Definitive Notes to Unrestricted Definitive Notes . Any Transfer Restricted Definitive Note may be exchanged by the holder thereof for an Unrestricted Definitive Note or transferred to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note if the Registrar receives the following:
(A) if the holder of such Transfer Restricted Definitive Note proposes to exchange such Transfer Restricted Definitive Note for an Unrestricted Definitive Note, a certificate from such holder in the form attached to the applicable Note; or
(B) if the holder of such Transfer Restricted Definitive Note proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder in the form attached to the applicable Note,
and, in each such case, if the Issuers or the Registrar so request, an Opinion of Counsel in form reasonably acceptable to the Issuers and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Restricted Notes Legend are no longer required in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes . A holder of an Unrestricted Definitive Note may transfer such Unrestricted Definitive Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note at any time. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the holder thereof.
(iv) Unrestricted Definitive Notes to Transfer Restricted Definitive Notes . An Unrestricted Definitive Note cannot be exchanged for, or transferred to a Person who takes delivery thereof in the form of, a Transfer Restricted Definitive Note.
At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such increase.
(f) Legend.
(i) Except as permitted by the following paragraph (iii), each Note certificate evidencing the Global Notes and any Definitive Notes (and all Notes issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN [IN THE CASE OF RULE 144A NOTES: ONE YEAR] [IN THE CASE OF REGULATION S NOTES: 40 DAYS] AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUERS OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUERS SO REQUESTS), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS OFFSHORE TRANSACTION, UNITED STATES AND U.S. PERSON HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE NOTES WERE ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID) FOR PURPOSES OF SECTIONS 1272, 1273, AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. EPE HOLDINGS LLC (THE COMPANY) WILL, BEGINNING NO LATER THAN TEN (10) DAYS AFTER THE ISSUE DATE, PROMPTLY PROVIDE TO HOLDERS OF NOTES, UPON WRITTEN REQUEST, THE ISSUE PRICE, THE AMOUNT OF OID, THE ISSUE DATE, AND THE YIELD TO MATURITY WITH RESPECT TO THE NOTES. ANY SUCH WRITTEN REQUEST SHOULD BE SENT TO THE COMPANY, C/O EP ENERGY LLC, 1001 LOUISIANA STREET, HOUSTON, TEXAS 77002, ATTENTION: CHIEF FINANCIAL OFFICER.
Each Definitive Note shall bear the following additional legend:
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
(ii) Upon any sale or transfer of a Transfer Restricted Definitive Note, the Registrar shall permit the holder thereof to exchange such Transfer Restricted Note for a Definitive Note that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Definitive Note if the holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Initial Note).
(iii) Upon a sale or transfer after the expiration of the Restricted Period of any Initial Note acquired pursuant to Regulation S, all requirements that such Initial Note bear the Restricted Notes Legend shall cease to apply and the requirements requiring any such Initial Note be issued in global form shall continue to apply.
(iv) Any Additional Notes sold in a registered offering shall not be required to bear the Restricted Notes Legend.
(g) Cancellation or Adjustment of Global Note . At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.10 of this Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such increase.
(h) Obligations with Respect to Transfers and Exchanges of Notes .
(i) To permit registrations of transfers and exchanges, the Issuers shall execute and the Trustee shall authenticate, Definitive Notes and Global Notes at the Registrars request.
(ii) No service charge shall be made for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to Sections 3.06, 4.06, 4.08 and 9.05 of this Indenture).
(iii) Prior to the due presentation for registration of transfer of any Note, the Issuers, the Trustee, a Paying Agent or the Registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Issuers, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary.
(iv) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.
(i) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in the Depository or any other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the holders and all payments to be made to the holders under the Notes shall be given or made only to the registered holders (which shall be the Depository or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depository participants, members or beneficial owners in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Notes Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (DTC), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSORS NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Notes Legend for Notes Offered in Reliance on Regulation S]
BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON, NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON, AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.
[Restricted Notes Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN [IN THE CASE OF RULE 144A NOTES: ONE YEAR] [IN THE CASE OF REGULATION S NOTES: 40 DAYS] AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY)
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUERS OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUERS SO REQUESTS), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS OFFSHORE TRANSACTION, UNITED STATES AND U.S. PERSON HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE NOTES WERE ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID) FOR PURPOSES OF SECTIONS 1272, 1273, AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. EPE HOLDINGS LLC (THE COMPANY) WILL, BEGINNING NO LATER THAN TEN (10) DAYS AFTER THE ISSUE DATE, PROMPTLY PROVIDE TO HOLDERS OF NOTES, UPON WRITTEN REQUEST, THE ISSUE PRICE, THE AMOUNT OF OID, THE ISSUE DATE, AND THE YIELD TO MATURITY WITH RESPECT TO THE NOTES. ANY SUCH WRITTEN REQUEST SHOULD BE SENT TO THE COMPANY, C/O EP ENERGY LLC, 1001 LOUISIANA STREET, HOUSTON, TEXAS 77002, ATTENTION: CHIEF FINANCIAL OFFICER.
[Definitive Notes Legend]
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
[FORM OF INITIAL NOTE]
EPE HOLDINGS LLC
EP ENERGY BONDCO INC.
No. [ ] |
144A CUSIP No. 268783AA5 |
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144A ISIN No. US268783AA53 |
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REG S CUSIP No. U29373AA2 |
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REG S ISIN No. USU29373AA25 |
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$[ ] |
8.125%/8.875% Senior PIK Toggle Note due 2017
EPE HOLDINGS LLC, a Delaware limited liability company, and EP ENERGY BONDCO INC., a Delaware corporation, jointly and severally, promise to pay to Cede & Co., or registered assigns, the principal sum set forth on the Schedule of Increases or Decreases in Global Note attached hereto on December 15, 2017.
Interest Payment Dates: December 15 and June 15, commencing June 15, 2013
Record Dates: December 1 and June 1
Additional provisions of this Note are set forth on the other side of this Note.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed.
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EPE HOLDINGS LLC |
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By: |
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Name: |
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Title: |
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EP ENERGY BONDCO INC. |
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By: |
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Name: |
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Title: |
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Dated: December 21, 2012 |
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TRUSTEES CERTIFICATE OF |
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AUTHENTICATION |
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WILMINGTON TRUST, NATIONAL ASSOCIATION |
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as Trustee, certifies that this is |
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one of the Notes |
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referred to in the Indenture. |
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By: |
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Authorized Signatory |
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Dated:
*/ If the Note is to be issued in global form, add the Global Notes Legend and the attachment from Exhibit A captioned TO BE ATTACHED TO GLOBAL NOTES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE.
[FORM OF REVERSE SIDE OF INITIAL NOTE]
8.125%/8.875% Senior PIK Toggle Note Due 2017
1. Interest
(a) EPE HOLDINGS LLC, a Delaware limited liability company (such entity, and its successors and assigns under the Indenture hereinafter referred to, being herein called EPE Holdings ), and EP ENERGY BONDCO INC., a Delaware corporation (such entity, and its successors and assigns under the Indenture hereinafter referred to, being herein called the Co-Issuer and, together with EPE Holdings, the Issuers ), jointly and severally, promise to pay interest on the principal amount of this Note at the rate per annum shown above.
(b) Cash Interest (as defined herein) on this Note will accrue at the rate of 8.125% per annum and be payable in cash. PIK Interest (as defined herein) on this Note will accrue at the rate of 8.875% per annum and be payable (x) with respect to Notes represented by one or more Global Notes registered in the name of, or held by, The Depository Trust Company (DTC) or its nominee on the relevant Record Date, by increasing the principal amount of the outstanding Global Notes by an amount equal to the amount of PIK Interest for the applicable Interest Period (rounded up to the nearest $1) and (y) with respect to Notes represented by Definitive Notes, by issuing PIK Notes in certificated form in an aggregate principal amount equal to the amount of PIK Interest for the period (rounded up to the nearest $1), and the Trustee will, at the request of the Issuers, authenticate and deliver such PIK Notes in certificated form for original issuance to the holders on the relevant Record Date, as shown by the records of the register of holders. In the event that the Issuers elect to pay Partial PIK Interest for any Interest Period, each holder will be entitled to receive Cash Interest in respect of 50% of the principal amount of the Notes held by such holder on the relevant Record Date and PIK Interest in respect of 50% of the principal amount of the Notes held by such holder on the relevant Record Date. Following an increase in the principal amount of the outstanding Global Notes as a result of a PIK Payment, the Global Notes will bear interest on such increased principal amount from and after the date of such PIK Payment. All Notes issued pursuant to a PIK Payment will mature on December 15, 2017 and will be governed by, and subject to the terms, provisions and conditions of, the Indenture and shall have the same rights and benefits as the Notes issued on the Issue Date. Any certificated PIK Notes will be issued with the description PIK on the face of such PIK Note.
(c) The Issuers shall pay interest semiannually on December 15 and June 15 of each year (each an Interest Payment Date ), commencing June 15, 2013. Interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from December 21, 2012, until the principal hereof is due. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The Issuers shall pay interest on overdue principal at the rate borne by the Notes, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Issuers may, at their option, elect to pay interest on this Note:
· entirely in cash ( Cash Interest );
· entirely by increasing the principal amount of the outstanding Notes or by issuing PIK Notes ( PIK Interest ); or
· on 50% of the outstanding principal amount of the Notes in cash and on 50% of the principal amount by increasing the principal amount of the outstanding Notes or by issuing PIK Notes ( Partial PIK Interest ).
The Issuers must elect the form of interest payment with respect to each Interest Period by delivering a notice to the Trustee at least 5 Business Days prior to the beginning of each Interest Period. The Trustee, at the expense of the Issuers, shall promptly deliver a corresponding notice to the holders. In the absence of such election for any Interest Period, interest on the Notes shall be payable according to the election for the previous Interest Period. Interest for the first Interest Period commencing on the Issue Date shall be payable entirely in PIK Interest. Notwithstanding anything to the contrary, the payment of accrued interest in connection with any redemption of the Notes in accordance with Paragraph 5 hereof or any repurchase of the Notes upon Change of Control and Asset Sales in accordance with Paragraph 8 hereof shall be made solely in Cash Interest.
The Issuers shall pay interest on the Notes (except defaulted interest) to the Persons who are registered holders at the close of business on December 1 or June 1 (each a Record Date ) immediately preceding the Interest Payment Date even if Notes are canceled after the Record Date and on or before the Interest Payment Date (whether or not a Business Day). Holders must surrender Notes to the Paying Agent to collect principal payments. The Issuers shall pay principal, premium, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts unless the Issuers elect to pay PIK Interest or Partial PIK Interest in accordance with Paragraph 1 hereof. Payments in respect of the Notes represented by a Global Note (including principal, premium, if any, and cash interest) shall be made by wire transfer of immediately available funds to the accounts specified by DTC or any successor depositary. The Issuers shall make all payments in respect of a certificated Note (including principal, premium, if any, and cash interest) at the office of the Paying Agent, except that, at the option of the Issuers, payment of cash interest may be made by mailing a check to the registered address of each holder thereof; provided , however , that payments on the Notes may also be made, in the case of a holder of at least $1,000,000 aggregate principal amount of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, Wilmington Trust, National Association, as trustee under the Indenture (the Trustee ), will act as Paying Agent and Registrar. The Issuers may appoint and change any Paying Agent or Registrar without notice. The Issuers or any of their domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent or Registrar.
4. Indenture
The Issuers issued the Notes under an Indenture dated as of December 21 , 2012 (the Indenture ), among the Issuers and the Trustee. Capitalized terms used herein are used as defined in the Indenture, unless otherwise indicated. The terms of the Notes include those stated in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and the holders (as defined in the Indenture) are referred to the Indenture for a statement of such terms and provisions. If and to the extent that any provision of the Notes limits, qualifies or conflicts with a provision of the Indenture, such provision of the Indenture shall control.
The Notes are senior unsecured obligations of the Issuers. This Note is one of the Initial Notes referred to in the Indenture. The Notes include the Initial Notes and any Additional Notes. The Initial Notes and any Additional Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of EPE Holdings and its Restricted Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, Incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Restricted Subsidiaries, issue or sell shares of capital stock of EPE Holdings and such Restricted Subsidiaries, enter into or permit certain transactions with Affiliates, create or Incur Liens and make Asset Sales. The Indenture also imposes limitations on the ability of each Issuer and each Subsidiary Guarantor to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of its property.
There are no Subsidiary Guarantors on the Issue Date. To guarantee the due and punctual payment of the principal and interest on the Notes and all other amounts payable by the Issuers under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Notes and the Indenture, if any Subsidiary Guarantor are added in the future in accordance with the Indenture, such Subsidiary Guarantor (if any) will execute a Subsidiary Guarantee and will unconditionally guarantee the Subsidiary Guaranteed Obligations on a senior unsecured basis pursuant to the terms of the Indenture.
5. Redemption
On or after December 15, 2013 the Issuers may redeem the Notes at their option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days prior notice mailed by the Issuers (or the Issuers shall cause to be mailed) by first-class mail, or delivered electronically if held at DTC, to each holders registered address, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date), if redeemed during the 12-month period commencing on December 15 of the years set forth below:
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Redemption Price |
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2013 |
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102.000 |
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2014 |
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101.000 |
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2015 and thereafter |
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100.000 |
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In addition, prior to December 15, 2013, the Issuers may redeem the Notes at their option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days prior notice mailed by the Issuers (or the Issuers shall cause to be mailed) by first-class mail, or delivered electronically if held at DTC, to each holders registered address, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the applicable redemption date (subject to the right of holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date).
Notwithstanding the foregoing, at any time and from time to time on or prior to December 15, 2013, the Issuers may redeem in whole or in part with the net cash proceeds of one or more Equity Offerings (1) by EPE Holdings or (2) by any direct or indirect parent of EPE Holdings to the extent the net cash proceeds thereof are contributed to the common equity capital of EPE Holdings or are used to purchase Capital Stock (other than Disqualified Stock) of EPE Holdings, at a redemption price (expressed as a percentage of principal amount thereof) of 102.000%, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date); provided , however , that such redemption shall occur within 90 days after the date on which any such Equity Offering is consummated upon not less than 30 nor more than 60 days notice mailed by the Issuers (or the Issuers cause to be mailed), or delivered electronically if held at DTC, to each holder of Notes being redeemed and otherwise in accordance with the procedures set forth in the Indenture. Notice of any redemption upon any Equity Offering may be given prior to the completion thereof, and any such redemption or notice may, at the Issuers discretion, be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering.
6. Mandatory Redemption
The Issuers will not be required to make any mandatory redemption or sinking fund payments with respect to the Notes.
7. Notice of Redemption
Notices of redemption will be mailed by first class mail, or delivered electronically if held at DTC, at least 30 but not more than 60 days before the redemption date, to each holder of Notes to be redeemed at its registered address (with a copy to the Trustee) or otherwise in accordance with the procedures of DTC, except that redemption notices may be mailed more than 60 days prior to the redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture pursuant to Article VIII
thereof. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes (or portions thereof) to be redeemed on the redemption date is deposited with a Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date, interest ceases to accrue on such Notes (or such portions thereof) called for redemption.
8. Repurchase of Notes at the Option of the Holders upon Change of Control and Asset Sales
Upon the occurrence of a Change of Control, each holder shall have the right, subject to certain conditions specified in the Indenture, to cause the Issuers to repurchase all or any part of such holders Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of the holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), as provided in, and subject to the terms of, the Indenture.
In accordance with Section 4.06 of the Indenture, the Issuers will be required to offer to purchase Notes upon the occurrence of certain events.
9. [Intentionally Omitted]
10. Denominations; Transfer; Exchange
The Notes are in registered form, without coupons, in denominations of $2,000 principal amount and integral multiples of $1,000 in excess thereof, provided that PIK Notes may be issued in minimum denominations of $1.00 and integral multiples of $1.00 in excess thereof. A holder shall register the transfer of or exchange of the Notes in accordance with the Indenture. Upon any registration of transfer or exchange, the Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or to transfer or exchange any Notes for a period of 15 days prior to a selection of Notes to be redeemed.
11. Persons Deemed Owners
The registered holder of this Note shall be treated as the owner of it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two years, the Trustee and a Paying Agent shall pay the money back to the Issuers at their written request unless an abandoned property law designates another Person. After any such payment, the holders entitled to the money must look to the Issuers for payment as general creditors and the Trustee and a Paying Agent shall have no further liability with respect to such monies.
13. Discharge and Defeasance
Subject to certain conditions, the Issuers at any time may terminate some of or all their obligations under the Notes and the Indenture if the Issuers deposit with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be.
14. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the holders of at least a majority in aggregate principal amount of the outstanding Notes and (ii) any past default or compliance with any provisions may be waived with the written consent of the holders of at least a majority in principal amount of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any holder, the Issuers and the Trustee may amend the Indenture, the Notes or the Subsidiary Guarantees (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to provide for the assumption by a Successor (with respect to an Issuer) of the obligations of an Issuer under the Indenture and the Notes; (iii) to provide for the assumption by a Successor Subsidiary Guarantor (with respect to any Subsidiary Guarantor), as the case may be, of the obligations of a Subsidiary Guarantor under the Indenture and its Subsidiary Guarantee; (iv) to provide for uncertificated Notes in addition to or in place of certificated Notes, provided , however , that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated notes are described in Section 163(f)(2)(B) of the Code; (v) to conform the text of the Indenture, the Notes or the Subsidiary Guarantees to any provision of the Description of Notes in the Offering Memorandum to the extent that such provision of the Indenture, the Notes or the Subsidiary Guarantees was intended by the Issuers to be a verbatim recitation of a provision of the Description of Notes in the Offering Memorandum; (vi) to add a Subsidiary Guarantee with respect to the Notes; (vii) to release a Subsidiary Guarantee as permitted by the Indenture; (viii) to add to the covenants of the Issuers for the benefit of the holders or to surrender any right or power herein conferred upon the Issuers; (ix) to comply with any requirement of the SEC in connection with qualifying or maintaining the qualification of the Indenture under the TIA; (x) to make any change that does not adversely affect the rights of any holder; (xi) to make certain changes to the Indenture to provide for the issuance of Additional Notes; or (xii) in the event that PIK Notes are issued in certificated form, to make appropriate changes to the Indenture to reflect an approximate minimum denomination of certificated PIK Notes and to establish minimum redemption amounts for certificated PIK Notes.
15. Defaults and Remedies
If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of EPE Holdings) occurs and is continuing, the Trustee by notice to the Issuers or the holders of at least 30% in principal amount of outstanding Notes by notice to the Issuers, with a copy to the Trustee, may declare the principal of, premium, if any, and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of EPE Holdings occurs, the principal of, premium, if any, and interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any holders.
Under certain circumstances, the holders of a majority in principal amount of outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.
If an Event of Default occurs and is continuing, the Trustee shall be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee indemnity or security satisfactory to the Trustee against any loss, liability or expense and certain other conditions are complied with. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such holder has previously given the Trustee notice that an Event of Default is continuing, (ii) holders of at least 30% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such holders have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity, and (v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification reasonably satisfactory to it against all losses and expenses caused by taking or not taking such action.
16. Trustee Dealings with the Issuers
Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Issuers or their Affiliates and may otherwise deal with the Issuers or their Affiliates with the same rights it would have if it were not Trustee.
17. No Recourse Against Others
No director, officer, employee, manager, incorporator or holder of any Equity Interests in an Issuer or any Subsidiary Guarantor or any direct or indirect parent companies, as such, will have any liability for any obligations of an Issuer or any Subsidiary Guarantor under the Notes, the Indenture or the Subsidiary Guarantees, as applicable, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability.
18. Authentication
This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note.
19. Abbreviations
Customary abbreviations may be used in the name of a holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
20. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
21. CUSIP Numbers; ISINs
The Issuers have caused CUSIP numbers and ISINs to be printed on the Notes and have directed the Trustee to use CUSIP numbers and ISINs in notices of redemption as a convenience to the holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Issuers will furnish to any holder of Notes upon written request and without charge to the holder a copy of the Indenture which has in it the text of this Note.
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to:
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(Print or type assignees name, address and zip code) |
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(Insert assignees soc. sec. or tax I.D. No.) |
and irrevocably appoint agent to transfer this Note on the books of the Issuers. The agent may substitute another to act for him.
Date: |
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Your Signature: |
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Sign exactly as your name appears on the other side of this Note. |
Signature Guarantee:
Date: |
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Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee |
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Signature of Signature Guarantee |
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER RESTRICTED NOTES
[EPE HOLDINGS LLC]
[EP ENERGY BONDCO INC.]
c/o Wilmington Trust, National Association
Corporate Client Services
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402
This certificate relates to $ principal amount of Notes held in (check applicable space) book-entry or definitive form by the undersigned.
The undersigned (check one box below):
o has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depository a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above);
o has requested the Trustee by written order to exchange or register the transfer of a Note or Notes.
In connection with any transfer of any of the Notes evidenced by this certificate occurring while this Note is still a Transfer Restricted Definitive Note or a Transfer Restricted Global Note, the undersigned confirms that such Notes are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) |
o |
to the Issuers; or |
(2) |
o |
to the Registrar for registration in the name of the holder, without transfer; or |
(3) |
o |
pursuant to an effective registration statement under the Securities Act of 1933; or |
(4) |
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inside the United States to a qualified institutional buyer (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or |
(5) |
o |
outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933 and such Note shall be held immediately after the transfer through Euroclear or Clearstream until the expiration of the Restricted Period (as defined in the Indenture); or |
(6) |
o |
to an institutional accredited investor (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements; or |
(7) |
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pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. |
Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered holder thereof; provided , however , that if box (5), (6) or (7) is checked, the Issuers or the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other information as the Issuers or the Trustee have reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.
Date: |
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Your Signature: |
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Sign exactly as your name appears on the other side of this Note. |
Signature Guarantee:
Date: |
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Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee |
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Signature of Signature Guarantee |
TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuers as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigneds foregoing representations in order to claim the exemption from registration provided by Rule 144A.
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NOTICE: To be executed by an executive officer |
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The initial principal amount of this Global Note is $ . The following increases or decreases in this Global Note have been made:
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.06 (Asset Sale) or 4.08 (Change of Control) of the Indenture, check the box:
Asset Sale o |
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Change of Control o |
If you want to elect to have only part of this Note purchased by the Issuers pursuant to Section 4.06 (Asset Sale) or 4.08 (Change of Control) of the Indenture, state the amount ($2,000 or any integral multiple of $1,000 in excess thereof):
$
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Your Signature: |
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(Sign exactly as your name appears on the |
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other side of this Note) |
Signature Guarantee: |
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Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee |
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EXHIBIT B
[FORM OF TRANSFEREE LETTER OF REPRESENTATION]
TRANSFEREE LETTER OF REPRESENTATION
[EPE HOLDINGS LLC]
[EP ENERGY BONDCO INC.]
c/o Wilmington Trust, National Association
Corporate Client Services
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $[ ] principal amount of the 8.125%/8.875% Senior PIK Toggle Notes due 2017 (the Notes ) of [EPE HOLDINGS LLC] and [EP ENERGY BONDCO INC.] (collectively with their successors and assigns, the Issuers ).
Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
The undersigned represents and warrants to you that:
1. We are an institutional accredited investor (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the Securities Act )), purchasing for our own account or for the account of such an institutional accredited investor at least $100,000 principal amount of the Notes, and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we invest in or purchase securities similar to the Notes in the normal course of our business. We, and any accounts for which we are acting, are each able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date that is two years after the later of the date of original issue and the last date on which either of the Issuers or any affiliate of such Issuers was the owner of such Notes (or any predecessor thereto) (the Resale Restriction Termination Date ) only (a) in the United States to a person whom we reasonably
believe is a qualified institutional buyer (as defined in rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (b) outside the United States in an offshore transaction in accordance with Rule 904 of Regulation S under the Securities Act, (c) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if applicable) or (d) pursuant to an effective registration statement under the Securities Act, in each of cases (a) through (d) in accordance with any applicable securities laws of any state of the United States. In addition, we will, and each subsequent holder is required to, notify any purchaser of the Note evidenced hereby of the resale restrictions set forth above. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made to an institutional accredited investor prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Issuers and the Trustee, which shall provide, among other things, that the transferee is an institutional accredited investor within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Issuers and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes pursuant to clause 1(b), 1(c) or 1(d) above to require the delivery of an opinion of counsel, certifications or other information satisfactory to the Issuers and the Trustee.
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EXHIBIT C
[FORM OF SUPPLEMENTAL INDENTURE]
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this Supplemental Indenture ) dated as of [DATE], among [SUBSIDIARY GUARANTOR] (the New Subsidiary Guarantor ), a subsidiary of EPE HOLDINGS LLC (or its successor), a Delaware limited liability company ( EPE Holdings ), and WILMINGTON TRUST, NATIONAL ASSOCIATION, a national banking association, as trustee under the indenture referred to below (the Trustee ).
W I T N E S S E T H :
WHEREAS EPE Holdings, EP Energy BondCo Inc. (or its successor), a Delaware corporation (the Co-Issuer and, together with EPE Holdings, the Issuers ) and the Trustee have heretofore executed an indenture, dated as of December 21, 2012 (as amended, supplemented or otherwise modified, the Indenture ), providing for the issuance of the Issuers 8.125%/8.875% Senior PIK Toggle Notes due 2017 ( the Notes ), initially in the aggregate principal amount of $350,000,000;
WHEREAS Sections 4.11 and 12.07 of the Indenture provide that under certain circumstances EPE Holdings is required to cause the New Subsidiary Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Subsidiary Guarantor shall unconditionally guarantee all obligations of the Issuers under the Notes and the Indenture pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee and the Issuers are authorized to execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Subsidiary Guarantor, the Issuers and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:
1. Defined Terms . As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined, except that the term holders in this Supplemental Indenture shall refer to the term holders as defined in the Indenture and the Trustee acting on behalf of and for the benefit of such holders. The words herein , hereof and hereby and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular Section hereof.
2. Agreement to Guarantee . The New Subsidiary Guarantor hereby agrees, jointly and severally with all existing Subsidiary Guarantors (if any), to unconditionally guarantee all obligations of the Issuers under the Notes and the Indenture on the terms and subject to the conditions set forth in Article XII of the Indenture and to be bound by all other
applicable provisions of the Indenture and the Notes and to perform all of the obligations and agreements of a Subsidiary Guarantor under the Indenture.
3. Notices . All notices or other communications to the New Subsidiary Guarantor shall be given as provided in Section 14.01 of the Indenture.
4. Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
5. Governing Law . THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
6. Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
7. Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
8. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction thereof.
[ Remainder of page intentionally left blank. ]
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above.
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[EP ENERGY BONDCO INC.] |
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[ NEW SUBSIDIARY GUARANTOR ] , as a Subsidiary Guarantor |
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WILMINGTON TRUST, NATIONAL ASSOCIATION , not in its individual capacity, but solely as Trustee |
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Exhibit 4.8
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (as amended, supplemented or modified from time to time, this Agreement ), dated as of August 30, 2013, by and among EP Energy Corporation, a Delaware corporation (the Corporation ) and each of the other parties set forth on the signature pages hereto. Unless otherwise specified, capitalized terms used herein shall have the respective meanings set forth in Section 1 . The Corporation and the other parties hereto are sometimes collectively referred to herein as the Parties and each is sometimes referred to herein as a Party .
RECITALS
WHEREAS, the Stockholders (as defined below) or their predecessors in interest (as the case may be) were members of EPE Acquisition, LLC, a Delaware limited liability company (the LLC ), and were party to that certain Registration Rights Agreement (the Prior Registration Rights Agreement ), dated as of April 24, 2012, by and among the LLC and the Stockholders or their predecessors in interest (as the case may be), providing for certain registration rights with respect to their registrable securities subject thereto;
WHEREAS, pursuant to the Prior Registration Rights Agreement, the LLC agreed to bind any successor which succeeds to all or substantially all of the business and assets of the LLC and the LLC has been reorganized to form a new corporate holding structure for its operating business;
WHEREAS, as part of such reorganization, certain of the Stockholders contributed their Class A units in the LLC to the Corporation in exchange for the issuance by the Corporation to such Stockholders of Class A Shares and the Legacy Class B Stockholder contributed its Class B units in the LLC to the Corporation in exchange for the issuance by the Corporation to the Class B Stockholder of Class B Shares;
WHEREAS, certain other Stockholders, which previously held Class A units in the LLC indirectly through their predecessors in interest, contributed their entire ownership interests in such predecessors in interest to the Corporation in exchange for the issuance by the Corporation to such Stockholders of Class A Shares and the Corporation now holds indirectly through its ownership of such predecessors in interest, such Class A units in the LLC;
WHEREAS, the parties to the Prior Registration Rights Agreement, or their predecessors in interest (as the case may be), have agreed to terminate the Prior Registration Rights Agreement, and the Corporation desires to provide the Stockholders with substantially the same registration rights that were available to the Stockholders or their predecessors in interest (as the case may be) under the Prior Registration Rights Agreement with respect to their Registrable Securities, by entering into this Agreement with the Stockholders; and
WHEREAS, the Stockholders that are Parties have agreed to act in good faith in order to effectuate these registration rights with respect to the Corporation.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:
Section 1. Definitions . As used in this Agreement, the following terms shall have the following meanings:
Access Stockholder shall have the meaning set forth in the Stockholders Agreement.
Addendum Agreement means an Addendum Agreement in the form attached hereto as Exhibit A .
Affiliate means, with respect to a specified Person, a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person, and with respect to any Legacy Class A Stockholder, an Affiliate shall include (i) any Upper-Tier Investor of such Legacy Class A Stockholder and (ii) any investment fund, alternative investment vehicle, special purpose vehicle or holding company that is directly or indirectly managed, advised or controlled by such Legacy Class A Stockholder or any Affiliate of such Legacy Class A Stockholder; provided , however , that an Affiliate shall not include any portfolio company of any Person (including any Legacy Class A Stockholder).
Agreement shall have the meaning set forth in the preamble.
Amended and Restated Certificate of Incorporation means the Amended and Restated Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware on August 30, 2013, as the same may be amended, restated or supplemented from time to time.
Apollo Stockholder shall have the meaning set forth in the Amended and Restated Certificate of Incorporation, as in effect on the date hereof.
Board means the board of directors of the Corporation.
Business Day means any day excluding Saturday, Sunday or any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions are authorized or required by law or other governmental action to close.
Bylaws means the Bylaws of the Corporation adopted as of August 30, 2013, as the same may be amended, restated or supplemented from time to time.
Class A Shares means shares of Class A Stock.
Class A Stock means the Class A Common Stock of the Corporation, $0.01 par value per share.
Class B Shares means shares of Class B Stock.
Class B Stock means the Class B Common Stock of the Corporation, $0.01 par value per share.
Common Stock means all common Equity Securities existing or hereafter authorized of any class of the Corporation (including Class A Common Stock, but excluding Class B Common Stock), which has the right (subject always to the rights of any class or series of preferred stock of the Corporation and the Class B Common Stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount, including any shares of capital stock into which Common Stock may be converted (as a result of recapitalization, share exchange or similar event) or that are issued with respect to Common Stock, including with respect to any stock split or stock dividend, or a successor security.
Corporation shall have the meaning set forth in the preamble.
Demand Notice shall have the meaning set forth in Section 3(a) .
Demand Registration shall have the meaning set forth in Section 3(a) .
Equity Security has the meaning ascribed to such term in Rule 405 under the Securities Act, and in any event includes any security having the attendant right to vote for directors or similar representatives.
Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor statute thereto and the rules and regulations of the SEC promulgated thereunder.
FINRA means the Financial Industry Regulatory Authority or any successor agency having jurisdiction under the Exchange Act.
Governmental Authority means any: (i) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (ii) U.S. and other federal, state, local, municipal, foreign or other government; or (iii) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity, any court or other tribunal).
Indemnified Party shall have the meaning set forth in Section 8(c) .
Indemnifying Party shall have the meaning set forth in Section 8(c) .
IPO means the first firm commitment underwritten Public Offering of the Corporation conducted pursuant to an effective registration statement under the Securities Act (other than a registration statement on Forms S-4 or S-8 or any similar form).
KNOC Stockholder shall have the meaning set forth in the Amended and Restated Certificate of Incorporation, as in effect on the date hereof.
Legacy Class A Stockholders shall have the meaning set forth in the Stockholders Agreement.
Legacy Class B Stockholder shall have the meaning set forth in the Stockholders Agreement.
LLC shall have the meaning set forth in the recitals.
Long-Form Registrations shall have the meaning set forth in Section 3(a) .
Losses shall have the meaning set forth in Section 8(a) .
Non-Marketed Take-Down shall have the meaning set forth in Section 4(c) .
Notice shall have the meaning set forth in Section 3(a) .
Permitted Transferee shall have the meaning set forth in the Stockholders Agreement.
Person means any individual, firm, corporation, partnership, limited liability company, trust, estate, joint venture, Governmental Authority or other entity.
Piggyback Notice shall have the meaning set forth in Section 4(a) .
Piggyback Registration shall have the meaning set forth in Section 4(a) .
Piggyback Response shall have the meaning set forth in Section 4(a) .
Principal Stockholders means, collectively, the Riverstone Stockholder, the KNOC Stockholder and the Access Stockholder.
Prior Registration Rights Agreement shall have the meaning set forth in the recitals.
Proceeding means any action, claim, suit, investigation, audit, controversy, arbitration or proceeding (including an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
Prospectus means the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act and any free writing prospectus), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.
Public Offering means the sale of Common Stock to the public pursuant to an effective Registration Statement (other than Form S-4 or Form S-8 or any similar or successor form) filed under the Securities Act or any comparable law or regulatory scheme of any foreign jurisdiction.
Qualified IPO means an IPO (i) for which cash proceeds to be received by the Corporation and the holders of Equity Securities participating in such offering (or series of related offerings and without deducting underwriting discounts, expenses and commissions) are at least $250,000,000 and (ii) where the Equity Securities being registered in such IPO are listed on a national securities exchange.
Registrable Securities means any and all shares of Common Stock currently held or hereafter acquired by the Stockholders and any other securities issued or issuable with respect to any such shares of Common Stock by way of share split, or in connection with a combination of shares, share dividend, recapitalization, merger, exchange, conversion, reclassification or similar event or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) they are sold pursuant to an effective Registration Statement under the Securities Act, (ii) they are sold pursuant to Rule 144 (or any similar provision then in force under the Securities Act) or (iii) they shall have ceased to be outstanding. No Registrable Securities may be registered under more than one Registration Statement at any one time.
Registration Statement means any registration statement of the Corporation under the Securities Act which covers the offering of any of the Registrable Securities pursuant to the provisions of this Agreement, including any Prospectus or amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
Replacement Director shall have the meaning set forth in the Stockholders Agreement.
Riverstone Stockholder shall have the meaning set forth in the Stockholders Agreement.
Rule 144 means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
Rule 144 Eligible Securities shall have the meaning set forth in Section 7 .
SEC means the United States Securities and Exchange Commission or any successor agency having jurisdiction under the Securities Act.
Section 2.01 Principle shall have the meaning set forth in the Stockholders Agreement.
Securities Act means the United States Securities Act of 1933, as amended, and the rules and regulations thereunder.
Shelf Holders shall have the meaning set forth in Section 4(c) .
Shelf Underwritten Offering shall have the meaning set forth in Section 4(c) .
Short-Form Registrations shall have the meaning set forth in Section 3(a) .
Special Board Approval means the approval of a majority of a quorum of all of the directors then in office, which majority shall include at least one (1) director designated by the Apollo Stockholder pursuant to the Stockholders Agreement, and one (1) director designated by a Principal Stockholder pursuant to the Stockholders Agreement or one (1) Replacement Director designated pursuant to the Stockholders Agreement.
Stockholder means each Person that beneficially holds, directly or indirectly, Registrable Securities and is a party to this Agreement (including any Person that becomes a Party pursuant to Section 11(c) ), except for the Corporation.
Stockholders Agreement means the Stockholders Agreement, dated as of August 30, 2013, by and among the Corporation and the other parties thereto, as the same may be amended, restated or supplemented from time to time.
Subsidiary means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than fifty percent (50%) of the total voting power of shares or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.
Take-Down Notice shall have the meaning set forth in Section 4(c) .
Transfer shall have the meaning set forth in the Stockholders Agreement.
underwritten registration or underwritten offering means a registration in which securities of the Corporation are sold to an underwriter for reoffering to the public.
Upper-Tier Agreement shall have the meaning set forth in the Stockholders Agreement.
Upper-Tier Investor shall have the meaning set forth in the Stockholders Agreement.
Section 2. Holders of Registrable Securities . A Person is deemed, and shall only be deemed, to be a holder of Registrable Securities if (a) such Person directly or indirectly holds Registrable Securities, and (b) such Person is a Stockholder.
Section 3. Demand Registrations .
(a) Requests for Registration . Subject to the following paragraphs of this Section 3(a) and the limitations on the number of Demand Registrations that may be filed under Section 3(e) , (i) upon receiving the required approval, if any, of the Board pursuant to Section 5.03(a)(iv) of the Stockholders Agreement, the Corporation shall register in an IPO, pursuant to the terms of this Agreement, under and in accordance with the provisions of the Securities Act, the offer and sale of a number of Registrable Securities specified by the Board to be so registered and sold in such IPO, and (ii) following a Qualified IPO, (A) the Apollo Stockholder or any Principal Stockholder shall have the right, by delivering a written notice to the Corporation, to require the Corporation to register pursuant to the terms of this Agreement, under and in accordance with the provisions of the Securities Act, the offer and sale of the number of Registrable Securities requested to be so registered pursuant to the terms of this Agreement on Form S-1 or any similar or successor long-form registration ( Long-Form Registrations ), and (B) any Stockholder shall have the right, by delivering a written notice to the Corporation, to require the Corporation to register pursuant to the terms of this Agreement, under and in accordance with the provisions of the Securities Act, the offer and sale of the number of Registrable Securities requested to be so registered pursuant to the terms of this Agreement on Form S-3 or any similar or successor short-form registration ( Short-Form Registrations ) (any such written notice delivered pursuant to this clause (ii), a Demand Notice and any such registration, a Demand Registration ); provided , however , that the Corporation shall only be obligated to register such Registrable Securities if the sale of the Registrable Securities requested to be registered by, with respect to a Long-Form Registration, the Apollo Stockholder or such Principal Stockholder, and with respect to a Short-Form Registration, such Stockholder (in each case, together with the Registrable Securities requested to be registered by the holders of Registrable Securities in a related Piggyback Registration pursuant to Section 4 ), is reasonably expected to result in aggregate gross cash proceeds of at least $100,000,000 (without regard to any underwriting discount or commission) in the case of any Long-Form Registration and at least $25,000,000 (without regard to any underwriting discount or commission) in the case of any Short-Form Registration, or such lower amounts approved by the Board in each case; provided , further , that unless otherwise approved by the Board, the Corporation shall not be obligated to file a Registration Statement relating to any registration request under this Section 3(a) within a period of 180 days (if the prior registration was the IPO or a Long-Form Registration) or ninety (90) days (if the prior registration was a Short-Form Registration) after the effective date of any other Registration Statement. A Stockholder may, in connection with any Demand Registration requested by such Stockholder that is a Short-Form Registration, require the Corporation to file such Registration Statement with the SEC in accordance with and pursuant to Rule 415 under the Securities Act including, if the Corporation is then eligible, as an automatic shelf registration. Following receipt of a Demand Notice for a Demand Registration in accordance with this Section 3(a) , the Corporation shall use its reasonable best efforts to file a Registration Statement as promptly as practicable (but not later than forty-five (45) days after the Demand Notice is delivered, in the case of a Long-Form Registration, and thirty (30) days after the Demand Notice is delivered, in the case of a Short-Form Registration) and shall use its reasonable best efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof.
No Demand Registration shall be deemed to have occurred for purposes of this Section 3 if (i) the Registration Statement relating thereto does not become effective, (ii) the Registration Statement relating thereto is not maintained effective for the period required pursuant to this Section 3 , (iii) the offering of the Registrable Securities pursuant to such Registration Statement is subject to a stop order, injunction, or similar order or requirement of the SEC during such period, (iv) more than twenty-percent (20%) of the Registrable Securities requested by the Stockholder that requested the Demand Registration to be included in such registration are not so included pursuant to Section 3(b) , or (v) in the event of an underwritten offering, the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived other than by reason of a material default or breach by the Stockholder that requested such Demand Registration or any of its Affiliates; provided , however , in each case, that such requesting holder of Registrable Securities shall be entitled to an additional Demand Registration in lieu thereof.
Within five (5) days after receipt by the Corporation of a Demand Notice, the Corporation shall give written notice (the Notice ) of such Demand Notice to all other holders of Registrable Securities and shall, subject to the provisions of Section 3(b) , include in such registration all Registrable Securities with respect to which the Corporation received written requests for inclusion therein within fifteen (15) days after such Notice is given by the Corporation to such holders with respect to an IPO, or within five (5) days after such Notice is given by the Corporation to such holders with respect to all other Demand Registrations; provided , however , that notwithstanding anything to the contrary in this Agreement, unless otherwise approved by the Board in connection with a Demand Notice for an IPO, the Corporation shall only be required to deliver any Notice or Piggyback Notice as provided in the second paragraph of Section 4(a) .
All requests made pursuant to this Section 3 shall specify the number of Registrable Securities to be registered and/or, in the case of an IPO, the number of shares of Common Stock to be issued, and the intended methods of disposition thereof.
The Corporation shall be required to maintain the effectiveness of the Registration Statement with respect to any Demand Registration for a period of at least 180 days after the effective date thereof or such shorter period during which all Registrable Securities included in such Registration Statement have actually been sold; provided , however , that such period shall be extended for a period of time equal to the period the holder of Registrable Securities refrains from selling any securities included in such Registration Statement at the request of the Corporation or an underwriter of the Corporation pursuant to the provisions of this Agreement; provided , further , that if such registration is a shelf-registration statement that permits sales of Common Stock on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, such Demand Registration shall only be deemed to have been effected if such Registration Statement remains effective for the lesser of (i) 365 days and (ii) until all Registrable Securities registered thereunder have actually been sold.
Notwithstanding the foregoing, with respect to any shelf-registration statement covering Registrable Securities, the Corporation shall use its reasonable best efforts (if the Corporation is not eligible to use an automatic shelf-registration statement at the time of filing) to keep such shelf-registration statement continuously effective under the Securities Act in order
to permit the prospectus forming a part thereof to be usable by the applicable Stockholders until the date as of which all Registrable Securities included in such shelf-registration statement have been sold pursuant to the shelf-registration statement or another Registration Statement filed under the Securities Act (but in no event prior to the applicable period referred to in Section 4(a)(3) of the Securities Act and Rule 174 thereunder).
(b) Priority on Demand Registration . If any of the Registrable Securities registered pursuant to a Demand Registration are to be sold in a firm commitment underwritten offering, and the managing underwriter or underwriters advise the Corporation and/or the holders of such securities in writing that in its reasonable view the total number or dollar amount of Registrable Securities proposed to be sold in such offering (including securities proposed to be included by other holders of securities entitled to include securities in such Registration Statement pursuant to incidental or piggyback registration rights) exceeds the number of Registrable Securities that can be sold in such offering without adversely affecting the success of such offering, then there shall be included in such firm commitment underwritten offering the number or dollar amount of Registrable Securities that in the good faith opinion of such managing underwriter can be sold without adversely affecting such offering, and such number of Registrable Securities shall be allocated as follows, unless such managing underwriter requires a different allocation ( provided , that the Apollo Stockholder and the other Stockholders are in any event treated in a substantially similar and proportionate manner):
(i) first , to the Stockholder who delivered a Demand Notice pursuant to Section 3(a)(ii) and the holders of Registrable Securities who responded to the Notice delivered by the Corporation pursuant to the third paragraph of Section 3(a) above, pro rata on the basis of the number of Registrable Securities directly or indirectly held by each such holder and its Permitted Transferees;
(ii) second , to the Corporation, the number of Registrable Securities requested by the Corporation (as the case may be) for inclusion in such offering; and
(iii) third , to any other Persons, other shares of Common Stock requested by such other Persons (as the case may be) for inclusion in such offering pursuant to this Agreement or any other registration rights granted by the Corporation.
For purposes of any underwriter cutback, all Registrable Securities held by any Stockholder shall also include any Registrable Securities held by the Permitted Transferees of any such holder; provided , that such holder and its Permitted Transferee shall be deemed to be a single selling holder, and any pro rata reduction (unless the managing underwriter requires a different allocation) with respect to such selling holder shall be based upon the aggregate amount of Registrable Securities owned by such selling holder and its Permitted Transferees. No securities excluded from the underwriting by reason of the underwriters marketing limitation shall be included in such registration.
(c) Postponement of Demand Registration . The Corporation, with the approval of the Board shall be entitled to postpone (but not more than once in any twelve-month
period), for a reasonable period of time not in excess of thirty (30) days, the filing of a Registration Statement or suspend the use of an effective Registration Statement for such period of time if the Corporation delivers to the holders requesting the Demand Registration a certificate signed by both the chief executive officer and chief financial officer of the Corporation certifying that, in the good faith judgment of the Board (after consultation with its outside counsel), such registration and offering (i) would reasonably be expected to materially adversely affect or materially interfere with any bona fide and reasonably imminent material financing or other material transaction of the Corporation under consideration by the Corporation or (ii) would require public disclosure of material information that has not been disclosed to the public, which information (A) would be required to be disclosed in any Registration Statement so that such Registration Statement would not be materially misleading, (B) would not be required to be disclosed at such time but for the filing, effectiveness or continued use of such Registration Statement, and (C) the premature disclosure of which would materially adversely affect the Corporation. Such certificate shall be delivered by the Corporation promptly after the delivery of the Demand Notice with respect to such Demand Registration and shall contain a statement in reasonable detail of the reasons for such postponement or suspension and an approximation of the anticipated delay or length of suspension. The holders receiving such certificate shall keep the information contained in such certificate confidential subject to the same terms set forth in Section 6(p) and, if the certificate relates to the suspension of use of an effective Registration Statement, shall discontinue sales under the Registration Statement. If the Corporation shall so postpone the filing of a Registration Statement, the Stockholder(s) requesting such registration shall have the right to withdraw the request for registration by giving written notice to the Corporation within twenty (20) days of the anticipated termination date of the postponement period, as provided in the certificate delivered to the holders. The Corporation shall promptly notify the selling holders of the expiration of any period during which it exercised its rights under this Section 3(c) . In the event that the Corporation exercises its rights under this Section 3(c) , it shall, as promptly as practicable following the expiration of the applicable deferral or suspension period, file or update and use its reasonable best efforts to cause the effectiveness of, as applicable, the applicable deferred or suspended Registration Statement.
(d) Cancellation of a Demand Registration . The Stockholder that delivered the Demand Notice to the Corporation in connection with an offering pursuant to this Section 3 shall have the right to notify the Corporation that it has determined that the Registration Statement filed in connection with such offering be abandoned or withdrawn, in which event the Corporation shall abandon or withdraw such Registration Statement. In the event of an IPO, the Corporation shall abandon or withdraw such Registration Statement upon receiving the approval of the Board to do so. In each case, the Stockholder that delivered the Demand Notice with respect to a Registration Statement that has been abandoned or withdrawn pursuant to this Section 3(d) shall be entitled to an additional Demand Registration in lieu thereof.
(e) Number of Demand Notices . Subject to the provisions of Section 3(a) , in connection with the provisions of this Section 3 , the Apollo Stockholder shall have five (5) Demand Notices with respect to Long-Form Registrations and each Principal Stockholder shall have two (2) Demand Notices with respect to Long-Form Registrations which they are permitted to deliver (or cause to be delivered) to the Corporation hereunder. Each Stockholder
shall have an unlimited number of Demand Notices with respect to Short-Form Registrations which they are permitted to deliver (or cause to be delivered) to the Corporation hereunder.
(f) Registration Statement Form . If any registration requested pursuant to this Section 3 which is proposed by the Corporation to be effected by the filing of a Registration Statement on Form S-3 (or any successor or similar short-form registration statement) shall be in connection with an underwritten Public Offering, and if the managing underwriter shall advise the Corporation in writing that, in its reasonable opinion, the use of another form of Registration Statement is of material importance to the success of such proposed offering or is otherwise required by applicable law, then such registration shall be effected on such other form.
Section 4. Piggyback Registration .
(a) Right to Piggyback . Except with respect to a Demand Registration, the procedures for which are addressed in Section 3 , if the Corporation proposes to file a Registration Statement under the Securities Act with respect to an offering of Common Stock, whether or not for sale for its own account (other than a Registration Statement (i) on Form S-4, Form S-8 or any successor forms thereto or (ii) filed solely in connection with an exchange offer or any employee benefit or dividend reinvestment plan), then, each such time, the Corporation shall give prompt written notice of such filing no later than five (5) days after the filing date (the Piggyback Notice ) to all of the Stockholders. The Piggyback Notice shall offer such holders the opportunity to include (or cause to be included) in such Registration Statement the number of Registrable Securities as each such holder may request (a Piggyback Registration ). Subject to Section 4(b) , the Corporation shall include in each such Piggyback Registration all Registrable Securities with respect to which the Corporation has received written requests for inclusion therein within five (5) days after the Piggyback Notice has been given to the applicable holder (the Piggyback Response ). The Corporation shall not be required to maintain the effectiveness of the Registration Statement for a Piggyback Registration beyond the earlier to occur of (A) 180 days after the effective date thereof, and (B) consummation of the distribution by the holders of the Registrable Securities included in such Registration Statement.
Notwithstanding anything to the contrary in this Agreement, in connection with an IPO in which the Apollo Stockholder or a Principal Stockholder is selling (or causing to be sold) shares of Common Stock beneficially owned by such holder on a secondary basis, the Corporation shall be required to deliver a Piggyback Notice and in such event, on a pro rata basis (based on the number of shares of Common Stock that the Apollo Stockholder or such Principal Stockholder is proposing to sell in such IPO), all such holders of Registrable Securities shall have the right to participate in such offering with the Apollo Stockholder or such Principal Stockholder, as the case may be.
(b) Priority on Piggyback Registrations . The Corporation shall use reasonable best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit Stockholders who have submitted a Piggyback Response in connection with such offering to include in such offering all Registrable Securities included in each holders Piggyback Response on the same terms and conditions as any other shares of Common Stock, if any, of the Corporation included in such offering. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such underwritten offering have informed the Corporation in writing that it is their good faith opinion that the total amount of securities that such holders, the Corporation and any other Persons having rights to participate in such registration, intend to include in such offering exceeds the number that can be sold in such offering without adversely affecting the success of such offering, then there shall be included in such offering the number or dollar amount of such securities that in the good faith opinion of such managing underwriter or underwriters can be sold without adversely affecting such offering, and such number of securities shall be allocated as follows, unless such managing underwriter or underwriters requires a different allocation:
(i) if such offering was initiated by the Corporation with respect to Registrable Securities proposed to be registered for the Corporations own account, then:
(A) first , to the Corporation, the number of Registrable Securities proposed by the Corporation for inclusion in such offering;
(B) second , to the holders of Registrable Securities who have delivered a Piggyback Response pursuant to Section 4(a) above, pro rata on the basis of the number of Registrable Securities directly or indirectly held by each such holder and its Permitted Transferees; and
(C) third , to any other Persons, other shares of Common Stock requested by such other Persons (as the case may be) for inclusion in such offering pursuant to this Agreement or any other registration rights granted to the Corporation; or
(ii) other than with respect to a Demand Registration pursuant to Section 3(a) , in which case the priority in the allocation of Registrable Securities shall be as set forth in Section 3(b) , if such offering was not initiated by the Corporation with respect to Registrable Securities proposed to be registered for the Corporations own account, then:
(A) first , to the holder of Registrable Securities for whose account such offering was initiated by the Corporation and the holders of Registrable Securities who have delivered a Piggyback Response pursuant to Section 4(a) above, pro rata on the basis of the number of Registrable Securities directly or indirectly held by each such holder and its Permitted Transferees;
(B) second , to the Corporation, the number of Registrable Securities requested by the Corporation (as the case may be) for inclusion in such offering; and
(C) third , to any other Persons, other shares of Common Stock requested by such other Persons (as the case may be) for inclusion in such offering pursuant to this Agreement or any other registration rights granted by the Corporation.
(c) Shelf-Take Downs . At any time that a shelf-registration statement providing for sales of Common Stock on a delayed or continuous basis covering Registrable Securities pursuant to Section 3 or Section 4 is effective, if any holder or group of holders of Registrable Securities ( Shelf Holders ) delivers a notice to the Corporation (a Take-Down Notice ) stating that it intends to effect an underwritten offering of all or part of its Registrable Securities included by it on the shelf-registration statement (a Shelf Underwritten Offering ), then, the Corporation shall amend or supplement the shelf-registration statement as may be necessary in order to enable such Registrable Securities to be distributed pursuant to the Shelf Underwritten Offering (taking into account the inclusion of Registrable Securities by any other holders pursuant to this Section 4(c) ); provided , that the Corporation shall not be required to effect a Shelf Underwritten Offering if the aggregate offering price of the Registrable Securities to be sold in such offering is not reasonably expected to exceed $25,000,000. In connection with any Shelf Underwritten Offering:
(i) the Corporation or such Shelf Holders shall also deliver the Take-Down Notice to all other holders of Registrable Securities included on such shelf-registration statement and permit each such holder to sell its Registrable Securities included on the shelf-registration statement in the Shelf Underwritten Offering if such holder notifies the proposing holders and the Corporation within five (5) days after delivery of the Take-Down Notice to such holder; and
(ii) in the event that the underwriter determines and advises the Corporation and such Shelf Holders in writing that, in its reasonable view, marketing factors (including an adverse effect on the per share offering price) require a limitation on the number of Registrable Securities which would otherwise be included in such take down, the underwriter may limit the number of Registrable Securities which would otherwise be included in such take-down offering in the same manner as described in Section 3(b) or Section 4(b) , as applicable, with respect to a limitation of shares to be included in a registration.
If a Shelf Holder desires to effect a sale of Registrable Securities registered under a shelf-registration statement that does not constitute a Shelf Underwritten Offering (a Non-Marketed Take-Down ), such Shelf Holder shall so indicate in a written request delivered to the Corporation no later than five (5) Business Days prior to the expected date of such Non-Marketed Take-Down, and, if necessary, the Corporation shall file and effect an amendment or supplement to its shelf-registration statement for such purpose as soon as practicable.
Section 5. Restrictions on Public Sale by Holders of Registrable Securities . Each Stockholder agrees, in connection with an IPO, and each holder of Registrable Securities agrees, in connection with any underwritten offering (other than an IPO) made pursuant to a Registration Statement filed pursuant to Section 3 or Section 4 (whether or not such holder elected to include Registrable Securities in such Registration Statement), if requested (pursuant to a written notice) by the managing underwriter or underwriters in an underwritten offering, not to effect any public sale or distribution of any of the Corporations Common Stock (except as part of such underwritten offering), including a sale pursuant to Rule 144 or any swap or other economic arrangement that transfers to another Person any of the economic consequences of owning shares of Common Stock, or to give any Demand Notice during the period commencing on the date of
the request (which shall be no earlier than fourteen (14) days prior to the expected pricing of such offering) and continuing for not more than 180 days, with respect to an IPO, or ninety (90) days, with respect to any underwritten offering other than an IPO, after the date of the Prospectus relating to such offering (or the applicable final Prospectus supplement if such offering is made pursuant to a shelf registration), pursuant to which such offering shall be made, plus an extension period, which shall be no longer than 34 days, as may be proposed by the managing underwriter to address FINRA regulations regarding the publishing of research, or such lesser period as is required by the managing underwriter. The Corporation shall be responsible for negotiating all lock-up agreements with the underwriters, which agreements shall be on customary terms and each of the Stockholders shall be subject to substantially similar terms (in a proportionate manner) thereunder. The Corporation shall give each of the Apollo Stockholder and the Principal Stockholders a reasonable opportunity to review and comment on such lock-up agreements (other than any terms or provisions therein relating to the duration of the lock-up period) and shall use commercially reasonable efforts to incorporate any such comments. In addition to the foregoing provisions of this Section 5 , the Stockholders agree to execute the form so negotiated. Notwithstanding anything to the contrary set forth herein, in the event that the Corporation or underwriters release any party to a lock-up agreement from any or all of such partys obligations thereunder, all Stockholders and holders of Registrable Securities shall be similarly released from their obligations thereunder in the same manner and to the same extent as such released party, and each lock-up agreement shall contain a provision to such effect.
If any registration pursuant to Section 3 is made in connection with any underwritten Public Offering, the Corporation will not effect any public sale or distribution of any common equity (or securities convertible into or exchangeable or exercisable for common equity) (other than a Registration Statement (i) on Form S-4, Form S-8 or any successor forms thereto or (ii) filed solely in connection with an exchange offer or any employee benefit or dividend reinvestment plan) for its own account, within ninety (90) days or, if such registration is with respect to an IPO, within 180 days after the effective date of such registration, except as may otherwise be agreed between the Corporation and the managing underwriter or underwriters of such Public Offering.
Section 6. Registration Procedures . If and whenever the Corporation is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 3 or Section 4 , the Corporation shall effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Corporation shall cooperate in the sale of the securities and shall, as expeditiously as possible:
(a) prepare and file, in each case as promptly as practicable, with the SEC a Registration Statement or Registration Statements on such form as shall be available for the sale of the Registrable Securities by the holders thereof or by the Corporation in accordance with the intended method or methods of distribution thereof, make all required filings by the Corporation with FINRA and use its reasonable best efforts to cause such Registration Statement to become effective as soon as practicable and to remain effective as provided herein; provided , however , that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference), the Corporation shall furnish or otherwise make available to
the holders of the Registrable Securities covered by such Registration Statement, their counsel and the managing underwriters, if any, copies of all such documents proposed to be filed (including exhibits thereto), which documents will be subject to the reasonable review and comment of such counsel, and such other documents reasonably requested by such counsel, including any comment letter from the SEC and any documents incorporated by reference therein, and, if requested by such counsel, provide such counsel reasonable opportunity to participate in the preparation of such Registration Statement and each Prospectus included therein and such other opportunities to conduct a reasonable investigation within the meaning of the Securities Act, including reasonable access to the Corporations books and records, officers, accountants and other advisors; and the Corporation shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto (including such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) with respect to a Demand Registration to which the holders of a majority of the Registrable Securities covered by such Registration Statement, their counsel, or the managing underwriters, if any, shall reasonably object, in writing, on a timely basis, unless, in the opinion of counsel for the Corporation, such filing is necessary to comply with applicable law or regulation;
(b) prepare and file with the SEC such amendments, post-effective amendments and supplements to each Registration Statement and the Prospectus used in connection therewith, and such Exchange Act reports as may be reasonably requested by the holders of Registrable Securities or necessary to keep such Registration Statement continuously effective during the period provided herein and comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; and cause the related Prospectus to be supplemented by any Prospectus supplement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such Registration Statement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; provided , that if the Corporation prepares any such amendments, post-effective amendments or supplements to a Registration Statement or Prospectus or any such Exchange Act report, the holders of Registrable Securities and their respective counsel shall have a reasonable period of time prior to the filing thereof in which to review and comment thereon, which period shall, in any event, be no less than two (2) Business Days;
(c) notify each selling holder of Registrable Securities, its counsel and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the Corporation has reason to believe that the representations and warranties of the Corporation contained in any agreement (including any underwriting agreement) contemplated by Section 6(o) below cease to be true and correct, (v) of the receipt by the Corporation of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, and (vi) if the
Corporation has knowledge of the occurrence of any event that makes any statement made in such Registration Statement or related Prospectus, any amendment or supplement thereto, or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (which notice shall notify the selling holders of the occurrence of such an event and need not provide additional information regarding such event to the extent such information would constitute material non-public information);
(d) use its reasonable best efforts to prevent the entry of or obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction at the earliest date reasonably practicable;
(e) if requested by the managing underwriters, if any, or the holders of a majority of the then outstanding Registrable Securities being sold in connection with an underwritten offering, promptly include in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such holders may reasonably request in order to permit or facilitate the intended method of distribution of such securities and make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Corporation has received such request; provided , however , that the Corporation shall not be required to take any actions under this Section 6(e) that are not, in the opinion of counsel for the Corporation, in compliance with applicable law or regulation;
(f) furnish or make available to each selling holder of Registrable Securities, its counsel and each managing underwriter, if any, without charge, at least one conformed copy of the Registration Statement, the Prospectus and Prospectus supplements, if applicable, and each post-effective amendment thereto, including financial statements (but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits, unless requested in writing by such holder, counsel or underwriter); provided , that the Corporation may furnish or make available any such documents in electronic format;
(g) deliver to each selling holder of Registrable Securities, its counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of Prospectus) and each amendment or supplement thereto as such Persons may reasonably request from time to time in connection with the distribution of the Registrable Securities; provided , that the Corporation may furnish or make available any such documents in electronic format; and the Corporation, subject to the last paragraph of this Section 6 , hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any such amendment or supplement thereto in accordance with this Agreement;
(h) prior to any public offering of Registrable Securities, use its reasonable best efforts to register or qualify or cooperate with the selling holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any seller or underwriter reasonably requests in writing and to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and to take any other action that may be necessary or advisable to enable such holders of Registrable Securities to consummate the disposition of such Registrable Securities in such jurisdiction; provided , however , that the Corporation will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify or (ii) take any action that would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any legends) representing Registrable Securities to be sold after receiving written representations from each holder of such Registrable Securities that the Registrable Securities represented by the certificates so delivered by such holder will be transferred in accordance with the Registration Statement, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or holders may request at least two (2) Business Days prior to any sale of Registrable Securities in a firm commitment public offering, but in any other such sale, within ten (10) Business Days prior to having to issue the securities;
(j) use its reasonable best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States as may be necessary or advisable to enable the seller or sellers of such Registrable Securities or the underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling holders business, in which case the Corporation will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals;
(k) promptly upon the occurrence of, and its knowledge of, any event contemplated by Sections 6(c)(ii) or (vi) above, prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus responds to such comments or requests for amendments, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and as such Registration Statement responds to such comments or request for amendments, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading;
(l) prior to the effective date of the Registration Statement relating to the Registrable Securities, provide a CUSIP number for the Registrable Securities;
(m) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such Registration Statement from and after a date not later than the effective date of such Registration Statement;
(n) use its reasonable best efforts to cause all shares of Registrable Securities covered by such Registration Statement to be listed or authorized for quotation or trading on a national securities exchange or automated quotation system if shares of the particular class of Registrable Securities are at that time listed, quoted or traded on such exchange or automated quotation system, as the case may be, prior to the effectiveness of such Registration Statement (or, if such Registration is an IPO, use its reasonable best efforts to cause such Registrable Securities to be approved for listing or authorized for quotation or trading promptly upon the effectiveness of such Registration Statement);
(o) in connection with any underwritten offering, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other actions reasonably requested by the holders of a majority of the Registrable Securities being sold in connection therewith (including those reasonably requested by the managing underwriters, if any) to expedite or facilitate the disposition of Registrable Securities in such underwritten offering, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Corporation and its Subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and, if true, confirm the same if and when requested, (ii) use its reasonable best efforts to furnish to the selling holders of such Registrable Securities and the underwriters for such underwritten offering, opinions and Rule 10b-5 letters of outside counsel to the Corporation and updates thereof (which counsel and its opinions and letters (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and counsels to the selling holders of the Registrable Securities), addressed to each selling holder of Registrable Securities and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (iii) use its reasonable best efforts to obtain cold comfort letters and updates thereof from the independent certified public accountants of the Corporation (and, if necessary, any other independent certified public accountants of any Subsidiary of the Corporation or of any business acquired by the Corporation for which financial statements and financial data are, or are required to be, included in the Registration Statement) who have certified the financial statements included in such Registration Statement, addressed to each selling holder of Registrable Securities (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in cold comfort letters in connection with underwritten offerings, (iv) if an underwriting agreement is entered into, the same shall contain indemnification and
contribution provisions and procedures substantially to the effect set forth in Section 8 with respect to all parties to be indemnified pursuant to said Section except as otherwise approved by the Board, and (v) deliver such documents and certificates as may be reasonably requested by the holders of a majority of the Registrable Securities being sold pursuant to such Registration Statement, their counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to Section 6(o)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Corporation. The above shall be done at each closing under such underwriting or similar agreement (or at such other time as may be required thereunder), or as and to the extent required thereunder;
(p) make available for inspection by a representative of the selling holders of Registrable Securities, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorneys or accountants retained by such selling holders or underwriter, at the offices where normally kept, during reasonable business hours, financial and other records, pertinent corporate documents and properties of the Corporation and its Subsidiaries, and cause the officers, directors and employees of the Corporation and its Subsidiaries to supply all information, in each case reasonably requested by any such representative, underwriter, attorney or accountant in connection with such Registration Statement; provided , however , that any information that is not generally publicly available at the time of delivery of such information shall be kept confidential by such Persons unless (i) disclosure of such information is required by court or administrative order, (ii) disclosure of such information, in the opinion of counsel to such Person, is required by law or applicable legal process, or (iii) such information becomes generally available to the public other than as a result of a non-permitted disclosure or failure to safeguard by such Person. In the case of a proposed disclosure pursuant to (i) or (ii) above, such Person shall be required to give the Corporation written notice of the proposed disclosure prior to such disclosure and, if requested by the Corporation, assist the Corporation in seeking to prevent or limit the proposed disclosure. Without limiting the foregoing, no such information shall be used by such Person as the basis for any market transactions in securities of the Corporation or its Subsidiaries in violation of law;
(q) cause its officers to use their reasonable best efforts to support the marketing of the Registrable Securities covered by the Registration Statement (including participation in road shows) taking into account the Corporations business needs;
(r) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA;
(s) use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available as soon as reasonably practicable, an earning statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the applicable Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(t) use its reasonable best efforts to take all other steps necessary to effect the registration of the Registrable Securities contemplated hereby.
The Corporation may require each holder of Registrable Securities that has requested to have securities registered pursuant to Section 3 or Section 4 or that has requested to sell stock in a Shelf Underwritten Offering to which any registration is being effected to furnish to the Corporation in writing such information required in connection with such registration or sale regarding such seller and the distribution of such Registrable Securities as the Corporation may, from time to time, reasonably request in writing and the Corporation may exclude from such registration or sale the Registrable Securities of any holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.
The Corporation shall not file any Registration Statement with respect to any Registrable Securities, or any Prospectus used in connection therewith, and shall not file or make any amendment to any such Registration Statement or any amendment of or supplement to any such Prospectus, that refers to any Stockholder covered thereby by name, or otherwise identifies such Stockholder as the holder of any securities of the Corporation, without the consent of such Stockholder, such consent not to be unreasonably withheld, conditioned or delayed, unless and to the extent such disclosure is required by law or regulation, in which case the Corporation shall provide written notice to such Stockholder no less than two (2) Business Days prior to the filing of such Registration Statement or any amendment to any such Registration Statement or any Prospectus used in connection therewith or any amendment of or supplement to any such Prospectus. In addition, the Corporation shall not file any Registration Statement with respect to any Registrable Securities, or any Prospectus used in connection therewith, and shall not file or make any amendment to any such Registration Statement or any amendment of or supplement to any such Prospectus, that refers to any Principal Stockholder by name, or otherwise identifies such Principal Stockholder as the holder of any securities of the Corporation, without also referring to any other Principal Stockholder who requests to be named or otherwise identified therein.
If the Corporation files any shelf-registration statement on Form S-3 for the benefit of the holders of any of its securities other than the Stockholders, the Corporation agrees that it shall use reasonable best efforts to include in such registration statement such disclosures as may be required by Rule 430B under the Securities Act (referring to the unnamed selling security holders in a generic manner by identifying the initial offering of the securities to the Stockholders) in order to permit the Stockholders to be added to such shelf-registration statement at a later time through the filing of a Prospectus supplement rather than a post-effective amendment.
Each holder of Registrable Securities agrees if such holder has Registrable Securities covered by a Registration Statement that, upon receipt of any notice from the Corporation of the occurrence of any event of the kind described in Sections 6(c)(ii) , 6(c)(iii) , 6(c)(iv) or 6(c)(v) , such holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such holders receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(k) , or until it is advised in writing by the Corporation that the use of the applicable Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus; provided , however , that the time periods under Section 3 with respect to the length of time that the effectiveness of a Registration Statement must be maintained shall automatically be extended by the amount of time the holder is required to discontinue disposition of such securities.
Section 7. Registration Expenses . All fees and expenses incident to the performance of or compliance with this Agreement by the Corporation (including (i) all registration and filing fees (including fees and expenses with respect to (A) filings required to be made with the SEC, all applicable securities exchanges and/or FINRA and (B) compliance with securities or blue sky laws, including any fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities pursuant to Section 6(h) ), (ii) printing expenses (including expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriters, if any, or by the holders of a majority of the Registrable Securities included in any Registration Statement), (iii) messenger, telephone and delivery expenses of the Corporation, (iv) fees and disbursements of counsel for the Corporation, (v) expenses of the Corporation incurred in connection with any road show, (vi) fees and disbursements of all independent certified public accountants referred to in Section 6(o)(iii) (including the expenses of any cold comfort letters required by this Agreement) and any other Persons, including special experts retained by the Corporation, and (vii) fees and disbursements of one counsel for the holders of Registrable Securities whose shares are included in a Registration Statement, which counsel shall be selected by (x) if the Apollo Stockholder delivers a Demand Notice, the Apollo Stockholder or (y) if any Principal Stockholder delivers a Demand Notice, such Principal Stockholder (which counsel shall be reasonably acceptable to the Corporation), in each case, if such Stockholders (as the case may be) are making a Demand Registration (and otherwise, by the holders of a majority of the Registrable Securities being sold in connection therewith)) shall be borne by the Corporation whether or not any Registration Statement is filed or becomes effective. In addition, the Corporation shall pay its internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Corporation are then listed and rating agency fees and the fees and expenses of any Person, including special experts, retained by the Corporation.
The Corporation shall not be required to pay (i) fees and disbursements of any counsel retained by any holder of Registrable Securities or by any underwriter (except as set forth in clauses (i)(B) and (vii) of the first paragraph of this Section 7 ), (ii) any underwriters fees (including discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals) relating to the distribution of the Registrable Securities (other than with respect to Registrable Securities sold by the Corporation), (iii) subject to Section 8 , any other expenses of the holders of Registrable Securities not specifically required to be paid by the Corporation pursuant to the first paragraph of this Section 7 , or (iv) any expenses incurred in connection with any offering of Registrable Securities proposed to be registered by a holder of Registrable Securities at such time when such Registrable Securities may be sold without limitation as to volume pursuant to Rule 144 ( Rule 144 Eligible Securities ), which expenses, notwithstanding anything to the contrary set forth herein, shall be borne by such holder;
provided , however , that such expenses shall be borne by the Corporation in connection with any underwritten offering of Rule 144 Eligible Securities proposed or requested to be registered pursuant to (A) any Long-Form Registration initiated by the Apollo Stockholder or any of the Principal Stockholders, as the case may be, pursuant to clause (ii)(A) of Section 3(a) , (B) the first two (2) Short-Form Registrations initiated by each Stockholder pursuant to clause (ii)(B) of Section 3(a) , or (C) any Piggyback Registration pursuant to Section 4(a) .
Section 8. Indemnification .
(a) Indemnification by the Corporation . The Corporation shall, without limitation as to time, indemnify and hold harmless, to the fullest extent permitted by applicable law, each holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement or Prospectus, the officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees of each of them, each Person who controls each such holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees of each such controlling Person, each underwriter, if any, and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) such underwriter, from and against any and all losses, claims, damages, liabilities, costs (including costs of preparation and reasonable attorneys fees and any legal or other fees or expenses incurred by such party in connection with any investigation or Proceeding), expenses, judgments, fines, penalties, charges and amounts paid in settlement or Proceedings in respect thereof (collectively, Losses ), as incurred, arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement, disclosure package, Prospectus, offering circular, or other document (including any related Registration Statement, notification, or the like) or any amendment thereof or supplement thereto or any document incorporated by reference therein) incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Corporation of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation thereunder applicable to the Corporation and (without limitation of the preceding portions of this Section 8(a) ) will reimburse each such holder, each of its officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees and each Person who controls each such holder and the officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees of each such controlling Person, each such underwriter, and each Person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such Losses; provided , that the Corporation shall not be liable in any such case to the extent that any such Losses arises out of or is based on any untrue statement or omission by such holder or underwriter, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, disclosure package, Prospectus, offering circular or any amendment thereof or supplement thereto, or any document incorporated by reference therein or other document in reliance upon and in conformity with written information furnished to the Corporation by or on behalf of such holder or underwriter for use therein. It is agreed that the indemnity agreement contained in this Section 8(a) shall not apply to amounts paid in settlement of any such Losses (or Proceedings in respect thereof) if such settlement is effected without the
consent of the Corporation (which consent shall not be unreasonably withheld, conditioned or delayed).
(b) Indemnification by Holder of Registrable Securities . The Corporation may require, as a condition to including any Registrable Securities in any Registration Statement filed in accordance with this Agreement, that the Corporation shall have received an undertaking reasonably satisfactory to it from the prospective seller of such Registrable Securities to indemnify, to the fullest extent permitted by law, severally and not jointly with any other holders of Registrable Securities, the Corporation, its officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees and each Person who controls the Corporation (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) and the officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents, employees of each such controlling Person and all other prospective sellers, from and against all Losses arising out of or based on any untrue statement of a material fact contained in any such Registration Statement, Prospectus, offering circular, or other document, or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and to (without limitation of the portions of this Section 8(b) ) reimburse the Corporation, its officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees and each Person who controls the Corporation (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) and the officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents, employees of each such controlling Person and all other prospective sellers for any legal or any other expenses reasonably incurred in connection with investigating or defending any such Losses, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such Registration Statement, Prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Corporation by or on behalf of such holder for inclusion in such Registration Statement, Prospectus, offering circular or other document; provided , however , that the obligations of such holder hereunder shall not apply to amounts paid in settlement of any such Loss (or Proceedings in respect thereof) if such settlement is effected without the consent of such holder (which consent shall not be unreasonably withheld, conditioned or delayed); and provided , further , that the liability of such holder of Registrable Securities shall be limited to the net proceeds received by such selling holder from the sale of Registrable Securities covered by such Registration Statement.
(c) Conduct of Indemnification Proceedings . If any Person shall be entitled to indemnity pursuant to Section 8(a) or Section 8(b) (an Indemnified Party ), such Indemnified Party shall give prompt notice to the party from which such indemnity is sought (the Indemnifying Party ) of any claim or of the commencement of any Proceeding with respect to which such Indemnified Party seeks indemnification or contribution pursuant hereto; provided , however , that the delay or failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any obligation or liability except to the extent that the Indemnifying Party has been materially prejudiced by such delay or failure. The Indemnifying Party shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such claim or Proceeding, to assume, at the Indemnifying Partys expense, the defense of any such claim or Proceeding, with counsel reasonably satisfactory to such Indemnified Party; provided , however , that an Indemnified Party
shall have the right to employ separate counsel in any such claim or Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless: (i) the Indemnifying Party agrees to pay such fees and expenses; (ii) the Indemnifying Party fails promptly to assume, or in any event within thirty (30) days; (iii) the Indemnified Party reasonably concludes, based on the advice of counsel, that a conflict of interest exists between the Indemnifying Party and the Indemnified Party in the defense of such claim or Proceeding; or (iv) the Indemnifying Party fails to employ counsel reasonably satisfactory to such Indemnified Party, in which case the Indemnified Party shall have the right to employ separate counsel and to assume the defense of such claim or Proceeding at the Indemnifying Partys expense; provided , further , however , that the Indemnifying Party shall not, in connection with any one such claim or Proceeding or separate but substantially similar or related claims or Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the Indemnified Parties (unless there is an actual conflict of interest between one or more of the Indemnified Parties and the Indemnifying Party has been notified in writing of such conflict, in which case such conflicted Indemnified Parties or group of conflicted Indemnified Parties (as the case may be) may be represented by separate counsel, the fees and expenses of whom shall be borne by the Indemnifying Party), or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The Indemnifying Party shall not consent to entry of any judgment or enter into any settlement that (x) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release, in form and substance reasonably satisfactory to the Indemnified Party, from all liability in respect of such claim or litigation for which such Indemnified Party would be entitled to indemnification hereunder or (y) involves the imposition of equitable remedies or any obligations on the Indemnified Party or materially adversely affects such Indemnified Party other than as a result of financial obligations for which such Indemnified Party would be entitled to indemnification hereunder.
(d) Contribution . If the indemnification provided for in this Section 8 is unavailable to an Indemnified Party in respect of any Losses (other than in accordance with its terms), then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, from the sale of the Registrable Securities covered by such Registration Statement, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made (or omitted) by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission. The Parties agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 8(d) , an Indemnifying Party that is a selling holder of Registrable Securities shall not be required to contribute any amount in excess of the amount that such Indemnifying Party has otherwise been, or would otherwise be, required to pay pursuant to Section 8(b) by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
(e) To the extent that any of the holders is, or would be expected to be, deemed to be an underwriter of Registrable Securities pursuant to any SEC comments or policies or any court of law or otherwise, the Corporation agrees that (i) the indemnification and contribution provisions contained in this Section 8 shall be applicable to the benefit of such holder in its role as deemed underwriter in addition to its capacity as a holder (so long as the amount for which any other holder is or becomes responsible does not exceed the amount for which such holder would be responsible if the holder were not deemed to be an underwriter of Registrable Securities) and (ii) such holder and its representatives shall be entitled to conduct the due diligence which would normally be conducted in connection with an offering of securities registered under the Securities Act, including receipt of customary opinions, Rule 10b-5 letters and comfort letters.
(f) Indemnification similar to that specified in the preceding provisions of this Section 8 (with appropriate modifications) shall be given by the Corporation and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any law or regulation (other than the Securities Act) of any Governmental Authority.
(g) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
Section 9. Rule 144 .
(a) After an IPO, the Corporation shall (i) use best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner (or, if the Corporation is not required to file such reports, upon the request of the Apollo Stockholder or any Principal Stockholder, make publicly available such information), (ii) take such further action as any holder of Registrable Securities may reasonably request to permit sales of Registrable Securities pursuant to Rule 144, and (iii) promptly furnish to each holder of Registrable Securities forthwith upon written request, (x) a written statement by the Corporation as to its compliance with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (y) a copy of the most recent annual or quarterly report of the Corporation, and (z) such other reports and documents so filed by the Corporation as such holder may reasonably
request in availing itself of Rule 144, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144. Upon the request of any holder of Registrable Securities, the Corporation shall deliver to such holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof.
(b) The foregoing provisions of this Section 9 are not intended to modify or otherwise affect any restrictions on Transfers of Class A Shares or Class B Shares contained in the Stockholders Agreement.
Section 10. Underwritten Registrations; Registration Participation Requirements .
(a) In connection with any underwritten offering, the investment banker or investment bankers and managers shall be selected by (i) the Stockholder issuing the Demand Notice under Section 3(a) in a Demand Registration, which selection shall be subject to approval by the Corporation, such approval not to be unreasonably withheld, conditioned or delayed, and (ii) the Corporation in all other cases, including any Piggyback Registration and any IPO.
(b) No Person may participate in any registration hereunder unless such Person (i) agrees to sell the Registrable Securities it desires to have covered by a Registration Statement on the basis provided in any underwriting arrangements in customary form and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements in customary form and other documents required under the terms of such underwriting arrangements; provided , that (A) such Person shall not be required to make any representations or warranties other than those related to title and ownership of such Persons Registrable Securities being sold and as to the accuracy and completeness of statements made in a Registration Statement, Prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Corporation or the managing underwriter by such Person pertaining exclusively to such Person for use therein, (B) such Person shall not be required to sell more than the number of Registrable Securities that such Person has requested to include in any registration, and (C) if such Person disapproves of the terms of the underwriting, such Person may elect, prior to the effective date of the registration statement filed in connection with such registration, to withdraw therefrom by written notice to the Corporation, the managing underwriters and, in the case of a Demand Registration, the Stockholder that requested such Demand Registration; provided , that such Person shall not be permitted to withdraw from such registration after the inclusion of an offering price range in any applicable registration statement if, in the good faith opinion of the managing underwriter or underwriters, such withdrawal would adversely affect the success or the offering price of the securities to be sold pursuant to such registration.
Section 11. Miscellaneous .
(a) Amendments and Waivers . Except as otherwise expressly provided herein, this Agreement may be amended, modified or supplemented, and any provision hereof may be waived, only by a written instrument duly approved by Special Board Approval and the Legacy Class A Stockholders that together hold, in the aggregate, at least a sixty-six and
two-thirds percent (66 2 / 3 %) of the Class A Shares held by the Legacy Class A Stockholders; provided , however , that the Corporation may, without the consent of any other Party, amend or modify this Agreement or waive any provision of this Agreement (other than this Section 11(a) ), pursuant to a written instrument duly approved by the Board to the extent necessary in connection with the issuance of new Class A Shares, Class B Shares or other securities of the Corporation in accordance with, and subject to the limitations set forth in the Stockholders Agreement, the Amended and Restated Certificate of Incorporation and the Bylaws; provided , further , that no amendment, modification or waiver which would disproportionately and materially adversely affect the interests of any Party hereunder shall be effective without the written approval of such Party.
(b) Notices .
(i) Except as otherwise expressly provided in this Agreement, all notices, requests and other communications to any Party hereunder shall be in writing (including a facsimile or similar writing) and shall be given to such Party at the address or facsimile number specified for such Party on Schedule A to the Stockholders Agreement (or in the case of the Corporation, Section 11(b)(ii) ) or as such Party shall hereafter specify for the purpose by notice to the other Parties. Each such notice, request or other communication shall be effective (A) if personally delivered, on the date of such delivery, (B) if given by facsimile, at the time such facsimile is transmitted and the appropriate confirmation is received, (C) if delivered by an internationally-recognized overnight courier, on the next Business Day after the date when sent, (D) if delivered by registered or certified mail, three (3) Business Days (or, if to an address outside the United States, seven (7) days) after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (E) if given by any other means, when delivered at the address specified on Schedule A to the Stockholders Agreement or in Section 11(b)(ii) .
(ii) All notices, requests or other communications to the Corporation hereunder shall be delivered to the Corporation at the following address and/or facsimile number in accordance with the provisions of Section 11(b)(i) :
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EP Energy Corporation |
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1001 Louisiana Street |
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Houston, TX 77002 |
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Attention: Marguerite Woung-Chapman |
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Facsimile: (713) 997-4099 |
with copies to (which shall not constitute notice):
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Apollo Management VII, L.P. |
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Apollo Commodities Management, L.P., with respect to Series I |
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9 West 57th Street |
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New York, NY 10019 |
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Attention: Laurie Medley |
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Facsimile: (212) 515-3288 |
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Paul, Weiss, Rifkind, Wharton & Garrison LLP |
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1285 Avenue of the Americas |
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New York, NY 10019-6064 |
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Attention: John M. Scott, Esq. |
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Facsimile: (212) 757-3990 |
(c) Successors and Assigns; Stockholder Status . This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the Parties, including Permitted Transferees of the Stockholders and subsequent holders of Registrable Securities acquired, directly or indirectly, from the Stockholders in accordance with the Stockholders Agreement; provided , however , that such successor or assign shall not be entitled to such rights unless the successor or assign shall have executed and delivered to the Corporation an Addendum Agreement substantially in the form of Exhibit A hereto (which shall also be executed by the Corporation) promptly following the acquisition of such Registrable Securities, in which event such successor or assign shall be deemed a Stockholder for purposes of this Agreement. This Agreement is not intended to confer any rights or remedies upon, and shall not be enforceable by any Person other than the actual Parties hereto (and not, for the avoidance of doubt, any Upper-Tier Investor; provided , that the foregoing exclusion shall not limit the rights of such Upper-Tier Investor under its respective Upper-Tier Agreement to cause the Legacy Class A Stockholders in which it directly or indirectly invests to enforce the rights of such Upper-Tier Investor under its respective Upper-Tier Agreement in respect of this Agreement pursuant to the Section 2.01 Principle), their respective successors and permitted assigns, and solely with respect to the provisions of Section 8 , each Indemnified Party.
(d) Additional Parties . From and after the date hereof, any Person to whom Class A Shares have been Transferred shall be joined as a Party and shall be deemed a Party as of the date hereof following the execution and delivery by such Person of an Addendum Agreement to the Corporation.
(e) Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.
(f) Headings; Construction . The titles of Sections and paragraphs of this Agreement are for convenience only and do not define or limit the provisions hereof. The definitions in Section 1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Sections, Exhibits and Schedules and paragraphs shall be deemed to be references to Sections and paragraphs of, and Exhibits to, this Agreement unless the context shall otherwise require. All Exhibits attached hereto shall be deemed incorporated herein as if set forth in full herein. The terms clause(s) and subparagraph(s) shall be used herein interchangeably. The words include, includes and including shall be deemed to be followed by the phrase without limitation. All accounting terms not defined in this Agreement shall have the meanings determined by United States generally accepted accounting principles as in effect from time to time. The words
hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to a Person are also to its permitted successors and permitted assigns. Unless otherwise expressly provided herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified, supplemented or restated, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein.
(g) Exhibits . All Exhibits attached to this Agreement are incorporated and shall be treated as if set forth herein.
(h) Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party under this Agreement shall not be materially and adversely affected thereby, (i) such provision shall be fully severable, (ii) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (iv) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
(i) Entire Agreement . This Agreement together with the Stockholders Agreement and the other agreements referenced in Section 8.08 of the Stockholders Agreement constitutes the entire agreement among the Parties pertaining to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the Parties in connection herewith and therewith, and no covenant, representation or condition not expressed in this Agreement, the Stockholders Agreement or such other agreements referenced in Section 8.08 of the Stockholders Agreement shall affect, or be effective to interpret, change or restrict, the express provisions of this Agreement.
(j) Securities Held by the Corporation or its Subsidiaries . Whenever the consent or approval of holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Corporation or its Subsidiaries shall not be counted in determining whether such consent or approval was given by the holders of such required percentage.
(k) Specific Performance . The Parties acknowledge that money damages may not be an adequate remedy for breaches or violations of this Agreement and that any Party, in addition to any other rights and remedies which the Parties may have hereunder or at law or in equity, may, in its sole discretion, apply to a court of competent jurisdiction in accordance with Section 11(m) for specific performance or injunction or such other equitable relief as such court may deem just and proper in order to enforce this Agreement in the event of any breach of the provisions of this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each Party hereby waives (i) any objection to the imposition of such
relief, and (ii) any requirement for the posting of any bond or similar collateral in connection therewith.
(l) Term . This Agreement shall terminate with respect to a Stockholder on the date on which such Stockholder ceases to directly or indirectly hold Registrable Securities; provided , that such Stockholders rights and obligations pursuant to Section 8 , as well as the Corporations obligations to pay expenses pursuant to Section 7 , shall survive with respect to any Registration Statement in which any Registrable Securities of such Stockholders were included and, for the avoidance of doubt, any underwriter lock-up that a Stockholder has executed prior to a Stockholders termination in accordance with this clause shall remain in effect in accordance with its terms.
(m) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws. The Parties hereby declare that it is their intention that this Agreement shall be regarded as made under the laws of the State of Delaware and that the laws of said State shall be applied in interpreting its provisions in all cases where legal interpretation shall be required. Each of the Parties: (i) agrees that this Agreement involves at least US $100,000.00; (ii) agrees that this Agreement has been entered into by the Parties in express reliance upon 6 Del. C. § 2708(a); (iii) irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware with respect to all actions and proceedings arising out of or relating to this Agreement and the transactions contemplated hereby; (iv) agrees that all claims with respect to any such action or proceeding shall be heard and determined in such courts and agrees not to commence any action or proceeding relating to this Agreement or the transactions contemplated hereby except in such courts; (v) irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding arising out of this Agreement or the transactions contemplated hereby and irrevocably and unconditionally waives the defense of an inconvenient forum; (vi) irrevocably acknowledges and agrees that it is a commercial business entity and is a separate entity distinct from its ultimate equity holder and/or the executive organs of the government of any state and is capable of suing and being sued; (vii) agrees that its entry into this constitutes, and the exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts performed for private and commercial purposes that shall not be deemed as being entered into in the exercise of any public function; and (viii) irrevocably appoints The Corporation Trust Company as its agent for the sole purpose of receiving service of process or other legal summons in connection with any such dispute, litigation, action or proceeding brought in such courts and agrees that it will maintain The Corporation Trust Company at all times as its duly appointed agent in the State of Delaware (and the Corporation shall reasonably assist each other Party, to the extent requested by such other Party, with such appointment, including by informing The Corporation Trust Company of such appointment and assisting such other Party with the delivery of any documentation required for such appointment to The Corporation Trust Company) for the service of any process or summons in connection with any such dispute, litigation, action or proceeding brought in such courts and, if it fails to maintain such an agent during any period, any such process or summons may be served on it by mailing a copy of such process or summons by an internationally-recognized courier service to the address set forth next to its name in Schedule A to the Stockholders Agreement or with respect to the Corporation, the address set forth in Section 11(b)(ii) , with
such service deemed effective on the fifth day after the date of such mailing; and (ix) agrees that a final judgment in any such action or proceeding and from which no appeal can be made shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Parties agree that any violation of this Section 11(m) shall constitute a material breach of this Agreement and shall constitute irreparable harm. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM, ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(n) Representation by Counsel . Each of the Parties has been represented by and has had an opportunity to consult with legal counsel in connection with the drafting, negotiation and execution of this Agreement. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any Party by any court or arbitrator or any Governmental Authority by reason of such Party having drafted or being deemed to have drafted such provision.
(o) Waiver; Cumulative Remedies . No failure by any Party to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach of such or any other covenant, agreement, term or condition shall operate as a waiver of such or any other covenant, agreement, term or condition of this Agreement. Any Party by notice given in accordance with Section 11(b) may, but shall not be under any obligation to, waive any of its rights or conditions to its obligations hereunder, or any duty, obligation or covenant of any other Party. No waiver shall affect or alter the remainder of this Agreement but each and every covenant, agreement, term and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach. The rights and remedies provided by this Agreement are cumulative and the exercise of any one right or remedy by any Party shall not preclude or waive its right to exercise any or all other rights or remedies
(p) Further Assurances . Each Party agrees to execute, acknowledge, deliver, file and record such further certificates, amendments, instruments and documents, and to do all such other acts and things, as may be required by law or as, in the reasonable judgment of the Board, may be necessary or advisable to carry out the intent and purposes of this Agreement.
(q) No Inconsistent Agreements; Most Favored Nation . The Corporation shall not hereafter enter into any agreement with respect to its securities that is inconsistent with or violates the rights granted to the holders of Registrable Securities hereunder (for the avoidance of doubt, any agreement that grants or has the effect of granting to any Person demand registration rights or incidental or piggyback registration rights with the same or a higher priority as the rights held by the holders of Registrable Securities hereunder shall be deemed to be inconsistent with or violate the rights granted to the holders of Registrable Securities herein). The Corporation shall not hereafter enter into any agreement with any holder or prospective holder of any securities of the Corporation giving such Person any registration rights that would
be more favorable to such Person than the registration rights granted to the Principal Stockholders or any of their respective Permitted Transferees under this Agreement.
(r) Reliance on Authority of Person Signing Agreement . If a Party is not a natural person, neither the Corporation nor any other Party will (i) be required to determine the authority of the individual signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such individual, or (ii) be responsible for the application or distribution of proceeds paid or credited to individuals signing this Agreement on behalf of such entity.
(s) Section 2.01 Principle . The Section 2.01 Principle as it relates to the Legacy Class A Stockholders and their Upper-Tier Investors in the Stockholders Agreement shall also apply to the Stockholders and their Upper-Tier Investors (as the case may be) under this Agreement and shall be deemed incorporated herein by reference, mutatis mutandis .
(t) Prior Registration Rights Agreement . Each Stockholder party hereto, and to the extent party to the Prior Registration Rights Agreement, hereby (i) waives any obligation of the LLC (and the Corporation, to the extent it succeeded to such obligations) to bind the Corporation or any other Person to the Prior Registration Rights Agreement and (ii) agrees that the Prior Registration Rights Agreement is hereby terminated as of the date hereof.
[Signature pages follow.]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the date first above written.
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EP ENERGY CORPORATION |
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By: |
/s/ Brent J. Smolik |
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Name: |
Brent J. Smolik |
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Title: |
President and Chief Executive Officer |
Signature Page to Registration Rights Agreement
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TEXAS OIL & GAS HOLDINGS LLC |
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By: |
ACCESS INDUSTRIES MANAGEMENT, LLC, its manager |
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By: |
/s/ Alejandro Moreno |
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Name: |
Alejandro Moreno |
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Title: |
Senior Vice President |
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By: |
/s/ Peter L. Thoren |
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Name: |
Peter L. Thoren |
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Title: |
Executive Vice President |
Signature Page to Registration Rights Agreement
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AIF VII (AIV), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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AOP VII (EPE INTERMEDIATE), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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ANRP (EPE INTERMEDIATE), L.P. |
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By: |
Apollo ANRP Advisors (APO DC), L.P., its general partner |
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By: |
Apollo ANRP Advisors (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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AIF PB VII (LS AIV), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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ANRP (EPE AIV), L.P. |
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By: |
Apollo ANRP Advisors (APO DC), its general partner |
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By: |
Apollo ANRP Advisors (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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AP VII 892/TE (EPE AIV I), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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AP VII 892/TE (EPE AIV II), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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AP VII 892/TE (EPE AIV III), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: |
Laurie Medley |
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Title: |
Vice President |
Signature Page to Registration Rights Agreement
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AP VII 892/TE (EPE AIV IV), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its |
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general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its |
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general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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APOLLO INVESTMENT FUND (PB) VII, L.P. |
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By: |
Apollo Advisors VII, L.P., its general partner |
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By: |
Apollo Capital Management VII, LLC, its |
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general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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EPE 892 CO-INVESTORS I, L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general |
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partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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EPE 892 CO-INVESTORS II, L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general |
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partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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EPE 892 CO-INVESTORS III, L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general |
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partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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EPE DOMESTIC CO-INVESTORS, L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general |
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partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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EPE OVERSEAS CO-INVESTORS (FC), L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general |
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partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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ANRP 892/TE (EPE AIV), L.P. |
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By: |
Apollo ANRP Advisors (APO DC), L.P., its |
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general partner |
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By: |
Apollo ANRP Advisors (APO |
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DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Registration Rights Agreement
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KOREA NATIONAL OIL CORPORATION |
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By: |
/s/ Chang-Seok Jeong |
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Name: Chang-Seok Jeong |
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Title: Executive Vice President for |
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Production Group |
Signature Page to Registration Rights Agreement
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RIVERSTONE V EVEREST HOLDINGS, L.P. |
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By: |
RIVERSTONE ENERGY PARTNERS V, L.P., |
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its general partner |
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By: |
RIVERSTONE ENERGY GP V, LLC, its |
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general partner |
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By: |
/s/ Thomas J. Walker |
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Name: Thomas J. Walker |
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Title: Managing Director |
Signature Page to Registration Rights Agreement
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RIVERSTONE V FT CORP HOLDINGS, L.P. |
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By: |
RIVERSTONE ENERGY PARTNERS V, L.P., |
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its general partner |
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By: |
RIVERSTONE ENERGY GP V, LLC, its |
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general partner |
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By: |
/s/ Thomas J. Walker |
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Name: Thomas J. Walker |
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Title: Managing Director |
Signature Page to Registration Rights Agreement
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EPE MANAGEMENT INVESTORS, LLC |
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By: |
/s/ Brent J. Smolik |
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Name: Brent J. Smolik |
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Title: President and Chief Executive Officer |
Signature Page to Registration Rights Agreement
EXHIBIT A
ADDENDUM AGREEMENT
This Addendum Agreement is made this [ ] day of [ ], 20[ ], by and between [ ] (the New Stockholder ) and EP Energy Corporation, a Delaware corporation (the Corporation ), pursuant to a Registration Rights Agreement dated as of August 30, 2013 (the Agreement ), by and among the Corporation and the stockholders party thereto (the Stockholders ). Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
WITNESSETH:
WHEREAS, the New Stockholder has acquired Registrable Securities directly or indirectly from a Stockholder; and
WHEREAS, the Corporation and the Stockholders have required in the Agreement that all persons desiring registration rights must enter into an Addendum Agreement binding the New Stockholder to the Agreement to the same extent as if it were an original party thereto.
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto, the New Stockholder acknowledges that it has received and read the Agreement and that the New Stockholder shall be bound by, and shall have the benefit of, all of the terms and conditions set out in the Agreement to the same extent as if it were an original party to the Agreement and shall be deemed to be a Stockholder thereunder.
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New Stockholder |
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Address: |
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AGREED TO on behalf of the Corporation pursuant to Section 11(d) of the Agreement.
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EP ENERGY CORPORATION |
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By: |
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Name: |
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Title: |
Exhibit 10.31
MANAGEMENT INCENTIVE PLAN AGREEMENT
This MANAGEMENT INCENTIVE PLAN AGREEMENT (this Agreement ), dated as of August 30, 2013, is executed and agreed to by and between EP Energy Corporation, a Delaware corporation (the Corporation ), and EPE Employee Holdings, LLC, a Delaware limited liability company ( EEH ). Capitalized terms used in this Agreement but not defined in the body hereof are defined in Exhibit A .
WHEREAS , EEH and EPE Acquisition, LLC, a Delaware limited liability company, entered into that certain Management Incentive Plan Agreement, dated as of May 24, 2012 (the Prior Agreement );
WHEREAS , each of the Persons set forth on Schedule A hereto (as may be amended) (each, a Grantee ), on the date set forth next to such Grantees name on Schedule A (the Grant Date ) was an employee of EPE Acquisition, LLC, or one of its Subsidiaries and had provided or agreed to provide services to or for the benefit of EPE Acquisition, LLC, any successor entity to EPE Acquisition, LLC, or their respective Subsidiaries;
WHEREAS , in connection with the Prior Agreement and in accordance with the Second Amended and Restated Limited Liability Company Agreement of EPE Acquisition, LLC, dated as of May 24, 2012 (the Predecessor LLC Agreement ), EPE Acquisition, LLC, issued membership interests to EEH and EEH issued EEH Units to employees of EPE Acquisition, LLC or its Subsidiaries, including the Employer;
WHEREAS , EPE Acquisition, LLC, has been restructured to form a new corporate holding structure for its operating business, and in connection therewith, EEH was issued Class B Shares in exchange for the contribution of its Class B Units to the Corporation (the Restructuring ); and
WHEREAS , the purpose of this Agreement is to set forth the terms and conditions governing the Class B Shares issued to EEH in connection with the Restructuring.
NOW, THEREFORE , in consideration of the promises and of the mutual agreements contained in this Agreement and other good and valuable consideration, the parties hereto agree as follows:
1. Award . In connection with the Restructuring and subject to the provisions of this Agreement, the Stockholders Agreement and the Corporate Governing Documents, the Corporation has issued to EEH on the date hereof the aggregate number of Class B Shares set forth opposite each Grantees name on Schedule A hereto, as such Schedule may be amended from time to time, (the Awarded B Shares ). In accordance with the terms of the EEH Agreement and an Award Agreement between EEH and the applicable Grantee (and in accordance with the Predecessor LLC Agreement), EEH has previously issued to each Grantee, on the applicable Grant Date, such number and series of EEH Units as corresponds to the number and series of Awarded B Shares set forth next to such Grantees name on Schedule A , as such Schedule may be amended from time to time.
2. Unvested Shares . As of the date hereof, the Awarded B Shares, other than those that vested on May 24, 2013 and July 10, 2013, pursuant to Section 3 , shall be Unvested Class B Shares under the Stockholders Agreement, subject to all of the restrictions on Unvested Class B Shares (as well as on Class B Shares, in general) under the Stockholders Agreement and shall carry only such rights as are conferred on Unvested Class B Shares under the Stockholders Agreement ( Unvested Shares ). Unvested Shares will become vested in accordance with the provisions of Section 3 of this Agreement.
3. Vesting of Awarded B Shares .
(a) Subject to the remainder of this Section 3 and Section 4 , Awarded B Shares shall vest and become Vested Class B Shares under the Stockholders Agreement and the Corporate Governing Documents and shall no longer be subject to the restrictions on Unvested Class B Shares (but shall remain subject to the restrictions on Vested Class B Shares and Class B Shares in general) under the Stockholders Agreement and the Corporate Governing Documents ( Vested Shares ) in accordance with the vesting schedule set forth in the table below, provided, that the applicable Grantee remains continuously employed by the Employer or one of its Affiliates, and EEH remains a stockholder of the Corporation from the applicable Grant Date through each vesting date set forth below:
Vesting Date |
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Cumulative Percentage of Awarded B
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First Anniversary of the applicable Grant Date |
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20 |
% |
Second Anniversary of the applicable Grant Date |
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40 |
% |
Third Anniversary of the applicable Grant Date |
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60 |
% |
Fourth Anniversary of the applicable Grant Date |
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80 |
% |
Fifth Anniversary of the applicable Grant Date |
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100 |
% |
If on an applicable vesting date, the application of the vesting schedule set forth above causes a fractional Unvested Share to become a Vested Share, the number of Unvested Shares vesting on such date shall be rounded up to the next whole number of Unvested Shares. For the avoidance of doubt, 161,081 Class B-1 Shares (representing 20% of the Awarded B-1 Shares) shall be deemed to have vested on May 24, 2013 and shall be deemed to be Vested Shares as of such date, and 580 Class B-2 Shares (representing 20% of the Awarded B-2 Shares) shall be deemed to have vested on July 10, 2013, and shall be deemed to be Vested Shares as of such date.
(b) Notwithstanding the foregoing provisions of this Section 3, upon the occurrence of a Threshold Capital Transaction, all Awarded B Shares that have not previously become Vested Shares shall become Vested Shares as of the date of such Threshold Capital Transaction, provided, that the applicable Grantee has remained continuously employed by the Employer or one of its Affiliates from the applicable Grant Date through the date of such Threshold Capital Transaction.
(c) Notwithstanding the foregoing provisions of this Section 3 , upon the consummation of a Specified Sale, all Awarded B Shares that have not previously become Vested Shares shall become Vested Shares as of the date of the closing of such Specified Sale;
provided , that the applicable Grantee has remained continuously employed by the Employer or one of its Affiliates from the applicable Grant Date through the date of the consummation of such Specified Sale.
4. Forfeiture and Redemption of Awarded B Shares
(a) If the employment of a Grantee with the Employer or one of its Affiliates is terminated for Cause, then on the date of such Grantees termination of employment, EEH will forfeit to the Corporation, without consideration, all of its Awarded B Shares attributable to such Grantee (and such Grantees Permitted Transferees), including all Vested Shares and all Unvested Shares, and all rights arising from such forfeited Awarded B Shares only and from being a holder thereof.
(b) If (x) a Grantee voluntarily terminates the Grantees employment with the Employer or one of its Affiliates for Good Reason, (y) a Grantees employment with the Employer or one of its Affiliates is terminated by the Employer or such Affiliate without Cause, or (z) a Grantees employment with the Employer or one of its Affiliates is terminated upon such Grantees death or because such Grantee incurs a Disability, then:
(i) for a period of one year following the date of such Grantees termination of employment, the Corporation shall have the right, but not the obligation, to redeem from EEH, in accordance with Section 5 below, any or all of the Vested Shares attributable to such Grantee (and such Grantees Permitted Transferees) as of the date of such Grantees termination at the Fair Market Value of such Awarded B Shares determined as of the date the Corporation elects to redeem such Awarded B Shares;
(ii) on the date of such Grantees termination of employment, a pro-rata portion of the Awarded B Shares attributable to such Grantee that remain Unvested Shares as of such date, if any, shall become Vested Shares, and such pro-rata portion shall equal the product of (i) 20 percent of the number of Awarded B Shares granted under this Agreement multiplied by (ii) a fraction, (A) the numerator of which is the number of days between the most recent anniversary of the applicable Grant Date preceding such Grantees date of termination of employment and (B) the denominator of which is 365; and
(iii) on the date of such Grantees termination of employment, all of the Unvested Shares that do not become Vested Shares in accordance with Section 4(b)(ii) above shall become tentatively vested (the Tentatively Vested Shares ) and subject to vesting as follows:
(A) if a Threshold Capital Transaction occurs on or prior to the date that is 180 days following the date of such Grantees termination of employment (the Determination Date ), then (I) all of the Tentatively Vested Shares shall become Vested Shares as of the date on which such Threshold Capital Transaction occurs and (II) for a period of one year after the date on which such Threshold Capital Transaction occurs, the Corporation shall have the right to redeem, in accordance with Section 5 below, any or all of the Vested
Shares attributable to such Grantee and such Grantees Permitted Transferees at the Fair Market Value of such Awarded B Shares determined as of the date the Corporation elects to redeem such Awarded B Shares; and
(B) if a Threshold Capital Transaction does not occur on or prior to the Determination Date, then EEH will forfeit to the Corporation, without consideration, all of the Tentatively Vested Shares attributable to such Grantee (and such Grantees Permitted Transferees) and all rights arising from such Tentatively Vested Shares and from being a holder thereof.
(c) If a Grantee voluntarily terminates employment with the Employer or one of its Affiliates without Good Reason, then:
(i) on the date of such Grantees termination of employment, EEH will forfeit to the Corporation, without consideration, all of the Unvested Shares attributable to such Grantee (and such Grantees Permitted Transferees) and 25% of the Vested Shares attributable to such Grantee (and such Grantees Permitted Transferees) and all rights arising from such Awarded B Shares and from being a holder thereof; and
(ii) following such Grantees termination of employment, the Corporation shall have the right, but not the obligation, to redeem from EEH, in accordance with Section 5 below, any or all of the Vested Shares attributable to such Grantee (and such Grantees Permitted Transferees) as of the date of such Grantees termination (determined after giving effect to Section 4(c)(i) above) at the Fair Market Value of such Awarded B Shares determined as of the date the Corporation elects to redeem such Awarded B Shares.
(d) The forfeitures of Awarded B Shares (including all rights arising from such Awarded B Shares) subject to the terms and conditions of this Section 4 shall occur immediately and without further action of the Corporation or the Board or any other Person upon the termination of employment of a Grantee or other event giving rise to such forfeitures (the date of termination of employment of a Grantee or such other event being a Trigger Date ).
5. Procedure for Redemption of Vested Shares .
(a) In order to exercise the right to redeem any Vested Shares that are subject to redemption pursuant to Section 4 (the Subject Shares ), the Corporation shall deliver written notice to such Grantee, and such Grantees Permitted Transferee, legal representative or guardian, or the executor of such Grantees estate, as applicable (the Holder ) and to EEH, no later than the one-year anniversary of the Trigger Date, in which notice the Corporation shall identify the Subject Shares and set forth the applicable Purchase Price (as defined below) determined by the Board. The notice shall also set a reasonable time and place for the closing of the redemption of the Subject Shares, which shall be not less than 10 calendar days nor more than 55 calendar days after the date of such notice.
(b) In order to redeem the Subject Shares, the Corporation shall provide the Holder and EEH with written notice of the Boards determination of the Fair Market Value of the Subject Shares (the Purchase Price ). The Holder shall have the right to dispute in writing the
Boards determination of the Purchase Price within 15 calendar days following receipt of the Boards determination (the Notice Period ). If the Corporation has not received written notice of such a dispute within the Notice Period, the Purchase Price as determined by the Board shall be deemed to be the final Purchase Price. If the Corporation has received written notice of such a dispute within the Notice Period, then the Boards determination of the Purchase Price shall be submitted for review and final determination by an internationally recognized independent valuation firm with significant experience performing valuations of privately or publicly held companies, as the case may be, engaged in the oil and natural gas exploration and production business of similar size and scope as the Corporation and its Subsidiaries taken as a whole (the Independent Valuation Firm ) selected by the Holder, provided, that such Independent Valuation Firm is approved by the Board acting in good faith. Subject to the foregoing, the Independent Valuation Firm shall review all relevant data, including any necessary books and records of the Corporation, to determine the changes to the Purchase Price calculation, if any, necessary to resolve only the disputed items or amounts. The determination by the Independent Valuation Firm shall be made as promptly as practical, but in no event later than 30 calendar days from its engagement, and shall be final and binding on the Corporation, the Holder, EEH and the members of EEH. All costs charged by the Independent Valuation Firm to make such determination will be shared equally by the Corporation and the Holder.
(c) Any payment of the Purchase Price for the Subject Shares by the Corporation shall be made, at the Corporations discretion, in the form of a check payable to EEH or a wire transfer of immediately available funds to an account designated by EEH.
(d) Upon payment of the Purchase Price by the Corporation, the Subject Shares shall automatically be canceled without further action by the Corporation, EEH, the Holder or any other Person.
(e) The Holder shall execute and deliver all documentation and agreements reasonably requested by the Corporation to reflect a redemption of the Subject Shares pursuant to this Agreement, but neither the failure of the Holder to execute or deliver any such documentation nor the failure of the Holder to deposit the Corporations check, if any, shall affect the validity of a redemption of the Subject Shares pursuant to this Agreement.
(f) In connection with any redemption of the Subject Shares hereunder, the Holder shall at a minimum make customary representations and warranties concerning (i) such Holders valid title to and ownership of the Subject Shares, free of all liens, claims and encumbrances (excluding those arising under applicable securities Laws), (ii) such Holders authority, power and right to enter into and consummate the redemption of the Subject Shares, (iii) the absence of any violation, default or acceleration of any agreement to which such Holder is subject or by which its assets are bound as a result of the redemption of the Subject Shares, and (iv) the absence of, or compliance with, any governmental or third party consents, approvals, filings or notifications required to be obtained or made by such Holder in connection with the redemption of the Subject Shares .
6. Undertaking of EEH. Upon the repurchase, redemption or forfeiture of Awarded B Shares attributable to a Grantee in accordance with this Agreement, EEH shall immediately cause the redemption, repurchase or forfeiture, respectively, of an equivalent
number of EEH Units of such Grantee and/or its Permitted Transferees. EEH hereby agrees to take whatever additional actions and execute whatever additional documents the Corporation may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on EEH pursuant to the express provisions of this Agreement and the Stockholders Agreement.
7. Fees.
(a) Following the consummation of a Threshold Capital Transaction, upon each distribution by the Corporation pursuant to the Amended and Restated Certificate of Incorporation, the Corporation shall pay to EEH an amount equal to the difference, if a positive number, between (a) the product of (i) ninety-six percent (96%), expressed as a decimal, times (ii) that portion of such distribution which was made (or deemed made) to the Class B Stockholders pursuant to the Amended and Restated Certificate of Incorporation calculated on a pro forma basis as if the cumulative amount of fees theretofore paid by the Corporation or EPE Acquisition, LLC, pursuant to the Transaction Fee Agreement and the Management Fee Agreement had, at the times such fees were paid, instead been distributed by the Corporation to the Stockholders pursuant to the Amended and Restated Certificate of Incorporation, minus (b) the sum of (i) that portion of such distribution which was made (or deemed made) to the Class B Stockholders pursuant to the Amended and Restated Certificate of Incorporation, plus (ii) any amounts previously paid pursuant to this Section 7 or Section 7 of the Prior Agreement.
(b) Upon the consummation of a Class B Exchange, the Corporation shall pay to EEH, in respect of the Class B Shares that were subject to such Class B Exchange, an amount equal to the difference, if a positive number, between (a) the product of (i) ninety-six percent (96%), expressed as a decimal, times (ii) the Class B Consideration calculated on a pro forma basis as if the cumulative amount of fees theretofore paid by the Corporation or EPE Acquisition, LLC pursuant to the Transaction Fee Agreement and the Management Fee Agreement had, at the times such fees were paid, instead been distributed by the Corporation to the Stockholders pursuant to the Amended and Restated Certificate of Incorporation, minus (b) the sum of (i) the Class B Consideration, plus (ii) any amounts previously paid pursuant to this Section 7 or Section 7 of the Prior Agreement.
8. General Provisions.
(a) Notices . Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (i) when delivered in person, (ii) on the first business day after such notice is sent by air express overnight courier service, or (iii) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid, in each case addressed to the following address, as applicable:
If to EEH to: |
EP Energy Corporation |
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1001 Louisiana Street |
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Houston, TX 77002 |
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Attention: Marguerite Woung-Chapman |
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Facsimile: (713) 997-4099 |
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with a copy to (which shall not constitute notice): |
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Apollo Global Management, LLC |
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9 West 57th Street, 43rd Floor |
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New York, New York 10019 |
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Attention: Sam Oh |
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Facsimile: (212) 515-3288 |
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If to the Corporation to: |
EP Energy Corporation |
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1001 Louisiana Street |
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Houston, TX 77002 |
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Attention: Marguerite Woung-Chapman |
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Facsimile: (713) 997-4099 |
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with a copy to (which shall not constitute notice): |
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Apollo Management VII, L.P. |
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Apollo Commodities Management, L.P., with respect to Series I |
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9 West 57 th Street |
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New York, NY 10019 |
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Attention: Laurie Medley |
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Facsimile: (212) 515-3288 |
(b) Governing Law . THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. THE PARTIES HEREBY DECLARE THAT IT IS THEIR INTENTION THAT THIS AGREEMENT SHALL BE REGARDED AS MADE UNDER THE LAWS OF THE STATE OF DELAWARE AND THAT THE LAWS OF SAID STATE SHALL BE APPLIED IN INTERPRETING ITS PROVISIONS IN ALL CASES WHERE LEGAL INTERPRETATION SHALL BE REQUIRED.
(c) Waiver of Jury Trial . IN ENTERING THIS AGREEMENT, THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHTS TO A JURY TRIAL.
(d) Amendment and Waiver . The provisions of this Agreement may be amended, modified or waived only with the prior written consent of EEH and the Corporation, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof. Notwithstanding the foregoing, the Corporation may amend Schedule A from time to time to reflect the repurchase or forfeiture of Awarded B Units.
(e) Severability . Any provision in this Agreement that is prohibited or unenforceable in any jurisdiction by reason of applicable Law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or
affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(f) Entire Agreement . This Agreement, the Corporate Governing Documents, and the Stockholders Agreement embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
(g) Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.
(h) Title and Headings; Construction . All Section headings in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any of the provisions hereof. The words hereof, herein and hereunder and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, including all Exhibits attached hereto, and not to any particular provision of this Agreement. All references herein to Sections and Exhibits shall, unless the context requires a different construction, be deemed to be references to the Sections of this Agreement and the Exhibits attached hereto, and all such Exhibits attached hereto are hereby incorporated herein and made a part hereof for all purposes. In the event that the Stockholders Agreement is amended following the Grant Date in a manner that amends, corrects, modifies, re-titles, re-numbers or otherwise revises the Stockholders Agreement section reference within this Agreement, such section reference within this Agreement shall be deemed to continue to reference the applicable original Stockholders Agreement section, as so amended. The use herein of the word including following any general statement, term or matter shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as without limitation, but not limited to, or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. The word or as used herein is disjunctive but not necessarily exclusive. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.
(i) Gender and Plurals . Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.
(j) Successors and Assigns . Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by and against EEH, the Corporation and EEH and the Corporations respective successors and assigns (including
subsequent holders of Awarded B Shares); provided , however , that EEHs rights and obligations under this Agreement are not assignable except in connection with a Transfer of the Awarded B Shares permitted under the Stockholders Agreement. Notwithstanding anything else in this Agreement or in the Stockholders Agreement, (i) each Awarded B Share shall remain subject to the terms of the Stockholders Agreement and this Agreement regardless of who holds such Awarded B Share.
(k) Rights of Third Parties . Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the parties hereto, any rights or remedies under or by reason of this Agreement.
(l) WAIVER OF PUNITIVE AND EXEMPLARY DAMAGE CLAIMS . EACH PARTY, BY EXECUTING THIS AGREEMENT, WAIVES, TO THE FULLEST EXTENT ALLOWED BY LAW, ANY CLAIMS TO RECOVER PUNITIVE, EXEMPLARY OR SIMILAR DAMAGES NOT MEASURED BY THE PREVAILING PARTYS ACTUAL DAMAGES IN ANY DISPUTE OR CONTROVERSY ARISING UNDER, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT.
(m) Sections 83 and 409A of the Code . The parties intend for the issuance of the Awarded B Shares to be a transfer of property within the meaning of Section 83 of the Code rather than a deferral of compensation pursuant to Section 409A of the Code ( Section 409A ). Accordingly, this Agreement and the issuance of the Awarded B Shares hereunder shall be construed and interpreted in accordance with such intent, and any action required by either of the parties pursuant to this Agreement shall be provided in such a manner that the Awarded B Shares do not become subject to the provisions of Section 409A, including any regulations or other interpretive guidance promulgated with respect to Section 409A.
(n) Withholding . To the extent that the receipt of the Awarded B Shares, the vesting of the Awarded B Shares, or the execution of this Agreement results in compensation income or wages to EEH for federal, state or local tax purposes, EEH agrees to deliver to the Employer (or, if directed by the Corporation, one of its Affiliates) at the time of such receipt, lapse or execution, as the case may be, such amount of money as the Employer or such Affiliate may require to meet its minimum obligation under applicable tax Laws or regulations, and if EEH fails to do so, the Corporation is authorized to withhold from any cash or Class B Share remuneration then or thereafter payable to EEH any tax required to be withheld by reason of such resulting compensation income or wages.
(o) Section 83(b) Election . Within 30 days after the date of issuance of the Awarded B Shares, EEH agrees to timely file an election under Section 83(b) of the Code with respect to the Awarded B Shares and to submit a copy of such election to the Corporation. The form of such election shall be in the form attached hereto as Exhibit B . EEH acknowledges that it is its sole responsibility, and not the responsibility of the Corporation to file the election under Section 83(b) of the Code even if EEH requests the Corporation or any of its managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) of the Corporation to assist in making such filing.
IN WITNESS WHEREOF , the parties hereto have executed this Management Incentive Plan Agreement as of the date first written above, effective for all purposes as provided above.
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EPE EMPLOYEE HOLDINGS, LLC |
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By its manager: |
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EP ENERGY CORPORATION |
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By: |
/s/ Brent J. Smolik |
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Name: Brent J. Smolik |
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Title: President and Chief Executive Officer |
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EP ENERGY CORPORATION |
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By: |
/s/ Brent J. Smolik |
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Name: Brent J. Smolik |
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Title: President and Chief Executive Officer |
SIGNATURE PAGE
TO
MANAGEMENT INCENTIVE PLAN AGREEMENT
EXHIBIT A
DEFINED TERMS
Affiliate means, with respect to a specified Person, a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person.
Amended and Restated Certificate of Incorporation means the Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on August 30, 2013 (as may be amended, restated or modified from time to time); provided , however , that all references to the Amended and Restated Certificate of Incorporation in the following definitions refer to the Amended and Restated Certificate of Incorporation as in effect on the date of this Agreement.
Award Agreement is defined in the Stockholders Agreement.
Board is defined in the Amended and Restated Certificate of Incorporation.
Cause as to any Grantee has the meaning assigned to such term in an employment agreement, if any, between the Employer or any of its Affiliates and such Grantee; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the term Cause , then Cause has the meaning set forth in the Award Agreement between EEH and such Grantee.
Class B Consideration is defined in the Amended and Restated Certificate of Incorporation.
Class B Exchange is defined in the Amended and Restated Certificate of Incorporation.
Class B Shares is defined in the LLC Agreement.
Class B Stockholders is defined in the Amended and Restated Certificate of Incorporation.
Code means the Internal Revenue Code of 1986, as amended.
Corporate Governing Documents means Company Governing Documents as defined in the Stockholders Agreement.
Delaware LLC Act means the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq., as amended from time to time.
DGCL means the General Corporation Law of the State of Delaware, 8 Del. C. §§1-101 et seq., as amended from time to time.
Disability as to any Grantee has the meaning assigned to such term in an employment agreement, if any, between the Employer or any of its Affiliates and such Grantee; provided , however , in the absence of such an employment agreement or if such employment agreement
does not define the terms Disability then Disability has the meaning set forth in the Award Agreement between EEH and such Grantee.
EEH Units means the Class B Units as defined in the EEH Agreement.
EEH Agreement is defined in the Stockholders Agreement.
Employer means El Paso Exploration & Production Management, LLC.
Fair Market Value is defined in the Amended and Restated Certificate of Incorporation.
Good Reason as to any Grantee has the has the meaning assigned to such term in an employment agreement, if any, between the Employer or any of its Affiliates and such Grantee; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the term Good Reason , then Good Reason has the meaning set forth in the Award Agreement between EEH and such Grantee.
Law means any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, injunction, award, declaration, or interpretative or advisory opinion or letter of a domestic, foreign or international governmental authority or any political subdivision thereof and shall include, for the avoidance of doubt, the DGCL and the Delaware LLC Act.
Management Fee Agreement is defined in the Stockholders Agreement.
MOIC is defined in the Amended and Restated Certificate of Incorporation.
Permitted Transferee is defined in the Stockholders Agreement.
Person is defined in the Stockholders Agreement.
Specified Sale means a Subsequent Public Offering pursuant to which, after giving effect to such Subsequent Public Offering, the MOIC is at least 1.0.
Stockholders is defined in the Amended and Restated Certificate of Incorporation.
Subsequent Public Offering is defined in the Amended and Restated Certificate of Incorporation.
Subsidiary is defined in the Amended and Restated Certificate of Incorporation.
Threshold Capital Transaction is defined in the Amended and Restated Certificate of Incorporation.
Transaction Fee Agreement is defined in the Stockholders Agreement.
Transfer is defined in the Stockholders Agreement.
Unvested Class B Shares is defined in the Stockholders Agreement.
EXHIBIT B
SECTION 83(B) ELECTION FORM
Election to Include in
Taxable Income in Year of Transfer Pursuant
to Section 83(b) of the Internal Revenue Code
On May 24, 2012, the undersigned was awarded restricted membership units of EPE Acquisition, LLC (the LLC ), which were intended to constitute profits interests within the meaning of Internal Revenue Service Revenue Procedures 93-27 and 2001-43. On August , 2013, the corporate holding structure of the LLC was reorganized such that the direct and indirect holders of membership interests in the LLC exchanged their interests on a one-for-one basis for shares of EP Energy Corporation (the Corporation ), a newly formed Delaware corporation. As a result of the reorganization, the direct and indirect owners of the LLC now own 100% of the Corporation, which in turn owns 100% of the business of the LLC. The shares of the Corporation received in exchange for interests in the LLC have substantially the same interests, rights, and obligations as the LLC interests, including substantially the same transfer restrictions, repurchase rights, and vesting conditions. In connection with its receipt of shares of the Corporation in exchange for the LLC interests, the undersigned hereby makes an 83(b) Election with respect to the property described below and supplies the following information in accordance with the regulations promulgated under Section 83:
1. The name, address, and taxpayer identification number of the undersigned (the Taxpayer) are:
Name: |
EPE Employee Holdings, LLC |
Address: |
c/o Apollo Global Management, LLC |
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9 West 57th Street, 43rd Floor |
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New York, New York 10019, Attention: Sam Oh |
Taxpayer Identification Number: |
45-5086572 |
2. Description of the property with respect to which the election is being made (the Property):
Class B Shares of EP Energy Corporation (the Corporation).
3. The date on which the Property was transferred is August , 2013 (the Effective Date).
The taxable year to which this election relates is calendar year 2013.
4. Nature of the restrictions to which the Property is subject:
The Class B Shares issued to the Taxpayer are subject to various transfer restrictions and repurchase rights and vest over a period beginning on the Effective Date, and are subject to forfeiture under certain circumstances.
5. The fair market value at the time of transfer (determined without regard to any restriction other than a restriction that by its terms will never lapse) of the Property with respect to which this election is being made is $ .(1)
6. The amount paid by the Taxpayer for the Property is $ . (The Class B Shares were received in exchange for an equal number of Class B Units of EPE Acquisition, LLC, with a fair market value equivalent to the fair market value of the Class B Shares received in the exchange.)
7. A copy of this statement has been furnished to the Company as provided in Treasury Regulation Section 1.83-2(d).
8. This statement is executed on , 2013.
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Taxpayers Signature |
This statement must be filed with the Internal Revenue Service Center with which you file your U.S. federal income tax return within 30 days after the grant date of the Class B Shares. This filing should be made by registered or certified mail, return receipt requested. You are also required to (i) deliver a copy of this statement to the Company and (ii) attach a copy of this statement to your federal income tax return for the taxable year that includes the grant date. You should also retain a copy of this statement for your records.
(1) Dollar amounts in items 5 and 6 will be equal to one another.
Exhibit 10.33
September 3, 2013
Re: Effect of Corporate Reorganization on MIPs
Dear :
As you may know, the corporate holding structure of EPE Acquisition, LLC ( EPE LLC ), has been reorganized such that the direct and indirect holders of membership interests in EPE LLC have exchanged their interests for shares of EP Energy Corporation ( EPE Corporation ), a newly formed Delaware corporation, which shares have substantially the same interests, rights, and obligations as the EPE LLC membership interests exchanged therefor. As a result of the reorganization, the current direct and indirect owners of EPE LLC now own 100% of EPE Corporation, which in turn owns 100% of the business of EPE LLC.
Prior to the reorganization, you held Class B Units in EPE Employee Holdings, LLC (the Company ), pursuant to a Management Incentive Unit Agreement with the Company dated May 24, 2012 (the Award Agreement ).
This letter is to inform you that, in connection with the corporate reorganization of EPE LLC, the Company has exchanged all of its Class B Units of EPE LLC for shares of Class B Common Stock of EPE Corporation on a one-for-one basis. As such, your Class B Units of the Company now correspond to shares of Class B Common Stock of EPE Corporation instead of Class B Units of EPE LLC. The terms and conditions governing the shares of Class B Common Stock of EPE Corporation are set forth in that certain Stockholders Agreement dated August 30, 2013, by and among EPE Corporation and the stockholder parties thereto, and the Certificate of Incorporation of EPE Corporation filed with the Secretary of State of the State of Delaware on August 30, 2013 (in either case, as may be amended, restated, or modified from time to time), a copy of each of which is attached hereto as an exhibit.
Except as otherwise described herein and set forth in the exhibits attached hereto, all terms and provisions of your Award Agreement shall continue in full force and effect.
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Sincerely, |
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Joan M. Gallagher |
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SVP, Human Resources and |
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Administrative Service |
Enclosures (2)
Exhibit 10.34
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
EPE EMPLOYEE HOLDINGS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
DATED AS OF AUGUST 30, 2013
THE UNITS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE AFORESAID ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER, AND IN COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
SUCH UNITS ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THIS AGREEMENT, CERTAIN MANAGEMENT INCENTIVE UNIT AGREEMENTS AND THE STOCKHOLDERS AGREEMENT, DATED AS OF AUGUST 30, 2013, BY AND AMONG EP ENERGY CORPORATION AND THE OTHER PARTIES THERETO, AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME.
TABLE OF CONTENTS
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ARTICLE I |
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DEFINITIONS AND USAGE |
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Section 1.01 |
Definitions |
2 |
Section 1.02 |
Terms and Usage Generally |
11 |
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ARTICLE II |
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THE COMPANY |
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Section 2.01 |
Formation |
11 |
Section 2.02 |
Name |
12 |
Section 2.03 |
Qualification; Filings |
12 |
Section 2.04 |
Term |
12 |
Section 2.05 |
Registered Agent and Registered Office |
13 |
Section 2.06 |
Purposes |
13 |
Section 2.07 |
Powers of the Company |
13 |
Section 2.08 |
Partnership Status |
13 |
Section 2.09 |
Ownership of Property |
13 |
Section 2.10 |
Resignation and Replacement of the Initial Manager |
13 |
Section 2.11 |
Coordination Between the Members and Holdco |
13 |
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ARTICLE III |
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BOOKS AND RECORDS; MEMBERS |
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Section 3.01 |
Tax and Accounting Information; Banking |
14 |
Section 3.02 |
Admission of Members |
15 |
Section 3.03 |
Books and Records |
16 |
Section 3.04 |
Limited Voting Rights of Members |
17 |
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ARTICLE IV |
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UNITS |
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Section 4.01 |
Authorized and Outstanding Class B Units |
17 |
Section 4.02 |
No Preemptive Rights |
17 |
Section 4.03 |
Certificates |
18 |
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ARTICLE V |
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CAPITAL CONTRIBUTIONS; |
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DISTRIBUTIONS AND ALLOCATIONS |
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Section 5.01 |
Capital Contributions |
18 |
Section 5.02 |
Capital Accounts |
19 |
Section 5.03 |
Distributions |
20 |
Section 5.04 |
Allocations |
22 |
TABLE OF CONTENTS
(Continued)
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Section 5.05 |
Other Allocation Rules |
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Section 5.06 |
Tax Withholding; Withholding Advances |
27 |
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ARTICLE VI |
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CERTAIN TAX MATTERS |
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Section 6.01 |
Tax Matters Partner |
28 |
Section 6.02 |
U.S. Federal Income Tax Classification of the Company |
29 |
Section 6.03 |
Safe Harbor |
29 |
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ARTICLE VII |
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MANAGEMENT OF THE COMPANY |
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Section 7.01 |
Management of the Company by the Manager |
30 |
Section 7.02 |
Resignation |
30 |
Section 7.03 |
Agency Authority of Managers and Officers |
30 |
Section 7.04 |
Limited Liability |
30 |
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ARTICLE VIII |
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TRANSFERS OF UNITS |
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Section 8.01 |
Restrictions on Transfers |
31 |
Section 8.02 |
Drag-Along Rights |
32 |
Section 8.03 |
Repurchase; Forfeiture |
34 |
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ARTICLE IX |
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REPRESENTATIONS AND WARRANTIES; |
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CERTAIN OTHER AGREEMENTS |
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Section 9.01 |
Representations and Warranties of the Company |
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Section 9.02 |
Representations and Warranties of the Members |
35 |
Section 9.03 |
Fiduciary Duties; Competing Activities |
36 |
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ARTICLE X |
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LIMITATION ON LIABILITY; EXCULPATION |
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AND INDEMNIFICATION |
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Section 10.01 |
Limitation on Liability |
37 |
Section 10.02 |
Exculpation and Indemnification |
38 |
Section 10.03 |
Insurance |
39 |
TABLE OF CONTENTS
(Continued)
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|
Page |
|
ARTICLE XI |
|
||
DISSOLUTION AND TERMINATION |
|
||
|
|
||
Section 11.01 |
Dissolution |
39 |
|
Section 11.02 |
Winding Up of the Company |
40 |
|
Section 11.03 |
Distribution of Property |
40 |
|
Section 11.04 |
Termination |
40 |
|
Section 11.05 |
Survival |
41 |
|
|
|
|
|
ARTICLE XII |
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||
MISCELLANEOUS |
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|
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Section 12.01 |
Expenses |
41 |
|
Section 12.02 |
Further Assurances |
41 |
|
Section 12.03 |
Notices |
41 |
|
Section 12.04 |
No Third Party Beneficiaries |
42 |
|
Section 12.05 |
Waiver; Cumulative Remedies |
42 |
|
Section 12.06 |
Governing Law; Consent to Jurisdiction |
43 |
|
Section 12.07 |
Counterparts |
43 |
|
Section 12.08 |
Entire Agreement |
44 |
|
Section 12.09 |
Headings |
44 |
|
Section 12.10 |
Severability |
44 |
|
Section 12.11 |
WAIVER OF JURY TRIAL |
44 |
|
Section 12.12 |
Amendment |
44 |
|
Section 12.13 |
Confidentiality |
45 |
|
Section 12.14 |
Representation by Counsel |
46 |
|
Section 12.15 |
Exhibits and Schedules |
46 |
|
Section 12.16 |
Specific Performance |
47 |
|
Section 12.17 |
Reliance on Authority of Person Signing Agreement |
47 |
|
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SCHEDULE A |
MEMBERS |
A-1 |
|
SCHEDULE B |
CAPITAL ACCOUNTS |
B-1 |
|
|
|
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EXHIBIT A |
Addendum Agreement |
A-1 |
|
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
EPE EMPLOYEE HOLDINGS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This Third Amended and Restated Limited Liability Company Agreement (as amended, supplemented or modified from time to time, this Agreement ) of EPE Employee Holdings, LLC, a Delaware limited liability company (the Company ), dated as of August 30, 2013, by and among the Company, the Members, the Manager and, solely for the purpose of Section 2.10 , EPE Acquisition, LLC, a Delaware limited liability company (solely in such capacity, the Initial Manager ). Unless otherwise specified, capitalized terms used herein shall have the respective meanings set forth in Article I . The Company, the Members and the Manager are sometimes collectively referred to herein as the Parties and each is sometimes referred to herein as a Party .
RECITALS
WHEREAS, the Company was formed pursuant to the Delaware Act by the filing of the Certificate of Formation of the Company with the Secretary of State of the State of Delaware on March 26, 2012 (the Certificate of Formation );
WHEREAS, the Company was formed for the sole purpose of holding certain interests in EPE Acquisition, LLC, and any successor entity to EPE Acquisition, LLC, and receiving distributions in respect of such interests;
WHEREAS, the Initial Manager and the Members or their predecessors in interest (as the case may be), entered into that certain Second Amended and Restated Limited Liability Company Agreement of the Company dated as of May 24, 2012 (the Prior Agreement );
WHEREAS, EPE Acquisition, LLC has been restructured to form a new corporate holding structure for its operating business;
WHEREAS, as a result of such restructuring, EP Energy Corporation, a Delaware corporation, became the parent entity of EPE Acquisition, LLC (EP Energy Corporation and any successor entity thereto, Holdco );
WHEREAS, the parties to the Prior Agreement or their successors in interest (as the case may be) desire to amend the Prior Agreement to reflect such restructuring and the resulting successor entity;
WHEREAS, pursuant to the Prior Agreement and in accordance with the Delaware Act, the Initial Manager has agreed to resign from the Company as the Initial Manager and appoint Holdco as the replacement Manager of the Company; and
WHEREAS, the Parties desire that this Agreement be the Companys limited liability company agreement, as such term is defined in Section 18-101(7) of the Delaware Act.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties, acting pursuant to the Delaware Act, agree that this Agreement shall govern the relationship between the Company, the Members and the Manager and do hereby amend and restate the Prior Agreement in its entirety as follows:
ARTICLE I
DEFINITIONS AND USAGE
Section 1.01 Definitions .
(a) The following terms shall have the following meanings for the purposes of this Agreement:
Adjusted Capital Account Deficit means, with respect to any Member, the deficit balance, if any, in such Members Capital Account as of the end of the relevant Allocation Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts that such Member is deemed to be obligated to restore pursuant to the respective penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Affiliate means, with respect to a specified Person, a Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person; provided , that for the purposes hereof, neither the Company nor the Manager shall be treated as an Affiliate of any Member.
Allocation Year means (i) the period commencing on April 24, 2012 and ending on December 31, 2012, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in clauses (i) or (ii) for which the Company is required to allocate Net Income, Net Loss and other items of Company income, gain, loss or deduction pursuant to Article V .
Applicable Obligations has the meaning set forth in the Holdco Agreement.
Applicable Rights has the meaning set forth in the Holdco Agreement.
Applicable Understandings has the meaning set forth in the Holdco Agreement.
Award Agreement has the meaning set forth in the Holdco Agreement.
Board means the board of directors of Holdco or any similar governing body of any successor entity.
Board Observer has the meaning set forth in the Holdco Agreement.
Business Day has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Capital Account means the capital account established and maintained for each Member pursuant to Section 5.02 .
Capital Contribution means, with respect to any Member, the amount of money contributed or, to the extent provided herein, deemed contributed to the Company and the initial Carrying Value of any Property (other than money) contributed to the Company with respect to the Units held by such Member as of such date.
Capital Interest Percentage means, with respect to any Member, as of any date of determination and as determined in good faith by the Manager, the percentage of the total distributions that would be made to such Member if the assets of the Company were sold for their Carrying Values, all liabilities of the Company were paid in accordance with their terms, all Management Loans were satisfied, all Unvested Units became Vested Units, all items of Net Income and Net Loss were allocated to the Members in accordance with Article V , and the resulting net proceeds were distributed to the Members in accordance with Article XI ; provided , however , that the Manager may determine that the Members Capital Interest Percentages should be determined based upon a hypothetical sale of the assets of the Company for their respective Fair Market Values (instead of Carrying Values) in order to ensure that such percentages correspond to the Members proportionate interests in partnership capital as defined in Treasury Regulation Section 1.613A-3(e)(2)(ii). The foregoing definition of Capital Interest Percentage is intended to result in a percentage that corresponds with that defined as partners proportionate interest in partnership capital in Treasury Regulation Section 1.613A-3(e)(2)(ii), and Capital Interest Percentage shall be interpreted consistently therewith.
Capital Transaction has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Carrying Value means with respect to any Property (other than money), such Propertys adjusted basis for federal income tax purposes, except as follows:
(i) The initial Carrying Value of any such Property contributed by a Member to the Company shall be the Fair Market Value of such Property;
(ii) The Carrying Values of all such Properties shall be adjusted to equal their respective Fair Market Values (taking Section 7701(g) of the Code into account), at the time of any Revaluation pursuant to Section 5.02(c) ;
(iii) The Carrying Value of any item of such Properties distributed to any Member shall be adjusted to equal the Fair Market Value (taking Section 7701(g) of the Code into account) of such Property on the date of distribution; and
(iv) The Carrying Values of such Properties shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such Properties pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of Net Income and Net Loss or Section 5.04(b)(vi) ; provided , however , that Carrying Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Carrying Value of such Property has been determined or adjusted pursuant to subparagraph (i), (ii) or (iv), such Carrying Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Net Income and Net Loss and for purposes of computing Simulated Depletion.
Class B Exchange has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Class B Exchange Amount has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Code means the Internal Revenue Code of 1986, as amended.
Company Governing Documents has the meaning set forth in the Holdco Agreement.
Company Minimum Gain means partnership minimum gain, as defined in Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).
control has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Covered Person means (i) each Member or an Affiliate thereof, in each case in such capacity, (ii) each Representative of the Company in such capacity, (iii) each executive officer or authorized agent of the Company in such capacity, and (iv) the Manager, Holdco and each of their respective Affiliates, in each case, in such capacity.
Delaware Act means the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq .
Depletable Property means each separate oil and gas property as defined in Section 614 of the Code held by the Company directly or indirectly through Holdco.
Depreciation means, for each Allocation Year, an amount equal to the depreciation, amortization, or other cost recovery deduction (other than Simulated Depletion) allowable with respect to an asset for such Allocation Year, except that if the Carrying Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount that bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided , however , that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the Manager.
Drag-Along Notice has the meaning set forth in the Holdco Agreement.
Drag-Along Purchaser has the meaning set forth in the Holdco Agreement.
Drag-Along Sale has the meaning set forth in the Holdco Agreement.
Drag-Along Terms has the meaning set forth in the Holdco Agreement.
EMI means EPE Management Investors, LLC, a Delaware limited liability company.
EMI Agreement means the Third Amended and Restated Limited Liability Company Agreement of EMI, dated as of the date hereof, as amended, restated, supplemented or modified from time to time.
EMI Capital Contributions means Capital Contributions as defined in the EMI Agreement.
EMI Units means Class A Units as defined in the EMI Agreement.
Enforceability Exceptions means (i) any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors rights generally, and (ii) any legal principles of general applicability governing the availability of equitable remedies, including principles of commercial reasonableness, good faith and fair dealing (whether considered in a proceeding in equity or at law or under applicable legal codes).
Fair Market Value has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Fiscal Year has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
GAAP has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Governmental Authority has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Holdco Agreement means the Stockholders Agreement, dated as of August 30, 2013, by and among Holdco and the other parties thereto, as amended, restated, supplemented or modified from time to time.
Holdco A Shares means Class A Shares as defined in the Holdco Agreement.
Holdco B Shares means Class B Shares as defined in the Holdco Agreement.
Holdco Certificate of Incorporation means the Amended and Restated Certificate of Incorporation of Holdco, filed with the Secretary of State of the State of Delaware on August 30, 2013 (as may be amended, restated or modified from time to time).
Initial Member means EPE Acquisition, LLC, a Delaware limited liability company, solely in its capacity as the sole member of the Company prior to the Prior Agreement.
IPO has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
IRS means the Internal Revenue Service of the United States.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.
Losses means, with respect to any indemnity specified herein, the amount of any liability, loss, cost, expense, claim, award, judgment, settlement, obligation, damage, injury, tax, fine, Lien, penalty or deficiency incurred or suffered by any Person entitled to indemnification hereunder arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise, including interest thereon and reasonable fees, expenses and disbursements of attorneys, consultants, accountants or other Representatives and experts incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.
Member means any Person named as a member (as such term is defined in the Delaware Act) of the Company on Schedule A and on the books and records of the Company, as the same may be amended from time to time to reflect any Person admitted as a Substitute Member, for so long as such Person continues to be a member of the Company. For the avoidance of doubt, no Person who has not been issued Class B Units by the Company (except for any Substitute Member) shall be a Member.
Member Nonrecourse Debt has the same meaning as the term partner nonrecourse debt in Treasury Regulations Section 1.704-2(b)(4).
Member Nonrecourse Debt Minimum Gain means an amount with respect to each partner nonrecourse debt (as defined in Treasury Regulation Section 1.704-2(b)(4)) equal to the Company Minimum Gain that would result if such partner nonrecourse debt were treated as a nonrecourse liability (as defined in Treasury Regulation Section 1.752-1(a)(2)) determined in accordance with Treasury Regulation Section 1.704-2(i)(3).
Member Nonrecourse Deductions has the same meaning as the term partner nonrecourse deductions in Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
MIP Agreement has the meaning set forth in the Holdco Agreement.
Net Income and Net Loss mean, for each Allocation Year, an amount equal to the Companys taxable income or loss for such Allocation Year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments (without duplication):
(i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income and Net Loss shall be added to such taxable income or loss;
(ii) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income and Net Loss pursuant to this definition of Net Income and Net Loss, shall be subtracted from such taxable income or loss;
(iii) In the event the Carrying Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Carrying Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Carrying Value of the asset) or an item of loss (if the adjustment decreases the Carrying Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Net Income and/or Net Loss;
(iv) Gain or loss resulting from any disposition of Property (other than Depletable Property) with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Carrying Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Carrying Value;
(v) Gain resulting from any disposition of a Depletable Property with respect to which gain is recognized for U.S. federal income tax purposes shall be treated as being equal to the corresponding Simulated Gain;
(vi) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Year, computed in accordance with the definition of Depreciation;
(vii) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Members limited liability company interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the
disposition of such asset and shall be taken into account for purposes of computing Net Income or Net Loss; and
(viii) Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to Section 5.04(b) or Section 5.04(c) shall not be taken into account in computing Net Income and Net Loss.
The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 5.04(b) or Section 5.04(c) shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vii) above.
Nonrecourse Deductions has the meaning set forth in Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c).
Original LLC Agreements means, collectively, the Limited Liability Company Agreement of the Company dated as of March 26, 2012, the Amended and Restated Limited Liability Company Agreement of the Company dated as of April 24, 2012, and the Prior Agreement.
Percentage Interest means as of any date of determination, with respect to any Member, a fraction, expressed as a percentage, the numerator of which is the number of Class B Units held by such Member as of such date and the denominator of which is the aggregate number of Class B Units held by all of the Members as of such date.
Person means any individual, firm, corporation, partnership, limited liability company, trust, estate, joint venture, Governmental Authority or other entity.
Prime Rate means the rate of interest from time to time identified by the Wall Street Journal as being the prime or reference rate.
Property means an interest of any kind in any real or personal (or mixed) property, including cash, and any improvements thereto, and shall include both tangible and intangible property.
Representatives means with respect to any specified Person, such Persons current, former or future (as applicable) officers, directors, managers, shareholders, partners, members, equity holders, parents, agents, employees, representatives (including attorneys, accountants, consultants, bankers and financial advisors of such Person or its Affiliates) and Affiliates (including, with respect to any Member, any Manager(s) designated by such Member).
Restructuring means the consummation of the transactions contemplated by the Restructuring Agreement.
Restructuring Agreement has the meaning set forth in the Holdco Agreement.
Restructuring Date means the date on which the Restructuring occurs pursuant to the Restructuring Agreement (which, for avoidance of doubt, is August 30, 2013).
Section 2.01 Principle has the meaning set forth in the Holdco Agreement.
Securities means any stock, shares, units, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as securities or any certificates of interest, shares or participations in temporary or interim certificates for purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
Securities Act means the United States Securities Act of 1933 (as amended) and the rules and regulations thereunder.
Series Sharing Percentage means, as of any date of determination, with respect to a series of Class B Units and any Member, a fraction, expressed as a percentage, the numerator of which is the number of Class B Units of such series held by such Member as of such date, and the denominator of which is the aggregate number of Class B Units of such series held by all Members holding such series of Class B Units as of such date.
Simulated Basis means the Carrying Value of any Depletable Property.
Simulated Depletion means, with respect to each Depletable Property, a depletion allowance computed in accordance with U.S. federal income tax principles (as if the Simulated Basis of the property were its adjusted tax basis) and in the manner specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
Simulated Gain means the amount of gain realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
Simulated Loss means the amount of loss realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
Subscription Agreement has the meaning set forth in the Holdco Agreement.
Subsidiary has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Substitute Member means any Person admitted as a Member pursuant to Section 3.02(b) in connection with the Transfer of then-existing Units to such Person.
Threshold Capital Transaction has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Threshold Capital Proceeds has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Transfer means any sale, assignment, transfer, exchange, gift, bequest, pledge, hypothecation or other disposition or encumbrance, direct or indirect, in whole or in part, by
operation of law or otherwise, and shall include all matters deemed to constitute a Transfer under Article VIII . The terms Transferred , Transferring , Transferor , Transferee and Transferable have meanings correlative to the foregoing.
Treasury Regulations mean the regulations promulgated under the Code.
Unit means a Members limited liability company interest in the Company representing a fractional part of the limited liability company interests in the Company of all Members; provided , that any type, class or series of Units shall have the designations, preferences and/or special rights set forth or referenced in this Agreement with respect to such type, class or series of Units, and the limited liability company interest in the Company represented by such type, class or series of Units shall be determined in accordance with such designations, preferences and/or special rights.
Unvested Unit means any Class B Unit that has not vested pursuant to the terms and conditions of the applicable Award Agreement and the provisions hereof.
Vested Unit means any Class B Unit that has vested pursuant to the terms and conditions of the applicable Award Agreement and the provisions hereof; provided , however , that notwithstanding the terms and conditions of any applicable Award Agreement, the Class B Units shall be subject to earlier vesting as provided in the Company Governing Documents and the MIP Agreement.
(b) As used in this Agreement, each of the following capitalized terms shall have the meaning described to them in the Section set forth opposite such term:
Term |
|
Section |
Agreement |
|
Preamble |
Certificate of Formation |
|
Recitals |
Class |
|
4.01 |
Class B Units |
|
4.01 |
Company |
|
Preamble |
Covered Investor |
|
9.03(a) |
Confidential Information |
|
12.13(b) |
Dissolution Event |
|
11.01(c) |
Fees |
|
5.03(a) |
First A&R Agreement |
|
Recitals |
Flow-Through Distributions |
|
5.03(a) |
Holdco |
|
Recitals |
Initial Manager |
|
Recitals |
Management Loan |
|
5.03(d) |
Manager |
|
7.01 |
Member Parties |
|
12.13(a) |
Parties |
|
Preamble |
Party |
|
Preamble |
Permitted Transfer |
|
8.01(c) |
Term |
|
Section |
Permitted Transferee |
|
8.01(c) |
Prior Agreement |
|
Recitals |
Proposed Guidance |
|
6.03 |
Regulatory Allocations |
|
5.04(c) |
Revaluation |
|
5.02(c) |
Safe Harbor |
|
6.03 |
Tax Matters Partner |
|
6.01 |
Withholding Advances |
|
5.06(b) |
Section 1.02 Terms and Usage Generally . The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed to be references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. The terms clause(s) and subparagraph(s) shall be used herein interchangeably. The words include, includes and including shall be deemed to be followed by the phrase without limitation. All accounting terms not defined in this Agreement shall have the meanings determined by GAAP. The words hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to a Person are also to its permitted successors and permitted assigns. Unless otherwise expressly provided herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified, supplemented or restated, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Each reference herein (other than in any Schedule or Exhibit) to Unit numbers or amounts shall be appropriately adjusted for any Unit split, recapitalization, recombination, reclassification or the like with respect to such Units occurring after the date hereof. Any references herein to US$, $ or dollars shall mean U.S. dollars shall be made in U.S. dollars. Any references herein to the date hereof shall mean August 30, 2013.
ARTICLE II
THE COMPANY
Section 2.01 Formation .
(a) The Members hereby agree to continue the Company as a limited liability company pursuant to the Delaware Act, upon the terms and subject to the conditions set forth in this Agreement.
(b) The Company was formed as a Delaware limited liability company pursuant to the Delaware Act by the filing of the Certificate of Formation with the Secretary of State of the State of Delaware on March 26, 2012. The Members and the Manager hereby agree that the Company shall be governed by, and the rights, duties and liabilities of the Members and the
Manager shall be as provided in, the Delaware Act and this Agreement. To the extent that the rights or obligations of any Member or the Manager are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Delaware Act, control.
(c) Carson Sieving, as an authorized person within the meaning of the Delaware Act, has executed, delivered and filed the Certificate of Formation with the Secretary of State of the State of Delaware and the Members hereby ratify and approve in all respects such execution, delivery and filing of the Certificate of Formation by such authorized person. Upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware, her powers as an authorized person ceased.
(d) The Members hereby ratify and approve the Initial Members execution of consents, agreements, documents and instruments, as applicable, on the Companys behalf and the filing of forms and documents with Governmental Authorities and agencies prior to the execution of the Prior Agreement.
Section 2.02 Name . The name of the Company shall be EPE Employee Holdings, LLC. Subject to all applicable laws, all business of the Company shall be conducted in such name or under such other name or names as the Manager shall determine to be necessary or appropriate. The Manager shall cause to be filed on behalf of the Company such assumed or fictitious name certificates or similar instruments as may from time to time be required by law.
Section 2.03 Qualification; Filings . The Manager shall cause any authorized person within the meaning of the Delaware Act to file and record any amendments and/or restatements to the Certificate of Formation and such other certificates and documents (and any amendments or restatements thereof) as may be required under the laws of the State of Delaware and of any other jurisdiction in which the Company may conduct business. The Manager shall have authority to cause the Company to be qualified, formed, reformed or registered in any jurisdiction in which the Company transacts business if such qualification, formation, reformation or registration is necessary or desirable in order to protect the limited liability of the Members or to permit the Company lawfully to transact business in such jurisdiction, including under any assumed or fictitious name statutes or similar laws in any such jurisdiction.
Section 2.04 Term . The term of the Company began on March 26, 2012, the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware, and the Company shall have perpetual existence unless sooner dissolved and its affairs wound up as provided in Article XI .
Section 2.05 Registered Agent and Registered Office . The name of the registered agent of the Company for service of process on the Company in the State of Delaware shall be The Corporation Trust Company, and the address of such registered agent and the address of the registered office of the Company in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. Such office and such agent may be changed to such place within the State of Delaware and any successor registered agent, respectively, as may be determined from time to time by the Manager in accordance with the Delaware Act.
Section 2.06 Purposes . The Company has been formed for the exclusive purpose of owning certain interests in Holdco, receiving Fees and those activities necessarily incidental thereto.
Section 2.07 Powers of the Company . The Company shall have the power and authority to take any and all actions necessary, appropriate or advisable to or for the furtherance of the purposes set forth in Section 2.06 .
Section 2.08 Partnership Status . Subject to Section 6.02 , the Members intend that the Company shall be treated as a partnership for federal, state and local tax purposes to the extent such treatment is available, and agree to take such actions as may be necessary to receive and maintain such treatment and refrain from taking any actions inconsistent therewith; provided , however , that the Members intend that the Company shall not be a partnership (including a limited partnership) or joint venture, and that no Member shall be a partner or joint venturer of any other Member, for any purposes other than federal, state and local tax purposes, and this Agreement shall not be construed to suggest otherwise.
Section 2.09 Ownership of Property . Legal title to all Property, conveyed to, or held by the Company shall reside in the Company and shall be conveyed only in the name of the Company and no Member or any other Person, individually, shall have any ownership of such Property.
Section 2.10 Resignation and Replacement of the Initial Manager . Pursuant to Section 7.02 of the Prior Agreement, and in accordance with the Delaware Act, the Initial Manager hereby resigns from the Company and appoints Holdco as the replacement manager of the Company, upon the execution of this Agreement.
Section 2.11 Coordination Between the Members and Holdco . The Company has been formed as a special purpose investment vehicle through which the Members indirectly invest in Holdco. In accordance with the Section 2.01 Principle, the Parties agree and acknowledge that:
(a) the Company may exercise, enforce or seek the benefit of any of its Applicable Rights with respect to one or more of the Members pursuant to the Section 2.01 Principle;
(b) the Company is expected to take any and all actions with respect to one or more of the Members reasonably necessary to allow the Company to comply with or satisfy its Applicable Obligations, in each case, pursuant to the Section 2.01 Principle;
(c) the Company may recognize and give effect to any Applicable Understanding with respect to one or more of the Members pursuant to the Section 2.01 Principle; and
(d) whenever the Company has the right to vote on, consent to, approve or has been afforded any other similar rights with respect to any matter under the Holdco Agreement or the Company Governing Documents, the Companys vote, consent, approval or exercise of such other similar right shall be cast or exercised on a look-through basis, as though each Member providing instructions (as contemplated below) was exercising such vote, consent, approval or similar right directly in accordance with the Section 2.01 Principle and, in each case, based on each such Members instructions to the Company with respect to such vote, consent, approval or
other similar right; provided , that to the extent the Company is obligated to vote, consent approve or exercise such other similar right in a specific manner pursuant to the Holdco Agreement, the Manager shall vote the Companys Holdco B Shares, consent, approve or exercise such other similar right in such manner in accordance with the Section 2.01 Principle, without the need to receive instructions from, or consult, any Member.
Each Member agrees to take any and all such actions requested by the Manager as are reasonably necessary to allow the Company to effect the foregoing and to enable the Company to satisfy the obligations and liabilities imposed on the Company under the Holdco Agreement.
ARTICLE III
BOOKS AND RECORDS; MEMBERS
Section 3.01 Tax and Accounting Information; Banking .
(a) Accounting Method . For financial reporting purposes, the books and records of the Company shall be kept on the accrual method of accounting and in accordance with GAAP, in each case, applied in a consistent manner and such books and records shall reflect all Company transactions.
(b) Tax Returns .
(i) The Company shall timely cause to be prepared by a nationally recognized accounting firm (chosen by the Manager in its sole discretion) all federal, state, local and foreign tax returns (including information returns) of the Company, which may be required by a jurisdiction in which the Company operates or conducts business for each year or period for which such returns are required to be filed and shall cause such returns to be timely filed.
(ii) Within ninety (90) days after the end of each Fiscal Year, the Company shall furnish to each Person that was a Member during such Fiscal Year all information required to be reported in the tax returns of such Person for tax jurisdictions in which the Company is doing business, including a report (including Schedule K-1, if applicable) indicating such Persons share in the Companys taxable income, gain, credits, losses and deductions for such year, in sufficient detail to enable such Person to prepare its federal, state and other tax returns. The Manager shall provide each such Person with an estimate of such information by March 1 of the following Fiscal Year. The Manager shall provide each such Person with sufficient information for such Person to pay estimated taxes with respect to the Company at least fifteen (15) days before such estimated taxes are due. The Manager will provide each current or former Member with any information reasonably requested by such Member in connection with the filing of any tax return by such Member or an Affiliate of such Member, any tax audit or proceeding relating to such Member or an Affiliate of such Member or any tax planning of such Member or an Affiliate of such Member.
(c) Inconsistent Positions; Audits . No Member shall take a position on its income tax return with respect to any item of Company income, gain, deduction, loss or credit that is different from the position taken on the Companys income tax return with respect to such item
(as reflected on the applicable Schedule K-1 provided to such Member). If any current or former Member or any Affiliate of a current or former Member would be materially adversely affected by any audit or administrative or judicial proceeding with respect to the Company, the Manager shall (to the extent practicable under the circumstances) consult with such Member in good faith in connection with the negotiation, settlement or the making of any material decision with respect to such audit or proceeding. The Company shall provide to such Member any information reasonably requested by such Member in connection with any such audit or proceeding.
(d) Bank Accounts . The Manager shall cause one or more bank accounts to be maintained in the name of the Company in such bank or banks as may be determined by the Manager, which accounts shall be used for the payment of expenditures incurred by the Company and in which shall be deposited any and all receipts of the Company. All such receipts shall be and remain the property of the Company, shall be received, held and disbursed by the Company at the times determined by the Manager (in its sole discretion) for the purposes specified in this Agreement and shall not be commingled with the funds of any other Person.
Section 3.02 Admission of Members .
(a) The name, address, class and number of Class B Units held of record of each Member, and the respective Series Sharing Percentage of each Member, in each case as of the Restructuring Date, are set forth on Schedule A . Notwithstanding anything to the contrary in this Agreement, when any Class B Units are repurchased, redeemed, forfeited or Transferred in accordance with this Agreement and an applicable Award Agreement, the Manager shall cause the Company to promptly thereafter amend Schedule A and the books and records of the Company to reflect such repurchase, redemption, forfeiture or Transfer, the admission of Substitute Members and the resulting Series Sharing Percentage of each Member and no consent of any Member shall be required in connection with any such amendment.
(b) No Transferee of any Units shall be admitted as a Member hereunder or acquire any rights hereunder, including any voting rights or the right to receive distributions and allocations in respect of the Transferred Units unless (i) such Units are Transferred in compliance with the provisions of this Agreement (including Article VIII ) and in accordance with the applicable Award Agreement and (ii) such Transferee shall have executed and delivered to the Company such instruments as the Manager deems necessary or desirable, in its reasonable discretion, to effectuate the admission of such Transferee as a Member and to confirm the agreement of such Transferee to be bound by all the terms and provisions of this Agreement, including an Addendum Agreement and/or Award Agreement. Upon complying with the immediately preceding sentence, without the need for any further action of any Person, a Transferee shall be deemed admitted to the Company as a Member. A Substitute Member shall enjoy the same rights, and be subject to the same obligations, hereunder as its Transferor; provided , that such Transferor shall not be relieved of any obligation or liability hereunder arising prior to the consummation of such Transfer but shall be relieved of all future obligations with respect to the Units so Transferred. As promptly as practicable after the admission of any Person as a Member, the books and records of the Company shall be changed to reflect such admission of a Substitute Member. Notwithstanding anything to the contrary herein, including Section 12.12 , in the event of any admission of a Substitute Member pursuant to this Section
3.02(b) , this Agreement shall be deemed amended to reflect such admission, and any formal amendment of this Agreement (including Schedule A attached hereto) in connection therewith shall only require execution by the Company, the Manager and such Substitute Member to be effective.
(c) If a Member shall Transfer all (but not less than all) its Units, the Member shall thereupon cease to be a Member of the Company; provided , however , that notwithstanding the foregoing, such Member shall continue to be bound by the provisions of Section 12.13 .
Section 3.03 Books and Records . During regular business hours, upon reasonable notice and in a manner that does not unreasonably interfere with the business of the Company, each Member shall, at such Members own expense, have access to inspect the Companys books and records at the Companys principal office or at such other offices of the Company where such records are kept. It is acknowledged, understood and agreed that the information contained on Schedules A and B of this Agreement, Schedule A of the Subscription Agreement, Schedules A and B of the EMI Agreement and Schedule A of the MIP Agreement, each as amended from time to time, other than the names and addresses of the Members, the aggregate number of Units issued, the aggregate Capital Account balance, and information on the applicable Schedule that is opposite the name of the requesting Person, shall not be provided to any Member (other than a Member who is (i) the chief executive officer or chief financial officer of Holdco or (ii) an employee of Holdco or any of its Subsidiaries who the chief executive officer or chief financial officer of Holdco has determined needs to know the information on such schedules in order to carry out the functions of such employees employment with Holdco or any of its Subsidiaries) for the purpose of preserving privacy with respect to Unit ownership of the Members and the ownership of Holdco and its members, unless the Manager determines otherwise.
Section 3.04 Limited Voting Rights of Members.
(a) Except as otherwise provided in this Agreement or as otherwise required by law, any matter requiring the vote, approval or consent of the Members shall be approved or consented to by a written instrument indicating such vote, consent or approval duly executed by the Members that together hold, in the aggregate, at least fifty-one percent (51%) of the Class B Units then entitled to vote thereon.
(b) Whenever the Company has the right to vote on, consent to, approve or has been afforded any other similar rights with respect to any matter under the Holdco Agreement or the Company Governing Documents, the Companys vote, consent, approval or exercise of such other similar right shall be cast or exercised on a look-through basis, in accordance with Section 2.11(d) .
(c) If, pursuant to this Agreement, any Member is not entitled to cast a vote, give a consent or provide or withhold any approval under this Agreement or otherwise, the determination as to whether the matter under consideration has been approved or consented to shall be made without regard to the Units or Capital Contributions of such Member in counting the necessary votes, consents or approvals.
ARTICLE IV
UNITS
Section 4.01 Authorized and Outstanding Class B Units .
The Company is hereby authorized to issue up to 808,304 Units in the aggregate and, as of the date hereof, has issued 808,304 Units representing a single class of Units (a Class ), called Class B (the Class B Units ), each having the rights, obligations and other features provided in this Agreement. As of the date hereof, such Class B Units consist of 805,404 Class B-1 Units and 2,900 Class B-2 Units. The Company shall not be authorized to issue any additional Units; provided , however , that such number of authorized Class B Units shall be adjusted to correspond to the number of Holdco B Shares issued and outstanding pursuant to Section 4.02(a) of the Holdco Agreement, as adjusted pursuant to the Holdco Agreement. All Units issued hereunder shall be uncertificated unless otherwise determined by the Manager. Schedule A lists each Person who has both entered into an Award Agreement and executed this Agreement on the date hereof and each Persons number of Class B Units set forth in such Persons Award Agreement. Each such Person has previously received his or her Class B Units in consideration for the services provided and/or to be provided by such Person to or for the benefit of Holdco, EPE Acquisition, LLC or their respective Subsidiaries and each such Person is a Member of the Company and is shown as such on the books and records of the Company.
Section 4.02 No Preemptive Rights . No Person shall have preemptive rights to purchase any Securities or other interests issued or proposed to be issued by the Company.
Section 4.03 Certificates . In the sole discretion of the Manager, issued and outstanding Units may be evidenced by certificates. In addition to any other legend which the Company may deem advisable under the Securities Act, all certificates representing issued and outstanding Units shall be endorsed as follows:
THE UNITS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO NUMEROUS CONDITIONS AND RESTRICTIONS, INCLUDING RESTRICTIONS ON TRANSFER, AS SPECIFIED IN THE THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE LLC AGREEMENT ) OF EPE EMPLOYEE HOLDINGS, LLC, A DELAWARE LIMITED LIABILITY COMPANY (THE COMPANY ) AND MAY BE SUBJECT TO ONE OR MORE MANAGEMENT INCENTIVE UNIT AGREEMENTS, AS MAY BE AMENDED FROM TIME TO TIME BETWEEN THE COMPANY AND ONE OR MORE OF THE MEMBERS OF THE COMPANY.
THE UNITS REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION, (B) MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS, AND (C) ARE SUBJECT TO AND ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH THE PROVISIONS OF THE LLC AGREEMENT, CERTAIN MANAGEMENT INCENTIVE UNIT AGREEMENTS AND THE STOCKHOLDERS AGREEMENT, DATED AS OF AUGUST 30, 2013, BY AND AMONG EP ENERGY CORPORATION AND THE OTHER PARTIES THERETO, AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME.
ARTICLE V
CAPITAL CONTRIBUTIONS;
DISTRIBUTIONS AND ALLOCATIONS
Section 5.01 Capital Contributions . No Member will have any obligation to make any Capital Contribution and no Member shall make any Capital Contribution without the prior written consent of the Manager.
(a) Except as expressly provided herein, no Member, in its capacity as a Member, shall have the right to receive any cash or any other Property of the Company.
Section 5.02 Capital Accounts .
(a) Maintenance of Capital Accounts . The Company shall maintain a Capital Account for each Member on the books of the Company in accordance with the following provisions:
(i) As of the Restructuring Date, the Capital Account of each Member shall be set forth on Schedule B .
(ii) To each Members Capital Account there shall be credited: (A) the amount of money and the Fair Market Value of any Property (other than money) contributed by such Member pursuant to any provision of this Agreement; (B) such Members distributive share of Net Income and any item in the nature of income or gain that is allocated pursuant to Section 5.03(b) ; and (C) the amount of any Company liabilities assumed by such Member or that are secured by any Property distributed to such Member.
(iii) To each Members Capital Account there shall be debited: (A) the amount of money and the Fair Market Value of any Property (other than money) distributed to such Member pursuant to any provision of this Agreement; (B) such Members distributive share of Net Loss and any items in the nature of expenses or losses that are allocated to such Member pursuant to Section 5.03(b) ; and (C) and the amount of any liabilities of such Member assumed by the Company or that are secured by any Property contributed by such Member to the Company.
(iv) In determining the amount of any liability for purposes of subparagraphs (ii) and (iii) above there shall be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and the Treasury Regulations.
The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Treasury Regulations. In the event that the Manager shall determine that it is prudent to modify the manner in which the Capital Accounts or any debits or credits thereto are maintained (including debits or credits relating to liabilities that are secured by contributed or distributed Property or that are assumed by the Company or the Members), the Manager may make such modification so long as such modification is not likely to have a material effect on the amounts distributed to any Person pursuant to Article XI upon the dissolution of the Company. The Manager also shall (i) make any adjustments that are necessary or appropriate to maintain equality between Capital Accounts of the Members and the amount of capital reflected on the Companys balance sheet, as computed for book purposes, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(9) and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Treasury Regulations Section 1.704-1(b).
(b) Succession to Capital Accounts . In the event any Person becomes a Substitute Member in accordance with the provisions of this Agreement, such Substitute Member shall succeed to the Capital Account of the former Member to the extent such Capital Account relates to the Transferred Units.
(c) Adjustments of Capital Accounts . The Company shall revalue the Capital Accounts of the Members in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) (a Revaluation ) at the following times: (i) immediately prior to the contribution of more than a de minimis amount of money or other property to the Company by a new or existing Member as consideration for one or more Units; (ii) the distribution by the Company to a Member of more than a de minimis amount of property in respect of one or more Units; (iii) the issuance by the Company of more than a de minimis Profits Interest (as described in Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(5)(iii), IRS Revenue Procedure 93-27, 1993-2 C.B. 343 until superseded by IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005) and any similar subsequent authority); and (iv) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided , however , that adjustments pursuant to clauses (i), (ii) and (iii) above shall be made only if the Manager reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interest of the Members (it being hereby acknowledged that such adjustments may not ordinarily be necessary or appropriate in the case of the issuance of a Profits Interest or in the case of a contribution for Units that do not represent a material percentage interest in the Company or are not issued at a valuation materially in excess of the book value of other Units of the same class, as then reflected in the Members Capital Accounts).
(d) No Member shall be entitled to withdraw capital or receive distributions except as specifically provided herein. A Member shall have no obligation to the Company, to any other Member or to any creditor of the Company to restore any negative balance in the Capital
Account of such Member. Except as expressly provided elsewhere herein, no interest will be paid on the balance in any Members Capital Account.
(e) Whenever it is necessary for purposes of this Agreement to determine a Members Capital Account on a per Unit basis, such amount shall be determined by dividing the Capital Account of such Member by the number of Units held of record by such Member.
Section 5.03 Distributions .
(a) Subject to the remainder of this Section 5.03 and applicable law, all cash and Property (including Holdco A Shares in connection with a Class B Exchange) distributed to the Company based on the Companys status as a holder of Holdco B Shares (the Flow-Through Distributions ) shall be distributed by the Company among the corresponding series of Class B Units (and within each such series of Class B Units such Flow-Through Distributions shall be allocated pro rata in accordance with the respective Series Sharing Percentages of the Members holding Class B Units in such series). Subject to Section 5.03(d) , upon (i) the payment of fees by Holdco to the Company pursuant to Section 7(a) of the MIP Agreement, the Company shall distribute such fees to the Members in accordance with their Percentage Interests, and (ii) the payment of fees by Holdco pursuant to Section 7(b) of the MIP Agreement, the Company shall distribute such fees to the Members pro rata in accordance with their Class B Units that were subject to such Class B Exchange in which such fees were paid by Holdco (the fees paid by Holdco described in clauses (i) and (ii), Fees ). Notwithstanding anything to the contrary in this Agreement, and for the avoidance of doubt, except as otherwise expressly provided in the Holdco Agreement or the Corporate Governing Documents, Securities in Holdco shall not be distributed by the Company unless otherwise determined by the Board in its sole discretion.
(b) Immediately prior to the consummation of a Threshold Capital Transaction or a Class B Exchange by Holdco, the Company shall distribute to each Member such Members pro rata portion in accordance with the respective Series Sharing Percentages of the Members holding Class B Units in such series of (i) in the case of a Threshold Capital Transaction, the Holdco B Shares held by the Company, or (ii) in the case of a Class B Exchange, the Class B Exchange Amount. Upon the consummation of such Threshold Capital Transaction or Class B Exchange, as applicable, each Member shall be entitled to receive its pro rata portion in accordance with the respective Series Sharing Percentages of the Members holding Class B Units in such series of any Threshold Capital Proceeds or Holdco A Shares and/or cash in lieu of fractional Class A Shares, as applicable, distributable or issuable in respect of such Holdco B Shares to the extent set forth in the Holdco Certificate of Incorporation. The Manager shall cause each Member to comply with and be bound by any representations, warranties, covenants and agreements (including indemnification obligations) on a pro rata basis in accordance with the respective Series Sharing Percentages of the Members holding Class B Units in such series, to the extent agreed by the Company in any documentation delivered to Holdco in connection with a Class B Exchange pursuant to the Certificate of Incorporation in accordance with the Section 2.01 Principle. Upon a distribution of Holdco B Shares pursuant to this Section 5.03(b) , each Member shall have cancelled, a number of his or her Class B Units equal to that number of Holdco B Shares received by such Member in connection with such Threshold Capital Transaction or Class B Exchange (as applicable), and each such Class B Unit shall be deemed cancelled automatically as of the time of receipt by such Member of the applicable Holdco B
Shares, and consequently, the Members shall not be entitled to any distributions in respect of such Class B Units following such cancellation.
(c) If the number of Holdco B Shares to be distributed to a Member in connection with a Class B Exchange exceeds the number of Vested Units held by such Member, then, notwithstanding the vesting schedule set forth in the Award Agreement, a number of Unvested Units equal to such excess shall vest as of immediately prior to such Class B Exchange and be cancelled in connection with such Class B Exchange pursuant to Section 5.03(b) up to the Class B Exchange Amount, with any such Class B Units vesting earlier than as provided in the Award Agreement to be those out of the next successive group or groups of Class B Units scheduled to vest under the Award Agreement.
(d) Notwithstanding anything to the contrary in this Agreement, if a distribution or amount otherwise payable to the Company pursuant to (or in accordance with) the Company Governing Documents or the Holdco Agreement is reduced as a result of the existence of any outstanding amounts under any loan made by Holdco or EMI to a Member to fund such Members purchase of EMI Units (a Management Loan ), then (i) an amount equal to such reduction shall be deemed to have been paid by the Company pursuant to this Section 5.03 to such Member and then paid by such Member to Holdco in reduction of the amounts owing under such Management Loan (in accordance with the terms thereof), and the portion of the resulting distribution otherwise due to such Member from the Company shall be reduced accordingly and (ii) the portion of such distribution payable to each other Member shall be calculated as though the amount deemed to have been paid to the Member referred to in clause (i) of this Section 5.03(d) had been included in such distribution.
(e) The Members acknowledge and agree that, notwithstanding anything to the contrary in this Agreement, no distributions (excluding, for the avoidance of doubt, payments in respect of repurchases or other payments pursuant to Article VIII, if any, which shall be subject to the respective terms and provisions set forth therein) will be made by Holdco to the Company until after the consummation of a Threshold Capital Transaction.
Section 5.04 Allocations .
(a) Net Income and Net Loss . Except as otherwise provided in this Agreement, Net Income and Net Loss (and, to the extent necessary, individual items of income, gain, loss, deduction or credit) of the Company shall be allocated among the Members in a manner such that, after giving effect to the special allocations set forth in Sections 5.04(b) , Section 5.04(c) and Section 5.04(d) , the Capital Account balance of each Member, immediately after making such allocation, is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made to such Members pursuant to Section 5.03 if the Company were dissolved, its affairs wound up and its assets sold for cash equal to their Carrying Value, all Company liabilities were satisfied (limited with respect to each nonrecourse liability to the Carrying Value of the assets securing such liability), all Unvested Units became Vested Units, all Management Loans were satisfied, and the net assets of the Company were distributed in accordance with Section 5.03 to the Members immediately after making such allocation, minus (ii) such Members share of Company Minimum Gain and Member Nonrecourse Debt Minimum Gain, computed immediately prior to the hypothetical sale of assets.
(b) Special Allocations . The following special allocations shall be made in the following order:
(i) Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulations Section 1.704-2(f), notwithstanding any other provision of this Article V , if there is a net decrease in Company Minimum Gain during any Allocation Year, each Member shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Members share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g). Allocations pursuant to the immediately preceding sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.04(b)(i) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Member Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article V , if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Members share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.04(b)(ii) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(i)(4), and shall be interpreted consistently therewith.
(iii) Qualified Income Offset . In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income, gain and Simulated Gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of the Member as promptly as possible; provided , that an allocation pursuant to this Section 5.04(b)(iii) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.04(b)(iii) were not in this Agreement.
(iv) Nonrecourse Deductions . Nonrecourse Deductions shall be allocated to the Members in any manner determined by the Manager and permissible under the Treasury Regulations.
(v) Member Nonrecourse Deductions . Any Member Nonrecourse Deductions for any Allocation Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i)(1).
(vi) Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Members interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to such Members in accordance with their interests in the Company in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(vii) Simulated Depletion . Simulated Depletion with respect to each Depletable Property shall be allocated to the Members in the same proportion that the Members (or their predecessors in interest) were allocated the Simulated Basis of such property. For purposes of such computation, the Simulated Basis of each Depletable Property shall be allocated to each Member in accordance with such Members Capital Interest Percentage as of the time such Depletable Property is acquired by the Company, and shall be reallocated among the Members in accordance with the Members Capital Interest Percentages as determined immediately following the occurrence of an event giving rise to an adjustment to the Carrying Values of the Companys Depletable Properties pursuant to clause (ii) of the definition of Carrying Value. For purposes of computing Simulated Depletion, the Company shall apply the simulated cost depletion method under Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
(viii) Simulated Loss . Simulated Loss with respect to the disposition of a Depletable Property shall be allocated among the Members in proportion to their allocable shares of the total amount realized from such disposition under Section 5.05(c)(ii) .
(ix) Fee Income . Any income attributable to the receipt by the Company of Fees shall be allocated among the Members in the manner in which such Fees are distributed to such Members pursuant to Section 5.03(a) .
(c) Curative Allocations . The allocations set forth in Section 5.04(b)(i) through (viii) and Section 5.04(d) (the Regulatory Allocations ) are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 5.04(c) . Therefore, notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Manager shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Members Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to Section 5.04 .
(d) Loss Limitation . Net Loss allocated pursuant to Section 5.04 hereof shall not exceed the maximum amount of Net Loss that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Allocation Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Net Loss pursuant to Section 5.04 hereof, the limitation set forth in this Section 5.04(d) shall be applied on a Member by Member basis and Net Loss not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Members Capital Accounts so as to allocate the maximum permissible Net Loss to each Member under Treasury Regulations Section 1.704-1(b)(2)(ii)(d).
Section 5.05 Other Allocation Rules .
(a) Interim Allocations Due to Percentage Interest Adjustment . If a Unit is the subject of a Transfer, or the Members Series Sharing Percentages change pursuant to the terms of this Agreement during any Allocation Year, the amount of Net Income and Net Loss to be allocated to the Members for such entire Allocation Year shall be allocated to the portion of such Allocation Year which precedes the date of such Transfer or change (and if there shall have been a prior Transfer or change in such Allocation Year, which commences on the date of such prior Transfer or change) and to the portion of such Allocation Year which occurs on and after the date of such Transfer or change (and if there shall be a subsequent Transfer or change in such Allocation Year, which precedes the date of such subsequent Transfer or change), in accordance with an interim closing of the books using the semi-monthly convention pursuant to proposed Treasury Regulations Section 1.706-4(e)(2), and the amounts of the items so allocated to each such portion shall be credited or charged to the Members in accordance with Section 5.03(b) as in effect during each such portion of the Allocation Year in question. Such allocation shall be made without regard to the date, amount or receipt of any distributions that may have been made with respect to the Transferred Unit.
(b) Tax Allocations: Code Section 704(c) . In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, with respect to any Property contributed to the Company (i) in the case of contributed Depletable Property, the adjusted tax basis of such Depletable Property, (ii) in the case of any other contributed Property, the income, gain, loss and deduction with respect to such Property shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Carrying Value using an allocation method set forth in Treasury Regulation 1.704-3 determined by the Manager. In the event the Carrying Value of such Property is adjusted pursuant to clause (ii) of the definition of Carrying
Value, (A) in the case of any Depletable Property, the adjusted tax basis of such Depletable Property shall be reallocated among the Members upon the occurrence of such adjustment, or (B) in the case of any other Property, subsequent allocations of income, gain, loss and deduction with respect to such Property, in either case shall be made in a manner to take account of any variation between the adjusted basis of such Property for U.S. federal income tax purposes and its Carrying Value as required by Code Section 704(c) and the applicable Treasury Regulations thereunder. Following any allocation or reallocation of adjusted tax basis of Depletable Property, or for purposes of any other allocations subject to this Section 5.05(b) , the Company shall, for each Depletable Property or other Property, select from the allocation methods described in Treasury Regulation Section 1.704-3 the method that the Manager determines is in the best interest of the Company and the Members.
(c) Other Income Tax Allocations .
(i) The deduction for depletion with respect to each Depletable Property shall, in accordance with Code Section 613A(c)(7)(D), be computed for U.S. federal income tax purposes separately by the Members rather than the Company. Except as provided in Section 5.05(b) , for purposes of such computation, the proportionate share of the adjusted tax basis of each Depletable Property shall be allocated among the Members based upon their relative Capital Interest Percentages as of the date of the acquisition of, or the addition of improvements capitalized in the basis subject to depletion of, such Depletable Property by the Company. Further, upon the occurrence of an adjustment to the Carrying Values of the Depletable Properties of the Company pursuant to clause (ii) of the definition of Carrying Value, except as provided in Section 5.05(b) , the proportionate share of the adjusted tax basis of each such Depletable Property shall be reallocated among the Members based upon the relative Capital Interest Percentages of the Members as of the date of such adjustment. Each Member shall separately keep records of its share of the adjusted tax basis in each Depletable Property, adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with respect to such property and use such adjusted tax basis in the computation of its cost depletion or in the computation of its gain or loss on the disposition of such property by the Company. Upon the request of the Company, each Member shall advise the Company of its adjusted tax basis in each Depletable Property and any depletion computed with respect thereto, both as computed in accordance with the provisions of this subsection. The Company may rely on such information and, if it is not provided by the Member, may make such reasonable assumptions as it shall determine with respect thereto.
(ii) Except as provided in Section 5.05(b) , for the purposes of the separate computation of gain or loss by each Member on the sale or disposition of each Depletable Property, the Companys allocable share of the amount realized (as such term is defined in Section 1001(b) of the Code) from such sale or disposition shall be allocated for federal income tax purposes among the Members as follows:
(A) first , to the extent such amount realized constitutes a recovery of the Simulated Basis of the property, to the Members in the same percentages as the depletable basis of such property was allocated to the Members pursuant to Section 5.04(b) , except as otherwise provided in Section 5.05 ; and
(B) second , the remainder of such amount realized, if any, shall be allocated among the Members in the same manner as Simulated Gain is allocated under Section 5.04(a) .
(d) In the event that final Treasury Regulations are promulgated by the United States Department of the Treasury requiring certain forfeiture allocations as contemplated by proposed Treasury Regulations Section 1.704-1(b)(4)(xii), the parties will amend this Agreement in such a manner as will be most beneficial to the non-forfeiting Members.
Section 5.06 Tax Withholding; Withholding Advances .
(a) Tax Withholding .
(i) If requested by the Company, each Member shall, if able to do so, deliver to the Company: (A) an affidavit in form satisfactory to the Company that the applicable Member (or its direct or indirect owners, as the case may be) is not subject to withholding under the provisions of any federal, state, local, foreign or other law; (B) any certificate that the Company may reasonably request with respect to any such laws; and/or (C) any other form or instrument reasonably requested by the Company relating to any Members status under such law; provided , that, for the avoidance of doubt, in the absence of a change in law occurring after the date hereof and except as provided in Section 5.06(a)(iii) , the Company shall not withhold U.S. federal income tax with respect to any Member that furnishes the Company with a duly completed and executed IRS Form W-9 that provides that such Member is either exempt from, or not subject to, backup withholding. In the event that a Member (or its direct or indirect owners, as the case may be) fails or is unable to deliver to the Company an affidavit described in subclause (A) of this clause (i), the Company may withhold amounts from such Member in accordance with Section 5.06(b) .
(ii) After receipt of a written request of any Member, the Company shall provide such information to such Member and take such other action as may be reasonably necessary to assist such Member in making any necessary filings, applications or elections to obtain any available exemption from, or any available refund of, any withholding imposed by any foreign taxing authority with respect to amounts distributable or items of income allocable to such Member hereunder to the extent not adverse to the Company or any Member. In addition, the Company shall, at the request of any Member, make or cause to be made (or cause the Company to make) any such filings, applications or elections; provided , that any such requesting Member shall cooperate with the Company, with respect to any such filing, application or election to the extent reasonably determined by the Company and that any filing fees, taxes or other out-of-pocket expenses reasonably incurred by the Company and related thereto shall be paid and borne by such requesting Member or, if there is more than one requesting Member, by such requesting Members in accordance with their respective Series Sharing Percentages.
(iii) Notwithstanding anything in this Agreement to the contrary, to the extent that the issuance of Class B Units to a Member, the payment of Fees to a Member and/or
any distribution, payment, transfer or other action or event with respect to a Member under this Agreement results in the receipt of compensation by such Member with respect to which the Company, Holdco or one of Holdcos Subsidiaries has a tax withholding obligation pursuant to applicable law (including, without limitation, as a result of the filing of an election under Section 83(b) of the Code), then, unless other arrangements have been made that are acceptable to the Company, Holdco or one of Holdcos Subsidiaries, as applicable, the Company is authorized to deduct or withhold, or cause to be deducted or withheld, from any payment of Fees or other amount owing to a Member hereunder the amount (in cash or Units, including Units that would otherwise be issued hereunder) of any applicable taxes payable in respect of such payment or amount, and to take such other actions as may be necessary in the opinion of the Company, Holdco or any of its Subsidiaries to satisfy its withholding obligations for the payment of such taxes.
(b) Withholding Advances . To the extent the Company is required by law to withhold or to make tax payments on behalf of or with respect to any Member (e.g., backup withholding) ( Withholding Advances ), the Company may withhold such amounts and make such tax payments as so required.
(c) Deemed Withholding Advances . If amounts payable to the Company are reduced on account of taxes paid or withheld (directly or indirectly) by any Person, and such taxes are imposed on or with respect to one or more, but not all of the Members, the amount of the reduction shall be borne by the relevant Members and treated as if it were paid by the Company as a Withholding Advance with respect to such Members for all purposes of this Agreement.
(d) Repayment of Withholding Advances . All Withholding Advances made on behalf of a Member, plus interest thereon at a rate equal to the Prime Rate as of the date of such Withholding Advances, plus two percent (2.0%) per annum, shall (i) be paid on demand by the Member on whose behalf such Withholding Advances were made (it being understood that no such payment shall increase such Members Capital Account), or (ii) with the consent of the Manager, in its sole discretion, be repaid by reducing the amount of the current or next succeeding distribution or distributions which would otherwise have been made to such Member or, if such distributions are not sufficient for that purpose, by so reducing distributions otherwise payable to such Member. Whenever repayment of a Withholding Advance by a Member is made as described in clause (ii) above, for all other purposes of this Agreement such Member shall be treated as having received all distributions (whether before or upon Dissolution) unreduced by the amount of such Withholding Advance and interest thereon.
(e) Withholding Advances; Reimbursement of Liabilities . Each Member hereby agrees to reimburse the Company for any liability with respect to Withholding Advances (including interest thereon) required or made on behalf of or with respect to such Member (including penalties imposed with respect thereto).
ARTICLE VI
CERTAIN TAX MATTERS
Section 6.01 Tax Matters Partner . The Tax Matters Partner (as such term is defined in Section 6231(a)(7) of the Code) of the Company shall be a Member designated by the Manager in its sole discretion. The Tax Matters Partner shall use its reasonable efforts to comply with the responsibilities outlined in Sections 6221 through 6233 of the Code (including the Treasury Regulations promulgated thereunder) and shall have any powers necessary to perform fully in such capacity. The Tax Matters Partner is authorized to represent the Company before taxing authorities and courts in tax matters affecting the Company and the Members in their capacity as such, and shall keep the Members promptly informed of any such administrative and judicial proceedings. The Tax Matters Partner shall be entitled to be reimbursed by the Company for all reasonable third-party costs and expenses incurred by it in connection with any administrative or judicial proceeding affecting tax matters of the Company and the Members in their capacity as such. The Tax Matters Partner shall not bind any Member to any settlement agreement or closing agreement without such Members prior written consent. Any Member who enters into a settlement agreement with any tax authority with respect to any Company item shall notify the Tax Matters Partner of such settlement agreement and its terms within thirty (30) days after the date of settlement. This provision shall survive any termination of this Agreement.
Section 6.02 U.S. Federal Income Tax Classification of the Company . The Tax Matters Partner shall, for and on behalf of the Company, take all steps as may be required to maintain the Companys classification as a partnership for U.S. federal income tax purposes. By executing this Agreement, each of the Parties consents to the authority of the Tax Matters Partner to make any election consistent with such classification and shall cooperate in the making of any such election (including providing consents and other authorizations that may be required). Except as provided herein, each Member has not taken, and shall not take (or omit to take), any action that would be inconsistent with the classification of the Company as a partnership for U.S. federal income tax purposes.
Section 6.03 Safe Harbor . Each Member agrees that (a) if and when Proposed Treasury Regulations Section 1.83-3(l) and the proposed revenue procedure contained in IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005) (together, the Proposed Guidance ) or any substantially similar successor rules become effective, the Manager is authorized and directed to elect the safe harbor described therein, pursuant to which the fair market value of any interest in the Company that is transferred in connection with the performance of services will be treated as being equal to the liquidation value of that interest (the Safe Harbor ), and (b) while the election described in this Section 6.03 remains effective, the Company and each of the Members (including any Member to whom a Unit is transferred in connection with the performance of services) shall comply with all requirements of the Safe Harbor described in the Proposed Guidance (or any substantially similar successor rules) with respect to all Units that are transferred in connection with the performance of services, including any requirement that such Member prepare and file all U.S. federal income tax returns reporting the income tax effects of each Unit issued by the Company in connection with the performance of services. For purposes of the Safe Harbor, the Tax Matters Partner is hereby designated as the partner who has responsibility for Federal income tax reporting by the Company and, accordingly, execution of such Safe Harbor election by the Tax Matters Partner constitutes execution of a Safe Harbor
Election in accordance with the Proposed Guidance or any similar provision of any final pronouncement. A Members obligations to comply with the requirements of this Section 6.03 shall survive such Members ceasing to be a Member of the Company and the termination, dissolution, liquidation and winding up of the Company.
ARTICLE VII
MANAGEMENT OF THE COMPANY
Section 7.01 Management of the Company by the Manager . The management of the Company is vested in and shall be managed by one manager (as such term is defined in the Delaware Act) (the Manager ). The Manager is hereby granted, the full and complete, power, authority and discretion for, on behalf of and in the name of the Company, to take such actions and manage and direct the business and affairs of the Company, as it may, in its sole discretion, deem necessary or advisable to carry out any and all of the objectives and purposes of the Company, subject only to the terms of this Agreement and the Delaware Act. Except as otherwise expressly provided in this Agreement or required by the Delaware Act, to the fullest extent permitted by applicable law the Members (in their capacity as Members) will not participate in the control of the Company and will have no right, power or authority to act for or on behalf of or otherwise bind the Company and will have no right to vote on or consent to any other matter, act, decision or document involving the Company or its business. The Parties hereby agree that as of the date hereof, Holdco is and shall be the Manager until Holdco has resigned as Manager and a replacement Manager is appointed as Manager in accordance with Section 7.02 .
Section 7.02 Resignation . The Manager may not be removed by the Members, but the Manager may resign as Manager at any time. Immediately prior to any such resignation, the Manager, acting in its sole discretion, shall appoint a replacement manager to serve as the Manager; provided , however , that if Holdco is no longer the Manager, then such replacement manager shall be appointed by Holdco.
Section 7.03 Agency Authority of Managers and Officers . The Manager may authorize any officer or other Person to endorse checks, drafts, and other evidences of indebtedness made payable to the order of the Company (but only for the purpose of deposit into the Companys accounts) or to sign contracts and obligations on behalf of the Company.
Section 7.04 Limited Liability . Subject to Article X , no Person who is a Manager or an officer of the Company shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a Manager or an officer of the Company.
ARTICLE VIII
TRANSFERS OF UNITS
Section 8.01 Restrictions on Transfers .
(a) Except as provided in this Article VIII , no Member shall Transfer all or any part of its Units or any right pertaining thereto, including the right to vote or consent on any matter or
to receive distributions or advances from the Company pursuant thereto without the prior approval of the Board in its sole discretion. Any such Transfer, either directly or indirectly, or issuance of Securities by a Member or a Permitted Transferee, with the purpose or effect of circumventing (as determined in good faith by the Manager) the foregoing restriction, shall not be in compliance with the provisions of this Agreement, and shall be deemed a Transfer by such Member of Units in violation of this Agreement (and a breach of this Agreement by such Member) and shall be null and void ab initio .
(b) It shall be a condition precedent to any Transfer otherwise permitted or approved pursuant to this Article VIII that:
(i) the Transferor shall have provided to the Company prior written notice of such Transfer at least ten (10) Business Days in advance of such Transfer;
(ii) the Transferee, in the case of a Transfer of Units, shall agree in writing to be bound by this Agreement and the terms of any Award Agreements to which such Units are subject and shall have executed and delivered an Addendum Agreement in the form attached thereto;
(iii) the Transfer shall comply with all applicable federal, state or foreign laws, including securities laws;
(iv) the Transfer will not subject the Company to any registration or reporting requirements of the Investment Company Act of 1940, as amended;
(v) the Transfer shall not impose any material liability or reporting obligation on the Company, any Member (other than the Transferor or the Transferee) or the Manager in any jurisdiction, whether domestic or foreign, or result in the Company, any Member or the Manager becoming subject to the jurisdiction of any court or governmental entity anywhere, other than the states, courts and governmental entities in which the Company or the Manager is then subject to such liability, reporting obligation or jurisdiction;
(vi) if at the time of the Transfer the Company is classified as a partnership for U.S. federal income tax purposes, the Transfer shall satisfy one or more safe harbor provisions of Treasury Regulations Section 1.7704-1 including Sections 1.7704-1(e), (f), (g), (h) and (j), relating to publicly traded partnerships;
(vii) if at the time of the Transfer the Company is classified as a partnership for U.S. federal income tax purposes, the Transfer shall not cause a Dissolution Event or, unless the Manager determines it to be immaterial, a termination of the Company pursuant to Section 708 of the Code;
(viii) the Transfer shall not cause all or any portion of the assets of the Company to constitute plan assets under United States Employee Retirement Income Security Act of 1974, as amended, or the Code; and
(ix) upon the request of the Manager, any Member undertaking a Transfer of such Units pursuant to this Article VIII shall have delivered an opinion of counsel, in form and substance reasonably satisfactory to the Manager that such Transfer complies with the conditions set forth clauses (i) through (viii) of this Section 8.01(b) . The Manager may also request officer certificates and representations and warranties from the Transferee and Transferor as to the matters set forth in this Section 8.01(b) and such other factual matters as the Manager may reasonably request.
(c) Notwithstanding anything to the contrary contained in Section 8.01 (other than the provisions of Section 8.01(b) , which shall be applicable in any event), any Transfer by any Member of all or any of its respective Class B Units to (x) a spouse, lineal ancestor, lineal descendant, legally adopted child, brother or sister of such Member or (y) a lineal descendant or legally adopted child of a brother or sister of any Person described in the immediately preceding clause (x) (any Person described in the immediately preceding clause (x) or (y), a Family Member ) or to a trust or other entity whose sole and exclusive beneficiaries are such Member and/or Family Members of such Member, provided , that such Transfers would not result in a violation of applicable law, including U.S. federal or state securities laws and such Transferee executes and delivers to the Company an Addendum Agreement (each such Transfer described in clause (x) or (y), a Permitted Transfer and each such Person receiving Class B Units pursuant to such Permitted Transfer, a Permitted Transferee ) shall be permitted at any time without prior approval of the Manager.
(d) Notwithstanding anything to the contrary contained in this Agreement, upon the consummation of any Transfer of Units permitted pursuant to this Article VIII , if such Transferor owes any amount pursuant to any Management Loan, then until such time as all outstanding amounts under such Management Loan have been repaid in full, the Company shall direct payment of the applicable consideration received pursuant to such Transfer first to the repayment of such Management Loan, or, to the extent such consideration is received by such Transferor, such Transferor shall pay such amounts to the Company or Holdco (as applicable) as lender under such Management Loan.
Section 8.02 Drag-Along Rights .
(a) Within five (5) days after the receipt by the Company of a Drag-Along Notice, the Company shall forward such Drag-Along Notice to the Members. Each Member shall, and shall cause each of its Affiliates to, cooperate in connection with the Drag-Along Sale and take all steps reasonably necessary or reasonably requested by Holdco, the Company, and the Drag-Along Purchaser to cancel the Holdco B Shares in accordance with the Holdco Agreement and otherwise consummate the Drag-Along Sale on the Drag-Along Terms (including by waiving any appraisal or dissenters rights that may exist under any applicable law, voting for or consenting to any merger, consolidation, sale of assets or similar transaction, executing any purchase agreements, merger agreements, escrow agreements or related documents, including instruments of Transfer and providing customary several, but not joint, representations, warranties and indemnities concerning such Members valid ownership of its Class B Units, free and clear of all Liens and encumbrances (other than those arising under applicable securities laws or in connection with the Drag-Along Sale) and such Members authority, power, and right to enter into and consummate agreements relating to such transactions without violating any
applicable law or other agreement; provided , however , that such agreements, documents or instruments shall not contain any non-competition or similar restrictive covenants. Without limiting the generality of the immediately preceding sentence, each Member shall, subject to the provisions of any definitive agreement (including any limitations on indemnification set forth therein) entered into in connection with a Drag-Along Sale, indemnify, defend and hold harmless the Drag-Along Purchaser in any Drag-Along Sale, pro rata in accordance with the amount of consideration received by such Member in connection with such Drag-Along Sale as a proportion of the aggregate amount of consideration received by all Members together with all members of Holdco (excluding the Company) in connection with such Drag-Along Sale, from and against any losses, damages and liabilities arising from or in connection with (i) any breach of any representation, warranty, covenant or agreement of Holdco or the Company in connection with such Drag-Along Sale, and (ii) any other indemnification obligation in connection with such Drag-Along Sale relating to the business or potential liabilities of the Company or Holdco and its Subsidiaries; provided , that (A) such indemnification obligation shall be several and not joint, and (B) the aggregate maximum amount of such indemnification obligation shall not exceed the amount of consideration received by such Member with respect to its Class B Units in connection with such Drag-Along Sale.
(b) Notwithstanding anything to the contrary herein, each Member acknowledges and agrees that, subject to the provisions of the Holdco Agreement, Holdco may structure a Drag-Along Sale such that some or all of the Holdco B Shares are either (i) exchanged by Holdco for newly issued Holdco A Shares pursuant to a Class B Exchange in accordance with the Holdco Certificate of Incorporation immediately prior to such Drag-Along Sale, which Holdco A Shares shall either be (A) freely transferable under securities laws by the Members under a resale registration statement to be filed and maintained effective at all times by the Holdco pursuant to applicable federal securities laws, or (B) sold in connection with such Drag-Along Sale, or (ii) sold directly to the Drag-Along Purchaser pursuant to such Drag-Along Sale, in accordance with Section 6.04(e) of the Holdco Agreement.
(c) For the avoidance of doubt and notwithstanding anything to the contrary herein, (i) if any amount is outstanding pursuant to a Management Loan of a Member, then until such time as all outstanding amounts under such Management Loan have been repaid in full, such Member shall direct and the Company shall direct the net proceeds from such Drag-Along Sale otherwise payable to such Member to first be applied to repay such Management Loan or such portion thereof as may be repaid with such net proceeds and (ii) subject to the applicable reductions in clause (i) of this Section 8.02(c) , the net proceeds received by the Company in such Drag-Along Sale shall be distributed in the manner in which Flow-Through Distributions are distributed pursuant to Section 5.03(a) .
Section 8.03 Repurchase; Forfeiture .
(a) General . This Section 8.03 is subject to the provisions of any applicable Award Agreement. All Transferees and Substitute Members shall be subject to this Section 8.03 .
(b) Vesting Schedule . Subject to Section 5.03(c) , the Class B Units shall vest in accordance with the terms and conditions of the Award Agreement governing the issuance of such Class B Units.
(c) Unit Repurchase and Forfeiture . Class B Units shall be subject to forfeiture to the Company and repurchase by the Company as provided in the applicable Award Agreement.
(d) Management Loans . The Members acknowledge and agree that if any amount is outstanding pursuant to a Management Loan as of the date of such repurchase of Class B Units and the purchase price paid to the Company by Holdco for the Holdco B Shares is reduced as a result of the existence of such outstanding amounts, then an amount equal to such reduction shall be deemed paid by the Company to such Member as a portion of the purchase price for such Class B Units and the total purchase price for such Class B Units otherwise due to such Member shall be reduced by the amount of such reduction.
(e) Repurchases Upon Request . The Members shall have, in respect of their Class B Units, rights corresponding to those rights set forth in Section 6.07(d) of the Holdco Agreement (Repurchases Upon Request), which shall be exercisable (subject to limitations corresponding to those set forth in Section 6.07 of the Holdco Agreement) in accordance with the Section 2.01 Principle.
For the avoidance of doubt, any Class B Units repurchased pursuant to this Section 8.03 shall be deemed forfeited in full as of the time of receipt of payment therefor, whether in cash or by note or in accordance with Section 8.03(d) , and consequently, the holders thereof shall not be entitled to any distributions in respect of such Class B Units for any period thereafter.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES;
CERTAIN OTHER AGREEMENTS
Section 9.01 Representations and Warranties of the Company . By executing and delivering this Agreement, the Company hereby represents and warrants to each of the Members that the following statements are true and correct as of the date hereof:
(a) The Company is a limited liability company duly organized and validly existing under the laws of the State of Delaware. Since the date of its formation, the Company has not conducted any business or incurred any liabilities or obligations, other than liabilities and obligations pursuant to the Delaware Act, the Original LLC Agreements or any other agreement referenced herein.
(b) Except as expressly disclosed in writing to the Members on the date hereof, the execution, delivery and performance by the Company of this Agreement are within the Companys organizational powers, have been duly authorized by all necessary organizational action on its behalf, require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority, and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which the Company is a party. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions.
(c) The Class B Units have been duly authorized, validly issued and free and clear of any Liens other than those created by the Members or arising pursuant to this Agreement or any other agreement referenced herein.
(d) The representations and warranties of Holdco, as set forth in the Holdco Agreement, are true and correct.
Section 9.02 Representations and Warranties of the Members . By executing and delivering this Agreement, each Member hereby represents and warrants to the Company and each other Member that the following statements are true and correct as of the date hereof, as of the date such Member was admitted to the Company and as of the date(s) such Member was issued Units:
(a) Such Members Units are being held for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and this Agreement.
(b) If such Member is an entity, such Member is duly organized and validly existing under the laws of its jurisdiction of organization. If such Member is a natural person, such Member has full legal capacity.
(c) The execution, delivery and performance by such Member of this Agreement are within such Members corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if such Member is an individual, are within such Members legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority, and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which such Member is a party or by which such Member or any of such Members properties is bound. This Agreement has been duly executed and delivered by such Member and constitutes a valid and binding agreement of such Member, enforceable against such Member in accordance with its terms, subject to the Enforceability Exceptions.
(d) Such Member is familiar with the business, financial condition, properties, operations and prospects of Holdco, its Subsidiaries and the Company, and has asked such questions of the Company and the Manager and conducted such due diligence concerning such matters and concerning the Class B Units, this Agreement and the Holdco Agreement as it has desired to ask and conduct, and all such questions have been answered to its full satisfaction. Such Member has not relied upon any representations made by, or other information (whether oral or written) furnished by or on behalf of, the Manager, the Company, Holdco or any of its Subsidiaries or any director, officer, employee, agent or Affiliate of such Persons, other than as set forth in this Agreement. Such Member has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of holding Class B Units and being a Member. Such Member understands that owning Class B Units involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for such Class B Units, the risk of owning Class B Units for an indefinite period of time and the
risk of losing its entire investment in the Company. Such Member is able to bear the economic risk of such investment; and such Member acknowledges that the Class B Units have not been registered under the Securities Act or any other applicable federal or state securities laws, and that the Company has no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Class B Units or to take action so as to permit sales pursuant to the Securities Act (including Rules 144 and 144A thereunder). Such Member has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company and holding Class B Units in light of its particular tax and financial situation, and has determined that the Class B Units are a suitable investment for such Member.
Section 9.03 Fiduciary Duties; Competing Activities .
(a) To the fullest extent permitted by applicable law and notwithstanding any other provision of this Agreement, the Members hereby agree that pursuant to the authority of Sections 18-1101(c)-(e) of the Delaware Act, the Members hereby eliminate any and all fiduciary duties, at law, in equity or under this Agreement, of the Manager or the Members and their respective advisors, shareholders, partners, members, Representatives and Affiliates (in each case, other than those Persons who are or were employees of Holdco or its Subsidiaries) (each, a Covered Investor ) that are owed to the Company or the Members and hereby agree that such Persons shall have no fiduciary duties to the Company or any Member; provided , however , that the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing, and, for the avoidance of doubt, shall not remove or supersede any restrictions or obligations placed on any employee of Holdco or any of its Subsidiaries, including, without limitation, any of the confidentiality, non-competition and non-solicitation obligations set forth in any employment agreements between the Holdco or any of its Subsidiaries and any employee of Holdco or any of its Subsidiaries and in any Award Agreements. The provisions of this Agreement, to the extent that they restrict or eliminate the duties and liabilities of a Covered Investor otherwise existing at law or in equity to the Company or the Members, are agreed by the Members to replace such other duties and liabilities of each such Covered Investor.
(b) In furtherance of the foregoing, the Members hereby agree that each Covered Investor may engage or invest in, independently or with others, any business activity of any type or description, including those that might be in the same business as or similar to the Company, Holdco or its Subsidiaries business and that might be in direct or indirect competition with the Company, Holdco or its Subsidiaries. Neither the Company, nor Holdco or its Subsidiaries nor any Member shall have any right in or to such other ventures or activities or to the income or proceeds derived therefrom. The pursuit of any such ventures or activities by a Covered Investor, even if competitive with the business of the Company, Holdco or its Subsidiaries, shall not be deemed wrongful or improper and shall not constitute a conflict of interest or breach of fiduciary or other duty by such Covered Investor with respect to the Company, Holdco or its Subsidiaries or the other Members. No Covered Investor who is not an employee of Holdco or its Subsidiaries shall be obligated to present any investment opportunity or prospective economic advantage to the Company, Holdco or its Subsidiaries, even if the opportunity is of the character that, if presented to the Company, Holdco or its Subsidiaries, could be taken by the Company, Holdco or its Subsidiaries, and such Covered Investor shall have the right to hold such investment opportunity or prospective economic advantage for its own account or the account of
its portfolio companies (as applicable) or to recommend such opportunity to Persons other than the Company, Holdco and its Subsidiaries and the Members. In addition, to the maximum extent permitted from time to time under applicable law, the Company and the Members renounce any interest or expectancy in being offered an opportunity to participate in business opportunities that are from time to time presented to any Covered Investor who is not an employee of Holdco or its Subsidiaries, and the Company and the Members waive any claim related to the foregoing. Each Member acknowledges that the Covered Investors may own and/or manage other businesses, including businesses that may compete directly or indirectly with the Company, Holdco or its Subsidiaries and for such Covered Investors time, and each such Member hereby waives any and all rights and claims which it may otherwise have against the Covered Investors as a result of any such activities.
ARTICLE X
LIMITATION ON LIABILITY; EXCULPATION
AND INDEMNIFICATION
Section 10.01 Limitation on Liability . The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Representative of the Company, the Manager or the Members or their Representatives shall be obligated personally for any such debt, obligation or liability of the Company; provided , that the foregoing shall not alter a Members obligation to return funds wrongfully distributed to such Member.
Section 10.02 Exculpation and Indemnification .
(a) To the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, the Company shall defend, indemnify and hold harmless each Covered Person from and against any and all Losses incurred or suffered by such Covered Person (whether as a result of any claim by any Member or any third party or otherwise) by reason of: (i) any act or omission or alleged act or omission performed or omitted to be performed on behalf of the Company in connection with the business of the Company; (ii) the fact that he or she is or was a Covered Person, or that such Covered Person is or was serving at the request of the Company as a manager, director, officer, member, partner, parent or other Representative of any other Person; or (iii) any other act or omission or alleged act or omission arising out of or in connection with the Company or the business of the Company, to the extent not reimbursed by insurance or other coverage, in each case, if: (A) such Covered Person acted or omitted to act in good faith and in the belief that such act or omission was in, or was not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reason to believe his or her conduct was unlawful, (B) such Covered Persons conduct did not constitute fraud, gross negligence or willful misconduct and (C) if such Covered Person is a Member, such Members conduct did not constitute a willful breach or violation of this Agreement. The obligations of the Company under this Section 10.02 shall be satisfied solely out of and to the extent of the Companys assets, and no Covered Person shall have any personal liability on account thereof. There shall be, and each Covered Person shall be entitled to, a rebuttable presumption that such Covered Person acted in good faith and is otherwise entitled to indemnification under this Section 10.02(a) and advancement of expenses under Section 10.02(b) .
(b) To the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit the Company: (i) shall promptly reimburse (and/or advance to the extent reasonably required) each Covered Person for reasonable legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend or defending any threatened, pending or completed lawsuit, action, investigation, suit or proceeding to which such Covered Person is a party to or is threatened to be made a party to, relating to any Losses for which such Covered Person may be indemnified pursuant to Section 10.02(a) ; and (ii) shall reimburse the Manager for all reasonable costs and expenses incurred by it in performing in its capacity as the Tax Matters Partner or in connection with any administrative or judicial proceeding affecting tax matters of the Company and the Members in their capacity as such; provided , in each case, that such reimbursement and/or advancement shall only be provided to such Covered Person or the Tax Matters Partner (as applicable) upon receipt by the Company of an undertaking by or on behalf of such Covered Person or Tax Matters Partner (as applicable) that if it is finally judicially determined that such Person is not entitled to the indemnification provided pursuant to Section 10.02(a) , then such Covered Person shall promptly reimburse the Company for any reimbursed or advanced expenses.
(c) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters such Covered Person reasonably believes are within his, her or its professional or expert competence.
(d) The rights to indemnification and advancement of expenses and the remedies provided for in this Section 10.02 are not and shall not be deemed exclusive of any other rights or remedies to which any Covered Person may at any time be entitled under any applicable law, agreement, or otherwise, but each such right or remedy under this Article X shall be cumulative with all such other rights and remedies. No amendment, modification or repeal of this Section 10.02 or any provision hereof shall limit or restrict any right of any Covered Person under this Section 10.02 in respect of any action that such Covered Person has taken or omitted in that Covered Persons capacity as such prior to such amendment, modification or repeal.
Section 10.03 Insurance . The Company shall have the power to purchase and maintain insurance on behalf of any Covered Person against any liability asserted against such Covered Person and incurred by such Covered Person in any such capacity, or arising out of such Persons status as a Covered Person, whether or not the Company would have the power to indemnify such Covered Person against such liability under the provisions of Section 10.02 or under applicable law.
ARTICLE XI
DISSOLUTION AND TERMINATION
Section 11.01 Dissolution .
(a) The Company shall not be dissolved by the admission of Substitute Members pursuant to this Agreement.
(b) No Member shall (i) resign from the Company prior to the dissolution and winding up of the Company except in connection with a Transfer of Units pursuant to the terms of this Agreement, or (ii) take any action to dissolve, terminate or liquidate the Company or to require apportionment, appraisal or partition of the Company or any of its assets, or to file a bill for an accounting, except as specifically provided in this Agreement, and each Member, to the fullest extent permitted by applicable law, hereby waives any rights to take any such actions under applicable law, including any right to petition a court for judicial dissolution under Section 18-802 of the Delaware Act.
(c) The Company shall be dissolved and its business wound up upon the earliest to occur of any one of the following events (each a Dissolution Event ):
(i) at the election of the Members that together hold, in the aggregate, at least a majority of the then outstanding Class B Units; provided , that if such election is made prior to May 24, 2014, the Manager must consent to such election;
(ii) the expiration of forty-five (45) days after the sale or other disposition of all or substantially all the assets of the Company (including by distribution to the Members) unless the Manager, in its sole discretion, determines otherwise; or
(iii) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act, in contravention of this Agreement.
(d) The death, retirement, resignation, expulsion, bankruptcy, insolvency or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a Member shall not in and of itself cause dissolution of the Company.
Section 11.02 Winding Up of the Company .
(a) The Manager shall promptly notify the Members of any Dissolution Event. Upon the occurrence of a Dissolution Event, the Companys assets shall be liquidated in an orderly manner. The Manager shall act as or appoint a liquidating trustee to wind up the affairs of the Company pursuant to this Agreement. In performing its duties, the liquidating trustee is authorized to sell, distribute, exchange or otherwise dispose of the assets of the Company in accordance with the Delaware Act and in any reasonable manner that the liquidating trustee shall determine to be in the best interest of the Members.
(b) The proceeds of the liquidation of the Company shall be distributed in the following order and priority:
(i) first , to the creditors (including any Members or their respective Affiliates that are creditors) of the Company in satisfaction of all of the Companys indebtedness (whether by payment or by making reasonable provision for payment thereof, including the setting up of any reserves which are, in the judgment of the liquidating trustee, reasonably necessary therefor); and
(ii) second , to the Members, in accordance with Section 5.03 , subject to the limitations of Article V , as promptly as practicable.
Section 11.03 Distribution of Property . In the event it becomes necessary in connection with the liquidation of the Company to make a distribution of Property in-kind, subject to the priority set forth in Section 11.02 , the liquidating trustee shall have the right to compel each Member to accept a distribution of any Property in-kind (even if the percentage of the Property distributed to such Member differs from a percentage of that Property which is equal to such Series Sharing Percentages), with such distribution being based upon the amount of cash that would be distributed to such Members if such Property were sold for an amount of cash equal to the fair market value of such Property, as determined by the liquidating trustee in good faith.
Section 11.04 Termination . The Company shall terminate when all of the assets of the Company, after payment of or reasonable provision for the payment of all debts and liabilities of the Company, shall have been distributed to the Members in the manner provided for in this Article XI , and the Certificate of Formation shall have been cancelled in the manner required by the Delaware Act.
Section 11.05 Survival . Termination, dissolution, liquidation or winding up of the Company for any reason shall not release any Party from any liability which at the time of such termination, dissolution, liquidation or winding up already had accrued to any other Party or which thereafter may accrue in respect to any act or omission prior to such termination, dissolution, liquidation or winding up.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Expenses . Except as otherwise agreed to in writing by Holdco or any of its Affiliates prior to the date hereof, each Member shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including all fees and expenses of its Representatives. Notwithstanding the exception to the foregoing, each Member shall bear any such expenses incurred after the Restructuring Date.
Section 12.02 Further Assurances . Each Member agrees to execute, acknowledge, deliver, file and record such further certificates, amendments, instruments and documents, and to do all such other acts and things, as may be required by law or as, in the reasonable judgment of the Manager, may be necessary or advisable to carry out the intent and purposes of this Agreement.
Section 12.03 Notices .
(a) Except as otherwise expressly provided in this Agreement, all notices, requests and other communications to any Party hereunder shall be in writing (including a facsimile or similar writing) and shall be given to such Party at the address or facsimile number specified for such Party on Schedule A hereto (or in the case of the Company, this Section 12.03(a) ) or as such Party shall hereafter specify for the purpose by notice to the other Parties. Each such notice, request or other communication shall be effective (i) if personally delivered, on the date of such delivery, (ii) if given by facsimile, at the time such facsimile is transmitted and the appropriate confirmation is received, (iii) if delivered by an internationally recognized overnight
courier, on the next Business Day after the date when sent, (iv) if delivered by registered or certified mail, three (3) Business Days (or, if to an address outside the United States, seven (7) days) after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (v) if given by any other means, when delivered at the address specified on Schedule A or in Section 12.03(b) .
(b) All notices, requests or other communications to the Company hereunder shall be delivered to the Company at the following address and/or facsimile number in accordance with the provisions of Section 12.03(a) :
EP Energy Corporation
1001 Louisiana Street
Houston, TX 77002
Attention: Marguerite Woung-Chapman
Facsimile: (713) 997-4099
with copies to (which shall not constitute notice):
Apollo Management VII, L.P.
Apollo Commodities Management, L.P.,
with respect to Series I
9 West 57
th
Street
New York, NY 10019
Attention: Laurie Medley
Telecopier: (212) 515-3288
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: John M. Scott
Facsimile: (212) 757-3990
Section 12.04 No Third Party Beneficiaries . Notwithstanding anything herein or in any other agreement to the contrary, this Agreement is not intended to confer any rights or remedies upon, and shall not be enforceable by any Person other than the actual Parties hereto, their respective successors and permitted assigns, and, solely with respect to the provisions of Article X , each Covered Person and, solely with respect to the provisions of Section 9.03 , each Covered Investor.
Section 12.05 Waiver; Cumulative Remedies . No failure by any Party to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach of such or any other covenant, agreement, term or condition shall operate as a waiver of such or any other covenant, agreement, term or condition of this Agreement. Any Member by notice given in accordance with Section 12.03 may, but shall not be under any obligation to, waive any of its rights or conditions to its obligations hereunder, or any duty, obligation or covenant of any other Member. No waiver shall affect or alter the remainder of this Agreement but each and every covenant, agreement,
term and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach. The rights and remedies provided by this Agreement are cumulative and the exercise of any one right or remedy by any Party shall not preclude or waive its right to exercise any or all other rights or remedies.
Section 12.06 Governing Law; Consent to Jurisdiction . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws. The Parties hereby declare that it is their intention that this Agreement shall be regarded as made under the laws of the State of Delaware and that the laws of said State shall be applied in interpreting its provisions in all cases where legal interpretation shall be required. Each of the Parties: (a) agrees that this Agreement involves at least US $100,000.00; (b) agrees that this Agreement has been entered into by the Parties in express reliance upon 6 Del. C. § 2708(a); (c) irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware with respect to all actions and proceedings arising out of or relating to this Agreement and the transactions contemplated hereby; (d) agrees that all claims with respect to any such action or proceeding shall be heard and determined in such courts and agrees not to commence any action or proceeding relating to this Agreement or the transactions contemplated hereby except in such courts; (e) irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding arising out of this Agreement or the transactions contemplated hereby and irrevocably and unconditionally waives the defense of an inconvenient forum; (f) irrevocably acknowledges and agrees that the Company is a commercial business entity and is a separate entity distinct from its ultimate equity holders, Holdco and/or the executive organs of the government of any state and is capable of suing and being sued; (g) agrees that its entry into this constitutes, and the exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts performed for private and commercial purposes that shall not be deemed as being entered into in the exercise of any public function; (h) irrevocably appoints The Corporation Trust Company as its agent for the sole purpose of receiving service of process or other legal summons in connection with any such dispute, litigation, action or proceeding brought in such courts and agrees that it will maintain The Corporation Trust Company at all times as its duly appointed agent in the State of Delaware (and the Company shall reasonably assist each Member, to the extent requested by such Member, with such appointment, including by informing The Corporation Trust Company of such appointment and assisting such Member with the delivery of any documentation required for such appointment to The Corporation Trust Company) for the service of any process or summons in connection with any such dispute, litigation, action or proceeding brought in such courts and, if it fails to maintain such an agent during any period, any such process or summons may be served on it by mailing a copy of such process or summons by an internationally recognized courier service to the address set forth next to its name in Schedule A or with respect to the Company, the address set forth in Section 12.03(b) , with such service deemed effective on the fifth (5 th ) day after the date of such mailing; and (i) agrees that a final judgment in any such action or proceeding and from which no appeal can be made shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Parties agree that any violation of this Section 12.06 shall constitute a material breach of this Agreement and shall constitute irreparable harm.
Section 12.07 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.
Section 12.08 Entire Agreement . This Agreement together with the Award Agreements, the MIP Agreement, the Holdco Agreement and the Company Governing Documents constitutes the entire agreement among the Parties pertaining to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the Parties in connection herewith and therewith, and no covenant, representation or condition not expressed in this Agreement, the MIP Agreement, any applicable Award Agreements, the Holdco Agreement or the Company Governing Documents shall affect, or be effective to interpret, change or restrict, the express provisions of this Agreement.
Section 12.09 Headings . The titles of Articles and Sections of this Agreement are for convenience only and do not define or limit the provisions hereof.
Section 12.10 Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party under this Agreement shall not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
Section 12.11 WAIVER OF JURY TRIAL . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM, ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 12.12 Amendment . Except as otherwise expressly provided herein, this Agreement may be amended, modified or supplemented, and any provision hereof may be waived, only by a written instrument duly approved by the Board and the Members that together hold, in the aggregate, at least fifty-one percent (51%) of the Class B Units and duly executed by the Manager; provided , however , that the Manager may, without the consent of any Member, amend or modify this Agreement (including Schedule A ) or waive any provision of this Agreement (other than this Section 12.12 ), and/or the Certificate of Formation pursuant to a written instrument duly approved by the Board to the extent necessary or (as determined by the
Board) desirable to issue new Class B Units, and in accordance with the terms of this Agreement and the Holdco Agreement.
Section 12.13 Confidentiality .
(a) Each of the Members shall, and shall direct those of its directors, officers, members, stockholders, partners, employees, attorneys, accountants, consultants, trustees, Affiliates and other Representatives (the Member Parties ) who have access to Confidential Information to, keep confidential and not disclose any Confidential Information without the express consent, in the case of Confidential Information acquired from the Company, of the Board or, in the case of Confidential Information acquired from another Member, such other Member, unless:
(i) such disclosure shall be required by applicable law, governmental rule or regulation, court order, administrative or arbitral proceeding;
(ii) such disclosure is reasonably required in connection with any tax audit involving the Company or any Member;
(iii) such disclosure is reasonably required in connection with any litigation against or involving the Company or any Member; or
(iv) such disclosure is reasonably required in connection with any proposed Transfer of all or any part of such Members Units in the Company; provided , that with respect to any such use of any Confidential Information referred to in this clause (iv), advance notice must be given to the Manager so that it may require any proposed Transferee that is not a Member to enter into a confidentiality agreement with terms substantially similar to the terms of this Section 12.13 (excluding this clause (iv)) prior to the disclosure of such Confidential Information.
(b) Confidential Information shall mean any information related to the activities of the Company, Holdco and its Subsidiaries and members and managers, the Members and their respective Affiliates that a Member may acquire from the Company, Holdco or its Subsidiaries, members or managers, the Manager or the Members, or their respective Representatives, other than information that (i) is already available through publicly available sources of information (other than as a result of disclosure by such Member), (ii) was available to a Member on a non-confidential basis prior to its disclosure to such Member by the Company, or (iii) becomes available to a Member on a non-confidential basis from a third party, provided such third party is not known by such Member, after reasonable inquiry, to be bound by this Agreement or another confidentiality agreement with the Company. Such Confidential Information may include information that pertains or relates to the business and affairs of any other Member or any other Company or Holdco matters. Confidential Information may be used by a Member and its Member Parties only in connection with Company matters and in connection with the maintenance of its Units in the Company.
(c) In the event that any Member or any Member Parties of such Member is required to disclose any of the Confidential Information, such Member shall use commercially reasonable efforts to provide the Company with prompt written notice so that the Company may seek a
protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement, and such Member shall use commercially reasonable efforts to cooperate with the Company in any effort any such Person undertakes to obtain a protective order or other remedy. In the event that such protective order or other remedy is not obtained, or that the Company waives compliance with the provisions of this Section 12.13 , such Member and its Member Parties shall furnish only that portion of the Confidential Information that is legally required and shall exercise all reasonable efforts to obtain reasonably reliable assurance that the Confidential Information shall be accorded confidential treatment.
(d) Notwithstanding the provisions of Section 2.11 and the foregoing provisions of this Section 12.13 , this Section 12.13 shall not apply in respect of any Member who is or has been a party to any Award Agreement or employment agreement with Holdco or any of its Subsidiaries containing provisions as to confidentiality (which shall instead govern their obligations of confidentiality); provided , that each such Member shall nevertheless also be subject to this Section 12.13 with respect to Confidential Information consisting of: (i) the terms, provisions and existence of this Agreement, the Holdco Agreement and any agreement referenced therein or herein, (ii) any information relating to the Members, the members of Holdco, the Company or their respective Affiliates (including, as applicable, the identities of such Persons, information relating to their interests in Holdco or the corporate ownership structure of Holdco, its members or the Company) and (iii) any information obtained by or provided to such Member under the Holdco Agreement or this Agreement (including pursuant to the Section 2.01 Principle) or through any Board Observer designated by EMI or the chief executive officer of Holdco, whether through such Board Observers or such chief executive officers attendance of any Board meetings or receipt of written materials distributed to each Board Observer or such chief executive officer, in each case solely in its capacity as a representative on the Board, except that any such covered information shall not be deemed to include any information presented by management of Holdco to the Board that relates to ordinary course financial or operational matters).
Section 12.14 Representation by Counsel . Each of the Parties has been represented by, or has had an opportunity to consult with, legal counsel in connection with the drafting, negotiation and execution of this Agreement. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any Party by any court or arbitrator or any Governmental Authority by reason of such Party having drafted or being deemed to have drafted such provision.
Section 12.15 Exhibits and Schedules . All Exhibits and Schedules attached to this Agreement are incorporated and shall be treated as if set forth herein.
Section 12.16 Specific Performance . The Parties acknowledge that money damages may not be an adequate remedy for breaches or violations of this Agreement and that any Party, in addition to any other rights and remedies which the Parties may have hereunder or at law or in equity, may, in its sole discretion, apply to a court of competent jurisdiction in accordance with Section 12.06 for specific performance or injunction or such other equitable relief as such court may deem just and proper in order to enforce this Agreement in the event of any breach of the provisions of this Agreement or prevent any violation hereof and, to the extent permitted by
applicable law, each Party hereby waives (a) any objection to the imposition of such relief, and (b) any requirement for the posting of any bond or similar collateral in connection therewith.
Section 12.17 Reliance on Authority of Person Signing Agreement . If a Member is not a natural person, neither the Company nor any other Member will (a) be required to determine the authority of the individual signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such individual, or (b) be responsible for the application or distribution of proceeds paid or credited to individuals signing this Agreement on behalf of such entity.
[ Signature pages follow. ]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first written above.
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EPE MANAGEMENT INVESTORS, LLC |
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EP ENERGY CORPORATION |
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THE INITIAL MANAGER (solely for the purposes of Section 2.10) : |
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EPE ACQUISITION, LLC |
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Signature Page to Third Amended and Restated Limited Liability Company Agreement
of EPE Employee Holdings, LLC
EXHIBIT A
Addendum Agreement
This Addendum Agreement (this Addendum Agreement ) is made this [ ] day of [ ] , 20 [ ] , by and between [ ] (the Transferee ), [ ] (the Transferor ), EPE Employee Holdings, LLC, a Delaware limited liability company (the Company ), and the Manager pursuant to the terms of that certain Third Amended and Restated Limited Liability Company Agreement of the Company dated as of August 30, 2013, including all exhibits and schedules thereto (the Agreement ). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
WITNESSETH :
WHEREAS, the Company and the Members entered into the Agreement to impose certain restrictions and obligations upon themselves, and to provide certain rights, with respect to the Company, the Members, the Managers and the Class B Units;
WHEREAS, the Transferee is acquiring Class B Units pursuant to a Transfer, in either case in accordance with the Agreement and any Award Agreement to which the Class B Units and/or the Transferee are subject, and in such amount as set forth in Section 4 below (the Acquired Units ); and
WHEREAS, the Agreement requires that any Person to whom Class B Units are Transferred must enter into an Addendum Agreement binding the Transferee to the Agreement to the same extent as if it were an original party thereto and imposing the same restrictions and obligations upon the Transferee and the Acquired Units as are imposed upon the Members and the Units under the Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and as a condition of the purchase or receipt by the Transferee of the Acquired Units, the Transferee acknowledges and agrees as follows:
1. The Transferee has received and read the Agreement and acknowledges that the Transferee is acquiring the Acquired Units in accordance with and subject to the terms and conditions of the Agreement and that the Acquired Units are subject to one or more Award Agreements.
2. By the execution and delivery of this Addendum Agreement, the Transferee represents and warrants to, and agrees with the Company and the Transferor that the following statements are true and correct as of the date hereof:
(a) The Transferee is holding the Acquired Units for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and the Agreement.
(b) If the Transferee is an entity, the Transferee is duly organized and validly existing under the laws of its jurisdiction of organization. If such Transferee is a natural person, such Transferee has full legal capacity.
(c) Except as expressly disclosed in writing to the Company and the other Members, the execution, delivery and performance by the Transferee of this Addendum Agreement are within the Transferees corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if the Transferee is an individual, are within such Transferees legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority on the part of the Transferee (except as expressly disclosed in writing to the Board prior to the date hereof), and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which the Transferee is a party or by which the Transferee or any of the Transferees properties is bound. This Addendum Agreement has been duly executed and delivered by the Transferee and constitutes a valid and binding agreement of the Transferee, enforceable against the Transferee in accordance with its terms, subject to the Enforceability Exceptions.
(d) The Transferee does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the execution, delivery or performance of this Addendum Agreement by the Transferee.
(e) The Transferee has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of holding the Acquired Units and being a Member. The Transferee understands that owning the Acquired Units involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for such Acquired Units, the risk of owning the Acquired Units for an indefinite period of time and the risk of losing its entire investment in the Company. The Transferee is able to bear the economic risk of such investment; is acquiring the Acquired Units for investment and solely for its own beneficial account and not with a view to or any present intention of directly or indirectly selling, Transferring, offering to sell or Transfer, participating in any distribution or otherwise disposing of all or a portion of the Acquired Units; and the Transferee acknowledges the Acquired Units have not been registered under the Securities Act or any other applicable federal or state securities laws, and that the Company has no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Acquired Units or to take action so as to permit sales pursuant to the Securities Act (including Rules 144 and 144A thereunder). The Transferee has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company and holding the Acquired Units in light of its particular tax and financial situation, and has determined that the Acquired Units are a suitable investment for the Transferee.
3. The Transferee agrees that the Acquired Units are bound by and subject to all of the terms and conditions of the Agreement, and hereby joins in, and agrees to be bound by, and
shall have the benefit of, all of the terms and conditions of the Agreement to the same extent as if the Transferee were an original party to the Agreement; provided , however , that the Transferees joinder in the Agreement shall not constitute admission of the Transferee as a Member unless and until the Company executes this Addendum Agreement confirming the due admission of the Transferee. This Addendum Agreement shall be attached to and become a part of the Agreement.
4. For good and valuable consideration, the sufficiency of which is hereby acknowledged by the Transferor and the Transferee, the Transferor hereby Transfers absolutely to the Transferee the Acquired Units, including, for the avoidance of doubt, all rights, title and interest in and to the Acquired Units, with effect from the date hereof. It is hereby confirmed by the Transferor that the Transferor has complied in all respects with the provisions of the Agreement with respect to the transfer of the Acquired Units. The number of Units currently held by the Transferor, and the number of Acquired Units to be transferred and assigned pursuant to this Addendum Agreement, are as follows:
Number of Class B Units of
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Number of Acquired Units of
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5. The Transferee hereby agrees to accept the Acquired Units and hereby agrees and consents to become a Member and hereby is admitted as a Member.
6. Any notice, request or other communication required or permitted to be delivered to the Transferee pursuant to the Agreement shall be given to the Transferee at the address and/or facsimile number listed beneath the Transferees signature below.
7. This Addendum Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
[ Remainder of Page Intentionally Left Blank . ]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.
THE COMPANY: |
EPE EMPLOYEE HOLDINGS, LLC |
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By its manager: EP ENERGY CORPORATION
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TRANSFEROR: |
[INSERT NAME] |
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TRANSFEREE: |
[INSERT NAME] |
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By: |
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[INSERT TRANSFEREES ADDRESS] |
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Exhibit 10.35
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
EPE MANAGEMENT INVESTORS, LLC
A DELAWARE LIMITED LIABILITY COMPANY
DATED AS OF AUGUST 30, 2013
THE UNITS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE AFORESAID ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER, AND IN COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
SUCH UNITS ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THIS AGREEMENT, CERTAIN SECURED PROMISSORY NOTE AND PLEDGE AGREEMENTS AND THE STOCKHOLDERS AGREEMENT, DATED AS OF AUGUST 30, 2013, BY AND AMONG EP ENERGY CORPORATION AND THE OTHER PARTIES THERETO, AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME.
TABLE OF CONTENTS
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ARTICLE I |
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DEFINITIONS AND USAGE |
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Section 1.01 |
Definitions |
2 |
Section 1.02 |
Terms and Usage Generally |
11 |
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ARTICLE II |
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THE COMPANY |
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Section 2.01 |
Formation |
12 |
Section 2.02 |
Name |
13 |
Section 2.03 |
Qualification; Filings |
13 |
Section 2.04 |
Term |
13 |
Section 2.05 |
Registered Agent and Registered Office |
13 |
Section 2.06 |
Purposes |
13 |
Section 2.07 |
Powers of the Company |
13 |
Section 2.08 |
Partnership Status |
14 |
Section 2.09 |
Ownership of Property |
14 |
Section 2.10 |
Resignation and Replacement of the Initial Manager |
14 |
Section 2.11 |
Coordination Between the Members and Holdco |
14 |
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ARTICLE III |
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BOOKS AND RECORDS; MEMBERS |
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Section 3.01 |
Tax and Accounting Information; Banking |
15 |
Section 3.02 |
Admission of Members |
16 |
Section 3.03 |
Books and Records |
17 |
Section 3.04 |
Limited Voting Rights of Members |
17 |
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ARTICLE IV |
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UNITS |
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Section 4.01 |
Authorization and Issuance of Class A Units |
18 |
Section 4.02 |
Issuances of Additional Units |
19 |
Section 4.03 |
Certificates |
19 |
Section 4.04 |
Preemptive Rights |
20 |
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ARTICLE V |
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CAPITAL CONTRIBUTIONS; |
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DISTRIBUTIONS AND ALLOCATIONS |
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Section 5.01 |
Capital Contributions |
21 |
Section 5.02 |
Capital Accounts |
21 |
Section 5.03 |
Distributions |
23 |
TABLE OF CONTENTS
(Continued)
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Section 5.04 |
Allocations |
23 |
Section 5.05 |
Other Allocation Rules |
26 |
Section 5.06 |
Tax Withholding; Withholding Advances |
28 |
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ARTICLE VI |
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CERTAIN TAX MATTERS |
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Section 6.01 |
Tax Matters Partner |
30 |
Section 6.02 |
U.S. Federal Income Tax Classification of the Company |
30 |
Section 6.03 |
Section 83(b) Elections |
30 |
Section 6.04 |
Safe Harbor |
30 |
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ARTICLE VII |
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MANAGEMENT OF THE COMPANY |
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Section 7.01 |
Management of the Company by the Manager |
31 |
Section 7.02 |
Resignation |
31 |
Section 7.03 |
Agency Authority of Managers and Officers |
31 |
Section 7.04 |
Limited Liability |
32 |
Section 7.05 |
Appointment of Board Observers |
32 |
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ARTICLE VIII |
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TRANSFERS OF UNITS |
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Section 8.01 |
Restrictions on Transfers |
32 |
Section 8.02 |
Tag-Along Rights |
34 |
Section 8.03 |
Drag-Along Rights |
35 |
Section 8.04 |
Registration Rights |
36 |
Section 8.05 |
Repurchase |
36 |
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ARTICLE IX |
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REPRESENTATIONS AND WARRANTIES; |
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CERTAIN OTHER AGREEMENTS |
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Section 9.01 |
Representations and Warranties of the Company |
38 |
Section 9.02 |
Representations and Warranties of the Members |
39 |
Section 9.03 |
Fiduciary Duties; Competing Activities |
40 |
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ARTICLE X |
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LIMITATION ON LIABILITY; EXCULPATION |
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AND INDEMNIFICATION |
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Section 10.01 |
Limitation on Liability |
41 |
Section 10.02 |
Exculpation and Indemnification |
41 |
TABLE OF CONTENTS
(Continued)
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Section 10.03 |
Insurance |
43 |
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ARTICLE XI |
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DISSOLUTION AND TERMINATION |
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Section 11.01 |
Dissolution |
43 |
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Section 11.02 |
Winding Up of the Company |
44 |
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Section 11.03 |
Distribution of Property |
44 |
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Section 11.04 |
Termination |
44 |
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Section 11.05 |
Survival |
44 |
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ARTICLE XII |
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MISCELLANEOUS |
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Section 12.01 |
Expenses |
44 |
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Section 12.02 |
Further Assurances |
45 |
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Section 12.03 |
Notices |
45 |
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Section 12.04 |
No Third Party Beneficiaries |
46 |
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Section 12.05 |
Waiver; Cumulative Remedies |
46 |
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Section 12.06 |
Governing Law; Consent to Jurisdiction |
46 |
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Section 12.07 |
Counterparts |
47 |
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Section 12.08 |
Entire Agreement |
47 |
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Section 12.09 |
Headings |
47 |
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Section 12.10 |
Severability |
47 |
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Section 12.11 |
WAIVER OF JURY TRIAL |
48 |
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Section 12.12 |
Amendment |
48 |
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Section 12.13 |
Confidentiality |
48 |
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Section 12.14 |
Representation by Counsel |
50 |
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Section 12.15 |
Exhibits and Schedules |
50 |
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Section 12.16 |
Specific Performance |
50 |
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Section 12.17 |
Reliance on Authority of Person Signing Agreement |
50 |
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SCHEDULE A |
MEMBERS |
A-1 |
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SCHEDULE B |
Capital Accounts |
B-1 |
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EXHIBIT A |
Addendum Agreement |
A-1 |
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THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
EPE MANAGEMENT INVESTORS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This Third Amended and Restated Limited Liability Company Agreement (as amended, supplemented or modified from time to time, this Agreement ) of EPE Management Investors, LLC, a Delaware limited liability company (the Company ), dated as of August 30, 2013, by and among the Company, the Members, the Manager and, solely for the purpose of Section 2.10 , EPE Acquisition, LLC, a Delaware limited liability company (solely in such capacity, the Initial Manager ). Unless otherwise specified, capitalized terms used herein shall have the respective meanings set forth in Article I . The Company, the Members and the Manager are sometimes collectively referred to herein as the Parties and each is sometimes referred to herein as a Party .
RECITALS
WHEREAS, the Company was formed pursuant to the Delaware Act by the filing of the Certificate of Formation of the Company with the Secretary of State of the State of Delaware on March 26, 2012 (the Certificate of Formation );
WHEREAS, the Company was formed for the sole purpose of holding certain capital interests in EPE Acquisition, LLC and any successor entity to EPE Acquisition, LLC;
WHEREAS, the Initial Manager and the Members or their predecessors in interest (as the case may be), entered into that certain Second Amended and Restated Limited Liability Company Agreement of the Company dated as of May 24, 2012 (the Prior Agreement );
WHEREAS, EPE Acquisition, LLC has been restructured to form a new corporate holding structure for its operating business;
WHEREAS, as a result of such restructuring, EP Energy Corporation, a Delaware corporation, became the parent entity of EPE Acquisition, LLC (EP Energy Corporation and any successor entity thereto, Holdco );
WHEREAS, the parties to the Prior Agreement or their successors in interest (as the case may be) desire to amend the Prior Agreement to reflect such restructuring and the resulting successor entity;
WHEREAS, pursuant to the Prior Agreement and in accordance with the Delaware Act, the Initial Manager has agreed to resign from the Company as the Initial Manager and appoint Holdco as the replacement Manager of the Company; and
WHEREAS, the Parties desire that this Agreement be the Companys limited liability company agreement, as such term is defined in Section 18-101(7) of the Delaware Act.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties, acting pursuant to the Delaware Act, agree that this Agreement shall govern the relationship between the Company, the Members and the Manager and do hereby amend and restate the Prior Agreement in its entirety as follows:
ARTICLE I
DEFINITIONS AND USAGE
Section 1.01 Definitions .
(a) The following terms shall have the following meanings for the purposes of this Agreement:
Additional Member means any Person admitted as a Member of the Company after the Restructuring Date in connection with the issuance of Units by the Company to such Person in accordance with Section 3.02(b) who is not listed on Schedule A as of the date hereof.
Adjusted Capital Account Deficit means, with respect to any Member, the deficit balance, if any, in such Members Capital Account as of the end of the relevant Allocation Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts that such Member is deemed to be obligated to restore pursuant to the respective penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Affiliate means, with respect to a specified Person, a Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person; provided , that for the purposes hereof, neither the Company nor the Manager shall be treated as an Affiliate of any Member.
Allocation Year means (i) the period commencing on April 24, 2012 and ending on December 31, 2012, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in clauses (i) or (ii) for which the Company is required to allocate Net Income, Net Loss and other items of Company income, gain, loss or deduction pursuant to Article V .
Applicable Obligations has the meaning set forth in the Holdco Agreement.
Applicable Rights has the meaning set forth in the Holdco Agreement.
Applicable Understandings has the meaning set forth in the Holdco Agreement.
Award Agreement has the meaning set forth in the Holdco Agreement.
Board means the board of directors of Holdco or any similar governing body of any successor entity.
Board Observers means the Board Observers (as defined in the Holdco Agreement) designated by the Company pursuant to Section 5.04(a) of the Holdco Agreement.
Business Day has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Capital Account means the capital account established and maintained for each Member pursuant to Section 5.02 .
Capital Contribution means, with respect to any Member, the amount of money or promissory obligations contributed or, to the extent provided herein, deemed contributed to the Company and the initial Carrying Value of any Property (other than money) contributed to the Company with respect to the Units held by such Member as of such date.
Capital Interest Percentage means, with respect to any Member, as of any date of determination and as determined in good faith by the Manager, the percentage of the total distributions that would be made to such Member if the assets of the Company were sold for their Carrying Values, all liabilities of the Company were paid in accordance with their terms, all Management Loans were satisfied, all items of Net Income and Net Loss were allocated to the Members in accordance with Article V , and the resulting net proceeds were distributed to the Members in accordance with Article XI ; provided , however , that the Manager may determine that the Members Capital Interest Percentages should be determined based upon a hypothetical sale of the assets of the Company for their respective Fair Market Values (instead of Carrying Values) in order to ensure that such percentages correspond to the Members proportionate interests in partnership capital as defined in Treasury Regulation Section 1.613A-3(e)(2)(ii). The foregoing definition of Capital Interest Percentage is intended to result in a percentage that corresponds with that defined as partners proportionate interest in partnership capital in Treasury Regulation Section 1.613A-3(e)(2)(ii), and Capital Interest Percentage shall be interpreted consistently therewith.
Carrying Value means with respect to any Property (other than money), such Propertys adjusted basis for federal income tax purposes, except as follows:
(i) The initial Carrying Value of any such Property contributed by a Member to the Company shall be the Fair Market Value of such Property;
(ii) The Carrying Values of all such Properties shall be adjusted to equal their respective Fair Market Values (taking Section 7701(g) of the Code into account), at the time of any Revaluation pursuant to Section 5.02(c) ;
(iii) The Carrying Value of any item of such Properties distributed to any Member shall be adjusted to equal the Fair Market Value (taking Section 7701(g) of the Code into account) of such Property on the date of distribution; and
(iv) The Carrying Values of such Properties shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such Properties pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of Net Income and Net Loss or Section 5.04(b)(vi) ; provided , however , that Carrying Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Carrying Value of such Property has been determined or adjusted pursuant to subparagraph (i), (ii) or (iv), such Carrying Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Net Income and Net Loss and for purposes of computing Simulated Depletion.
Cause as to any Member has the meaning assigned to such term in an employment agreement, if any, between Holdco or one of its Subsidiaries and such Member; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the term Cause, then Cause has the meaning set forth in the Award Agreement between such Member and EEH.
Code means the Internal Revenue Code of 1986, as amended.
Company Governing Documents has the meaning set forth in the Holdco Agreement.
Company Minimum Gain means partnership minimum gain, as defined in Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).
control has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Covered Person means (i) each Member or an Affiliate thereof, in each case in such capacity, (ii) each Representative of the Company in such capacity, (iii) each executive officer or authorized agent of the Company in such capacity, and (iv) the Manager, Holdco and each of their respective Affiliates, in each case, in such capacity.
Delaware Act means the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq .
Depletable Property means each separate oil and gas property as defined in Section 614 of the Code held by the Company directly or indirectly through Holdco.
Depreciation means, for each Allocation Year, an amount equal to the depreciation, amortization, or other cost recovery deduction (other than Simulated Depletion) allowable with respect to an asset for such Allocation Year, except that if the Carrying Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount that bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided , however , that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the Manager.
Disability as to any Member has the meaning assigned to such term in an employment agreement, if any, between the Holdco or one of its Subsidiaries and such Member; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the terms Disability then Disability has the meaning set forth in the Award Agreement between such Member and EEH.
Drag-Along Notice has the meaning set forth in the Holdco Agreement.
Drag-Along Purchaser has the meaning set forth in the Holdco Agreement.
Drag-Along Sale has the meaning set forth in the Holdco Agreement.
Drag-Along Terms has the meaning set forth in the Holdco Agreement.
EEH means EPE Employee Holdings, LLC, a Delaware limited liability company.
EEH Agreement has the meaning set forth in the Holdco Agreement.
Eligible Member means each Member that, as of the applicable date, is a holder of Class A Units.
Enforceability Exceptions means (i) any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors rights generally, and (ii) any legal principles of general applicability governing the availability of equitable remedies, including principles of commercial reasonableness, good faith and fair dealing (whether considered in a proceeding in equity or at law or under applicable legal codes).
Equity Security has the meaning ascribed to such term in Rule 405 under the Securities Act, and in any event, includes any security having the attendant right to vote for directors or similar representatives and any general or limited partner interest in any Person.
Fair Market Value has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Fiscal Year has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
GAAP has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Good Reason as to any Member has the has the meaning assigned to such term in an employment agreement, if any, between the Holdco or one of its Subsidiaries and such Member; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the term Good Reason, then Good Reason has the meaning set forth in the Award Agreement between such Member and EEH.
Governmental Authority has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Holdco Agreement means the Stockholders Agreement, dated as of August 30, 2013, by and among Holdco and the other parties thereto, as amended, restated, supplemented or modified from time to time.
Holdco A Shares means Class A Shares as defined in the Holdco Agreement.
Holdco Certificate of Incorporation means the Amended and Restated Certificate of Incorporation of Holdco, filed with the Secretary of State of the State of Delaware on August 30, 2013 (as may be amended, restated or modified from time to time).
Holdco Securities means Additional Securities as defined in the Holdco Agreement.
Initial Member means EPE Acquisition, LLC, a Delaware limited liability company, solely in its capacity as the sole member of the Company prior to the execution and delivery of the Prior Agreement.
IPO has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
IRS means the Internal Revenue Service of the United States.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.
Losses means, with respect to any indemnity specified herein, the amount of any liability, loss, cost, expense, claim, award, judgment, settlement, obligation, damage, injury, tax, fine, Lien, penalty or deficiency incurred or suffered by any Person entitled to indemnification hereunder arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise, including interest thereon and reasonable fees, expenses and disbursements of attorneys, consultants, accountants or other Representatives and experts incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.
Management Loans has the meaning set forth in the Holdco Agreement.
Maximum Tag-Along Portion has the meaning set forth in the Holdco Agreement.
Member means any Person named as a member (as such term is defined in the Delaware Act) of the Company on Schedule A and on the books and records of the Company, as the same may be amended from time to time to reflect any Person admitted as an Additional Member or a Substitute Member, for so long as such Person continues to be a member of the Company. For the avoidance of doubt, no Person who has not been issued Class A Units by the Company (except for any Substitute Member) shall be a Member.
Member Nonrecourse Debt has the same meaning as the term partner nonrecourse debt in Treasury Regulations Section 1.704-2(b)(4).
Member Nonrecourse Debt Minimum Gain means an amount with respect to each partner nonrecourse debt (as defined in Treasury Regulation Section 1.704-2(b)(4)) equal to the Company Minimum Gain that would result if such partner nonrecourse debt were treated as a nonrecourse liability (as defined in Treasury Regulation Section 1.752-1(a)(2)) determined in accordance with Treasury Regulation Section 1.704-2(i)(3).
Member Nonrecourse Deductions has the same meaning as the term partner nonrecourse deductions in Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
MIP Agreement has the meaning set forth in the Holdco Agreement.
Net Income and Net Loss mean, for each Allocation Year, an amount equal to the Companys taxable income or loss for such Allocation Year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments (without duplication):
(i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income and Net Loss shall be added to such taxable income or loss;
(ii) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income and Net Loss pursuant to this definition of Net Income and Net Loss, shall be subtracted from such taxable income or loss;
(iii) In the event the Carrying Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Carrying Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Carrying Value of the asset) or an item of loss (if the adjustment decreases the Carrying Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Net Income and/or Net Loss;
(iv) Gain or loss resulting from any disposition of Property (other than Depletable Property) with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Carrying Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Carrying Value;
(v) Gain resulting from any disposition of a Depletable Property with respect to which gain is recognized for U.S. federal income tax purposes shall be treated as being equal to the corresponding Simulated Gain;
(vi) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Year, computed in accordance with the definition of Depreciation;
(vii) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Members limited liability company interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Net Income or Net Loss; and
(viii) Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to Section 5.04(b) or Section 5.04(c) shall not be taken into account in computing Net Income and Net Loss.
The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 5.04(b) or Section 5.04(c) shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vii) above.
Nonrecourse Deductions has the meaning set forth in Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c).
Original LLC Agreements means, collectively, the Limited Liability Company Agreement of the Company dated as of March 26, 2012, the Amended and Restated Limited Liability Company Agreement of the Company dated as of April 24, 2012, and the Prior Agreement.
Original Cost means, at any given time with respect to the Holdco A Shares attributable to the Class A Units held at such time by a Member or its Permitted Transferees, the per Unit amount equal to the quotient of (a) the sum of (i) the cash amount paid by the Member to the Company to purchase such Class A Units and (ii) the amount of principal, if any, previously repaid by the Member under a Management Loan that was obtained to purchase such Class A Units divided by (b) the number of Class A Units held by the Member at such time.
Percentage Interest means, as of any date of determination, with respect to any Member, a fraction, expressed as a percentage, the numerator of which is the number of Class A Units or other Units (as applicable) held by such Member as of such date and the denominator of which is the aggregate number of Class A Units or other Units (as applicable) held by all of the Members as of such date.
Person means any individual, firm, corporation, partnership, limited liability company, trust, estate, joint venture, Governmental Authority or other entity.
Prime Rate means the rate of interest from time to time identified by the Wall Street Journal as being the prime or reference rate.
Property means an interest of any kind in any real or personal (or mixed) property, including cash, and any improvements thereto, and shall include both tangible and intangible property.
Registration Rights Agreement means the Registration Rights Agreement referred to in the Restructuring Agreement.
Representatives means with respect to any specified Person, such Persons current, former or future (as applicable) officers, directors, managers, shareholders, partners, members, equity holders, parents, agents, employees, representatives (including attorneys, accountants, consultants, bankers and financial advisors of such Person or its Affiliates) and Affiliates (including, with respect to any Member, any Manager(s) designated by such Member).
Restructuring means the consummation of the transactions contemplated by the Restructuring Agreement.
Restructuring Agreement has the meaning set forth in the Holdco Agreement.
Restructuring Date means the date on which the Restructuring occurs pursuant to the Restructuring Agreement (which, for avoidance of doubt, is August 30, 2013).
Section 2.01 Principle has the meaning set forth in the Holdco Agreement.
Securities means any stock, shares, units, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as securities or any certificates of interest, shares or participations in temporary or interim certificates for purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
Securities Act means the United States Securities Act of 1933 (as amended) and the rules and regulations thereunder.
Series Sharing Percentage means, as of any date of determination, with respect to a series of Class A Units and any Member, a fraction, expressed as a percentage, the numerator of which is the number of Class A Units of such series held by such Member as of such date, and the denominator of which is the aggregate number of Class A Units of such series held by all Members holding such series of Class A Units as of such date.
Simulated Basis means the Carrying Value of any Depletable Property.
Simulated Depletion means, with respect to each Depletable Property, a depletion allowance computed in accordance with U.S. federal income tax principles (as if the Simulated Basis of the property were its adjusted tax basis) and in the manner specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
Simulated Gain means the amount of gain realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
Simulated Loss means the amount of loss realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
Subscription Agreement has the meaning set forth in the Holdco Agreement.
Subsidiary has the meaning set forth in the Holdco Certificate of Incorporation, as in effect on the Restructuring Date.
Substitute Member means any Person admitted as a Member pursuant to Section 3.02(b) in connection with the Transfer of then-existing Units to such Person.
Tag-Along Notice has the meaning set forth in the Holdco Agreement.
Tag-Along Sale has the meaning set forth in the Holdco Agreement.
Tag-Along Seller has the meaning set forth in the Holdco Agreement.
Transfer means any sale, assignment, transfer, exchange, gift, bequest, pledge, hypothecation or other disposition or encumbrance, direct or indirect, in whole or in part, by operation of law or otherwise, and shall include all matters deemed to constitute a Transfer under Article VIII . The terms Transferred , Transferring , Transferor , Transferee and Transferable have meanings correlative to the foregoing.
Treasury Regulations mean the regulations promulgated under the Code.
Unit means a Members limited liability company interest in the Company representing a fractional part of the limited liability company interests in the Company of all Members; provided , that any type, class or series of Units shall have the designations, preferences and/or special rights set forth or referenced in this Agreement with respect to such type, class or series of Units, and the limited liability company interest in the Company represented by such type, class or series of Units shall be determined in accordance with such designations, preferences and/or special rights.
(b) As used in this Agreement, each of the following capitalized terms shall have the meaning described to them in the Section set forth opposite such term:
Term |
|
Section |
Additional Purchase Right |
|
4.04(b) |
Additional Securities |
|
4.04(a) |
Term |
|
Section |
Agreement |
|
Preamble |
Certificate of Formation |
|
Recitals |
Class |
|
4.01 |
Class A Units |
|
4.01 |
Company |
|
Preamble |
Confidential Information |
|
12.13(b) |
Covered Investor |
|
9.03(a) |
Dissolution Event |
|
11.01(c) |
Family Member |
|
8.01(c) |
Final Determination |
|
8.05(c)(ii) |
Flow-Through Distributions |
|
5.03(a) |
Holdco |
|
Recitals |
Holder |
|
8.05(c)(i) |
Independent Valuation Firm |
|
8.05(c)(ii) |
Management Loan |
|
5.03(b) |
Manager |
|
7.01 |
Member Parties |
|
12.13(a) |
Notice Period |
|
8.05(c)(ii) |
Parties |
|
Preamble |
Party |
|
Preamble |
Permitted Transfer |
|
8.01(c) |
Permitted Transferee |
|
8.01(c) |
Preemptive Notice |
|
4.04(b) |
Preemptive Right |
|
4.04(a) |
Prior Agreement |
|
Recitals |
Proposed Guidance |
|
6.04 |
Regulatory Allocations |
|
5.04(c) |
Repurchase Notice |
|
8.05(c)(i) |
Revaluation |
|
5.02(c) |
Safe Harbor |
|
6.04 |
Subject Units |
|
8.05(c)(i) |
Subject Unit Purchase Price |
|
8.05(c)(i) |
Tag-Along Member |
|
8.02(a) |
Tag-Along Rights |
|
8.02(a) |
Tax Matters Partner |
|
6.01 |
Trigger Date |
|
8.05(c)(i) |
Valuation Dispute |
|
8.05(c)(ii) |
Withholding Advances |
|
5.06(b) |
Section 1.02 Terms and Usage Generally . The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed to be references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. The terms clause(s) and subparagraph(s) shall be used herein
interchangeably. The words include, includes and including shall be deemed to be followed by the phrase without limitation. All accounting terms not defined in this Agreement shall have the meanings determined by GAAP. The words hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to a Person are also to its permitted successors and permitted assigns. Unless otherwise expressly provided herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified, supplemented or restated, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Each reference herein (other than in any Schedule or Exhibit) to Unit numbers or amounts shall be appropriately adjusted for any Unit split, recapitalization, recombination, reclassification or the like with respect to such Units occurring after the date hereof. Any references herein to US$, $ or dollars shall mean U.S. dollars shall be made in U.S. dollars. Any references herein to the date hereof shall mean August 30, 2013.
ARTICLE II
THE COMPANY
Section 2.01 Formation .
(a) The Members hereby agree to continue the Company as a limited liability company pursuant to the Delaware Act, upon the terms and subject to the conditions set forth in this Agreement.
(b) The Company was formed as a Delaware limited liability company pursuant to the Delaware Act by the filing of the Certificate of Formation with the Secretary of State of the State of Delaware on March 26, 2012. The Members and the Manager hereby agree that the Company shall be governed by, and the rights, duties and liabilities of the Members and the Manager shall be as provided in, the Delaware Act and this Agreement. To the extent that the rights or obligations of any Member or the Manager are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Delaware Act, control.
(c) Carson Sieving, as an authorized person within the meaning of the Delaware Act, has executed, delivered and filed the Certificate of Formation with the Secretary of State of the State of Delaware and the Members hereby ratify and approve in all respects such execution, delivery and filing of the Certificate of Formation by such authorized person. Upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware, her powers as an authorized person ceased.
(d) The Members hereby ratify and approve the Initial Members execution of consents, agreements, documents and instruments, as applicable, on the Companys behalf and the filing of forms and documents with Governmental Authorities and agencies prior to the execution of the Prior Agreement.
Section 2.02 Name . The name of the Company shall be EPE Management Investors, LLC. Subject to all applicable laws, all business of the Company shall be conducted in such name or under such other name or names as the Manager shall determine to be necessary or appropriate. The Manager shall cause to be filed on behalf of the Company such assumed or fictitious name certificates or similar instruments as may from time to time be required by law.
Section 2.03 Qualification; Filings . The Manager shall cause any authorized person within the meaning of the Delaware Act to file and record any amendments and/or restatements to the Certificate of Formation and such other certificates and documents (and any amendments or restatements thereof) as may be required under the laws of the State of Delaware and of any other jurisdiction in which the Company may conduct business. The Manager shall have authority to cause the Company to be qualified, formed, reformed or registered in any jurisdiction in which the Company transacts business if such qualification, formation, reformation or registration is necessary or desirable in order to protect the limited liability of the Members or to permit the Company lawfully to transact business in such jurisdiction, including under any assumed or fictitious name statutes or similar laws in any such jurisdiction.
Section 2.04 Term . The term of the Company began on March 26, 2012, the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware, and the Company shall have perpetual existence unless sooner dissolved and its affairs wound up as provided in Article XI .
Section 2.05 Registered Agent and Registered Office . The name of the registered agent of the Company for service of process on the Company in the State of Delaware shall be The Corporation Trust Company, and the address of such registered agent and the address of the registered office of the Company in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. Such office and such agent may be changed to such place within the State of Delaware and any successor registered agent, respectively, as may be determined from time to time by the Manager in accordance with the Delaware Act.
Section 2.06 Purposes . The Company has been formed for the exclusive purpose of owning certain Equity Securities in Holdco and those activities necessarily incidental thereto.
Section 2.07 Powers of the Company . The Company shall have the power and authority to take any and all actions necessary, appropriate or advisable to or for the furtherance of the purposes set forth in Section 2.06 .
Section 2.08 Partnership Status . Subject to Section 6.02 , the Members intend that the Company shall be treated as a partnership for federal, state and local tax purposes to the extent such treatment is available, and agree to take such actions as may be necessary to receive and maintain such treatment and refrain from taking any actions inconsistent therewith; provided , however , that the Members intend that the Company shall not be a partnership (including a limited partnership) or joint venture, and that no Member shall be a partner or joint venturer of any other Member, for any purposes other than federal, state and local tax purposes, and this Agreement shall not be construed to suggest otherwise.
Section 2.09 Ownership of Property . Legal title to all Property, conveyed to, or held by the Company shall reside in the Company and shall be conveyed only in the name of the Company and no Member or any other Person, individually, shall have any ownership of such Property.
Section 2.10 Resignation and Replacement of the Initial Manager . Pursuant to Section 7.02 of the Prior Agreement, and in accordance with the Delaware Act, the Initial Manager hereby resigns from the Company and appoints Holdco as the replacement manager of the Company, upon the execution of this Agreement, and Holdco hereby accepts that appointment.
Section 2.11 Coordination Between the Members and Holdco . The Company has been formed as a special purpose investment vehicle through which the Members indirectly invest in Holdco. In accordance with the Section 2.01 Principle, the Parties agree and acknowledge that:
(a) the Company may exercise, enforce or seek the benefit of any of its Applicable Rights with respect to one or more of the Members pursuant to the Section 2.01 Principle;
(b) the Company is expected to take any and all actions with respect to one or more of the Members reasonably necessary to allow the Company to comply with or satisfy its Applicable Obligations, in each case, pursuant to the Section 2.01 Principle;
(c) the Company may recognize and give effect to any Applicable Understanding with respect to one or more of the Members pursuant to the Section 2.01 Principle; and
(d) whenever the Company has the right to vote on, consent to, approve or has been afforded any other similar rights with respect to any matter under the Holdco Agreement or the Company Governing Documents, the Companys vote, consent, approval or exercise of such other similar right shall be cast or exercised on a look-through basis, as though each Member providing instructions (as contemplated below) was exercising such vote, consent, approval or similar right directly in accordance with the Section 2.01 Principle and, in each case, based on each such Members instructions to the Company with respect to such vote, consent, approval or other similar right; provided , that to the extent the Company is obligated to vote, consent approve or exercise such other similar right in a specific manner pursuant to the Holdco Agreement, the Manager shall vote the Companys Holdco A Shares, consent, approve or exercise such other similar right in such manner in accordance with the Section 2.01 Principle, without the need to receive instructions from, or consult, any Member.
Each Member agrees to take any and all such actions requested by the Manager as are reasonably necessary to allow the Company to effect the foregoing and to enable the Company to satisfy the obligations and liabilities imposed on the Company under the Holdco Agreement.
ARTICLE III
BOOKS AND RECORDS; MEMBERS
Section 3.01 Tax and Accounting Information; Banking .
(a) Accounting Method . For financial reporting purposes, the books and records of the Company shall be kept on the accrual method of accounting and in accordance with GAAP, in each case, applied in a consistent manner and such books and records shall reflect all Company transactions.
(b) Tax Returns .
(i) The Company shall timely cause to be prepared by a nationally recognized accounting firm (chosen by the Manager in its sole discretion) all federal, state, local and foreign tax returns (including information returns) of the Company, which may be required by a jurisdiction in which the Company operates or conducts business for each year or period for which such returns are required to be filed and shall cause such returns to be timely filed.
(ii) Within ninety (90) days after the end of each Fiscal Year, the Company shall furnish to each Person that was a Member during such Fiscal Year all information required to be reported in the tax returns of such Person for tax jurisdictions in which the Company is doing business, including a report (including Schedule K-1, if applicable) indicating such Persons share in the Companys taxable income, gain, credits, losses and deductions for such year, in sufficient detail to enable such Person to prepare its federal, state and other tax returns. The Manager shall provide each such Person with an estimate of such information by March 1 of the following Fiscal Year. The Manager shall provide each such Person with sufficient information for such Person to pay estimated taxes with respect to the Company at least fifteen (15) days before such estimated taxes are due. The Manager will provide each current or former Member with any information reasonably requested by such Member in connection with the filing of any tax return by such Member or an Affiliate of such Member, any tax audit or proceeding relating to such Member or an Affiliate of such Member or any tax planning of such Member or an Affiliate of such Member.
(c) Inconsistent Positions; Audits . No Member shall take a position on its income tax return with respect to any item of Company income, gain, deduction, loss or credit that is different from the position taken on the Companys income tax return with respect to such item, as reflected on the applicable Schedule K-1 provided to such Member. If any current or former Member or any Affiliate of a current or former Member would be materially adversely affected by any audit or administrative or judicial proceeding with respect to the Company, the Manager shall (to the extent practicable under the circumstances) consult with such Member in good faith in connection with the negotiation, settlement or the making of any material decision with respect to such audit or proceeding. The Manager shall provide to such Member any information reasonably requested by such Member in connection with any such audit or proceeding.
(d) Bank Accounts . The Manager shall cause one or more bank accounts to be maintained in the name of the Company in such bank or banks as may be determined by the Manager, which accounts shall be used for the payment of expenditures incurred by the Company and in which shall be deposited any and all receipts of the Company. All such receipts shall be and remain the property of the Company, shall be received, held and disbursed by the Company at the times determined by the Manager (in its sole discretion) for the purposes specified in this Agreement and shall not be commingled with the funds of any other Person.
Section 3.02 Admission of Members .
(a) The name, address, Capital Contributions, class and number of Units held of record of each Member, and the respective Percentage Interest and Series Sharing Percentage of each Member shall be set forth on Schedule A . Notwithstanding anything to the contrary in this Agreement, when any Units are issued, repurchased (including as a result of any repurchase of such Class A Units pursuant to Section 8.03(b) ), or Transferred in accordance with this Agreement, the Manager shall cause the Company to promptly thereafter amend Schedule A and the books and records of the Company to reflect such issuance, repurchase, or Transfer, the admission of Additional Members or Substitute Members and the resulting Percentage Interest and Series Sharing Percentage of each Member and no consent of any Member shall be required in connection with any such amendment.
(b) No Transferee of any Units shall be admitted as a Member hereunder or acquire any rights hereunder, including any voting rights or the right to receive distributions and allocations in respect of the Transferred Units unless (i) such Units are Transferred in compliance with the provisions of this Agreement (including Article VIII ) and (ii) such Transferee shall have executed and delivered to the Company such instruments as the Manager deems necessary or desirable, in its reasonable discretion, to effectuate the admission of such Transferee as a Member and to confirm the agreement of such Transferee to be bound by all the terms and provisions of this Agreement, including an Addendum Agreement; provided , that such Transferor shall not be relieved of any obligation or liability hereunder arising prior to the consummation of such Transfer but shall be relieved of all future obligations with respect to the Units so Transferred. No Person to whom Units are issued pursuant to this Agreement shall be admitted as a Member hereunder or acquire any rights hereunder, including any voting rights or the right to receive distributions and allocations in respect such Units, as applicable, unless (i) such Units are issued in compliance with the provisions of this Agreement (including this Section 3.02(b) ) and (ii) such Person shall have executed and delivered to the Company such instruments as the Manager deems necessary or desirable, in its reasonable discretion, to effectuate the admission of such Person as a Member and to confirm the agreement of such Person to be bound by all the terms and provisions of this Agreement, including an Addendum Agreement. As promptly as practicable after the admission of any Person as a Member, the books and records of the Company shall be changed to reflect such admission of a Substitute Member or Additional Member. Notwithstanding anything to the contrary herein, including Section 12.12 , in the event of any admission of a Substitute Member or Additional Member pursuant to this Section 3.02(b) , this Agreement shall be deemed amended to reflect such admission, and any formal amendment of this Agreement (including Schedule A attached hereto) in connection therewith shall only require execution by the Company, the Manager and such Substitute Member or Additional Member, as applicable, to be effective.
(c) If a Member shall Transfer all (but not less than all) its Units, the Member shall thereupon cease to be a Member of the Company; provided , however , that notwithstanding the foregoing, such Member shall continue to be bound by the provisions of Section 12.13 .
(d) The spouse, if any, of each Person set forth on Schedule A who is executing this Agreement on the date hereof shall execute on the date hereof, or if such Person marries a spouse after the date hereof such spouse shall promptly thereafter execute, the spousal consent set forth on the signature page of such Person attached hereto to evidence such spouses agreement and consent to be bound by the terms and conditions of this Agreement as to such spouses interest, whether as community property or otherwise, in Units, if any, of such Person, and, if such Persons spouse fails to execute such spousal consent, such Person shall not have any rights, if any, under this Agreement (including with respect to any Units) until such time as such spousal consent is duly executed.
Section 3.03 Books and Records . During regular business hours, upon reasonable notice and in a manner that does not unreasonably interfere with the business of the Company, each Member shall, at such Members own expense, have access to inspect the Companys books and records at the Companys principal office or at such other offices of the Company where such records are kept. It is acknowledged, understood and agreed that the information contained on Schedules A and B of this Agreement, Schedule A of the Subscription Agreement, Schedules A and B of the EEH Agreement and Schedule A of the MIP Agreement, each as amended from time to time, other than the names and addresses of the Members, the aggregate number of Units issued, the aggregate Capital Account balance, and information on the applicable Schedule that is opposite the name of the requesting Person, shall not be provided to any Member (other than a Member who is (i) the chief executive officer or chief financial officer of Holdco or (ii) an employee of Holdco or any of its Subsidiaries who the chief executive officer or chief financial officer of Holdco has determined needs to know the information on such schedules in order to carry out the functions of such employees employment with Holdco or any of its Subsidiaries) for the purpose of preserving privacy with respect to Unit ownership of the Members and the ownership of Holdco and its members, unless the Manager determines otherwise.
Section 3.04 Limited Voting Rights of Members .
(a) Except as otherwise provided in this Agreement or as otherwise required by law, any matter requiring the vote, approval or consent of the Members shall be approved or consented to by a written instrument indicating such vote, consent or approval duly executed by the Members that together hold, in the aggregate, at least fifty-one percent (51%) of the Class A Units then entitled to vote thereon.
(b) Whenever the Company has the right to vote on, consent to, approve or has been afforded any other similar rights with respect to any matter under the Holdco Agreement or the Company Governing Documents, the Companys vote, consent, approval or exercise of such other similar right shall be cast or exercised on a look-through basis, in accordance with Section 2.11(d) .
(c) If, pursuant to this Agreement, any Member is not entitled to cast a vote, give a consent or provide or withhold any approval under this Agreement or otherwise, the
determination as to whether the matter under consideration has been approved or consented to shall be made without regard to the Units or Capital Contributions of such Member in counting the necessary votes, consents or approvals.
ARTICLE IV
UNITS
Section 4.01 Authorization and Issuance of Class A Units .
(a) Subject to the provisions of Section 4.02 and Section 4.04 , the Company is hereby authorized to issue Units (in whole or fractional numbers) representing a single class of Units (a Class ) called Class A (the Class A Units ), each having the rights, obligations and other features provided in this Agreement. All Units issued hereunder shall be uncertificated unless otherwise determined by the Manager. Each Class A Unit issued hereunder shall correspond to a Holdco A Share issued to the Company, and shall be issued at the same price and in exchange for the same consideration as that paid or to be paid by the Company for the corresponding Holdco A Share. For the purpose of tracing each Capital Contributions to the Company and Class A Units issued to a Member to the distributions and allocations from Holdco to the Company, the Class A Units issued on or before the Restructuring Date shall be designated the Class A-1 Units, and after the Restructuring Date, each issuance of Class A Units shall be designated as a new series of Class A Units, each of which new series shall be designated by a sequential number (e.g., Class A-2, Class A-3, etc.).
(b) The number and series of Class A Units issued to Members shall be listed on Schedule A , which may be amended from time to time by the Manager as required to reflect issuances of Class A Units to new Members and changes in the number of Class A Units held by Members and to reflect the addition or cessation of Members. The number of Class A Units held by each Member shall not be affected by (i) any issuance by the Company of Class A Units to the other Members or (ii) any change in the Capital Account of such Member.
(c) Holders of Class A Units shall (i) share in each item of Company income, gain, loss, deduction and credit as provided in this Agreement in accordance herewith, (ii) be entitled to participate in distributions made pursuant to this Agreement, and (iii) be entitled to such other voting and participation rights as are set forth in this Agreement. In addition to the rights, obligations and limitations of the holders of Class A Units set forth in this Agreement, the Class A Units shall be subject to the same repurchase and other requirements, mutatis mutandis , as are applicable to the corresponding Holdco A Shares issued (or to be issued) to the Company pursuant to the Holdco Agreement, the Company Governing Documents and/or the Subscription Agreement as set forth therein.
Section 4.02 Issuances of Additional Units . Subject to, and to the extent contemplated by, Section 4.04 , in addition to Class A Units, the Company may issue additional classes of Units or other interests in the Company (in whole or fractional numbers) as the Board shall determine in good faith with such designations, preferences, rights, powers and duties, as shall be fixed by the Board, and which may include additional classes of Units or other interests reflecting additional Capital Contributions, to which the assets and liabilities and income and expenditure attributable or allocated to such class shall be applied or charged.
Section 4.03 Certificates . In the sole discretion of the Manager, issued and outstanding Units may be evidenced by certificates. In addition to any other legend which the Company may deem advisable under the Securities Act, all certificates representing issued and outstanding Units shall be endorsed as follows:
THE UNITS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO NUMEROUS CONDITIONS AND RESTRICTIONS, INCLUDING RESTRICTIONS ON TRANSFER, AS SPECIFIED IN THE THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE LLC AGREEMENT ) OF EPE MANAGEMENT INVESTORS, LLC, A DELAWARE LIMITED LIABILITY COMPANY (THE COMPANY ) AND MAY BE SUBJECT TO ONE OR MORE MANAGEMENT INCENTIVE UNIT AGREEMENTS, AS MAY BE AMENDED FROM TIME TO TIME BETWEEN THE COMPANY AND ONE OR MORE OF THE MEMBERS OF THE COMPANY.
THE UNITS REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION, (B) MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS, AND (C) ARE SUBJECT TO AND ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH THE PROVISIONS OF THE LLC AGREEMENT, [CERTAIN SECURED PROMISSORY NOTE AND PLEDGE AGREEMENTS] [bracketed language to be deleted if not applicable] AND THE STOCKHOLDERS AGREEMENT, DATED AS OF AUGUST 30, 2013, BY AND AMONG EP ENERGY CORPORATION AND THE OTHER PARTIES THERETO, AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME.
Section 4.04 Preemptive Rights .
(a) If the Company receives a written notice from Holdco providing an offer for the Company to purchase additional Holdco Securities pursuant to Section 4.04 of the Holdco Agreement, then each Eligible Member shall have the right to purchase (a Preemptive Right ) on the terms set forth herein, that number of Units or other Securities equal to such Members pro rata share (based on the relative Percentage Interests of all Eligible Members) of the number of Units or other Securities that the Company would have to issue (the Additional Securities ) to fund the Companys exercise of its rights to purchase additional Holdco Securities in full.
(b) Promptly upon the Companys receipt of a notice from Holdco described in Section 4.04(a) , the Company shall, by written notice (the Preemptive Notice ) to each Eligible Member, provide an offer to sell Additional Securities to each Eligible Member in accordance with Section 4.04(a) , which Preemptive Notice shall include the applicable purchase price per share or other unit, aggregate amount of Additional Securities offered by the Company, number or amount of Additional Securities offered to such Member (based on the respective Percentage Interests of the Eligible Members immediately prior to such issuance), proposed closing date, place and time for the issuance thereof (which closing shall occur immediately prior to the Companys purchase of the related Holdco Securities), and any other material terms and conditions of the offer. On or before the date that is one (1) Business Day before the date by which the Company must notify Holdco of the Companys election to purchase Holdco Securities pursuant to the notice from Holdco described Section 4.04(a) (which date shall be specified in the Preemptive Notice), any Eligible Member wishing to exercise its Preemptive Right concerning such Additional Securities shall deliver notice to the Company setting forth the number of Additional Securities which such Member commits to purchase (which may be for all or any portion of such Additional Securities offered to such Eligible Member in the Preemptive Notice). Each Eligible Member shall have the additional right (the Additional Purchase Right ) to offer in its notice of exercise to purchase any or all of the Additional Securities not accepted for purchase by any other Eligible Member, in which event such Additional Securities not accepted by any other Eligible Member shall be deemed to have been offered to and accepted by the Eligible Members exercising such Additional Purchase Right in proportion to their respective Percentage Interests immediately prior to such issuance on the same terms and at the same price per share or other unit as those specified in the Preemptive Notice, but in no event shall any Eligible Member exercising its Additional Purchase Right be allocated a number of Additional Securities in excess of the maximum number such Eligible Member has offered to purchase in its notice of exercise. Each Eligible Member so exercising its right under this Section 4.04 shall be entitled and obligated to purchase that number of Additional Securities specified in such Eligible Members notice on the terms and conditions set forth in the Preemptive Notice.
(c) The purchase price for each Additional Security shall equal the price to be paid by the Company for each related Holdco Security and shall be paid as a Capital Contribution. If Holdco proposes to issue:
(i) Holdco A Shares, the Company shall (A) subject to this Section 4.04 , issue the number of Class A Units and the series thereof that each Eligible Member elects to purchase pursuant (and makes the corresponding Capital Contribution in exchange therefor) to this Section 4.04 and (B) exercise its pre-emptive rights to purchase from Holdco, in the aggregate, an equal number of such Holdco A Shares; and
(ii) a new class or series of Securities of Holdco, the Company shall (A) create a new class or series, as applicable, of Securities of the Company having designations, preferences and rights with respect to distributions hereunder that are equivalent to those granted to any related Holdco Securities, (B) subject to this Section 4.04 , issue the number of such Securities of the Company that each Eligible Member elects to purchase (and makes the corresponding Capital Contribution in exchange therefor) pursuant to this Section 4.04 and (C) exercise its pre-emptive rights to purchase from Holdco, in the aggregate, an equal number of such Holdco Securities.
(d) The Members acknowledge and agree that, notwithstanding anything to the contrary, the Manager may determine in its sole discretion that the foregoing provisions of this Section 4.04 , and Section 4.04 of the Holdco Agreement, and the applicability of Section 2.11 and the Section 2.01 Principle thereto, shall not apply to any Eligible Member that is not an accredited investor (as defined in Regulation D promulgated under the Securities Act).
ARTICLE V
CAPITAL CONTRIBUTIONS;
DISTRIBUTIONS AND ALLOCATIONS
Section 5.01 Capital Contributions .
(a) Initial Capital Contributions . Each Person listed on Schedule A , as completed on the date hereof, has made, or has been deemed to have made, the Capital Contributions (including promissory obligations deemed to have been made by such Member pursuant to a Management Loan) to the Company on or prior to the Restructuring Date in the amount set forth opposite its name on Schedule A under the heading Capital Contributions.
(b) Voluntary Capital Contributions . Except as provided in Section 4.04(b) , no Member shall have any obligation to the Company, to any other Member or to any creditor of the Company to make any Capital Contributions and no Member shall make any Capital Contribution without the prior written consent of the Manager; provided , that any Member may voluntarily make additional Capital Contributions in exchange for Class A Units at any time pursuant to a valid exercise of Preemptive Rights.
(c) No Other Rights in Cash or Property of the Company . Except as expressly provided herein, no Member, in its capacity as a Member, shall have the right to receive any cash or any other Property of the Company.
Section 5.02 Capital Accounts .
(a) Maintenance of Capital Accounts . The Company shall maintain a Capital Account for each Member on the books of the Company in accordance with the following provisions:
(i) As of the Restructuring Date, the Capital Account of each Member shall be set forth on Schedule B .
(ii) To each Members Capital Account there shall be credited: (A) the amount of money and the Fair Market Value of any Property (other than money) contributed by such Member pursuant to any provision of this Agreement; (B) such Members distributive share of Net Income and any item in the nature of income or gain that is allocated pursuant to Section 5.04 ; and (C) the amount of any Company liabilities assumed by such Member or that are secured by any Property distributed to such Member. The principal amount of a promissory note that is not readily traded on an established market and that is contributed to the Company by the maker of the note (or a Member related to the maker of the note within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member
until the Company makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(d)(2).
(iii) To each Members Capital Account there shall be debited: (A) the amount of money and the Fair Market Value of any Property (other than money) distributed to such Member pursuant to any provision of this Agreement; (B) such Members distributive share of Net Loss and any items in the nature of expenses or losses that are allocated to such Member pursuant to Section 5.04 ; and (C) and the amount of any liabilities of such Member assumed by the Company or that are secured by any Property contributed by such Member to the Company.
(iv) In determining the amount of any liability for purposes of subparagraphs (ii) and (iii) above there shall be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and the Treasury Regulations.
The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Treasury Regulations. In the event that the Manager shall determine that it is prudent to modify the manner in which the Capital Accounts or any debits or credits thereto are maintained (including debits or credits relating to liabilities that are secured by contributed or distributed Property or that are assumed by the Company or the Members), the Manager may make such modification so long as such modification is not likely to have a material effect on the amounts distributed to any Person pursuant to Article XI upon the dissolution of the Company. The Manager also shall (i) make any adjustments that are necessary or appropriate to maintain equality between Capital Accounts of the Members and the amount of capital reflected on the Companys balance sheet, as computed for book purposes, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(9) and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Treasury Regulations Section 1.704-1(b).
(b) Succession to Capital Accounts . In the event any Person becomes a Substitute Member in accordance with the provisions of this Agreement, such Substitute Member shall succeed to the Capital Account of the former Member to the extent such Capital Account relates to the Transferred Units.
(c) Adjustments of Capital Accounts . The Company shall revalue the Capital Accounts of the Members in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) (a Revaluation ) at the following times: (i) immediately prior to the contribution of more than a de minimis amount of money or other property to the Company by a new or existing Member as consideration for one or more Units; (ii) the distribution by the Company to a Member of more than a de minimis amount of property in respect of one or more Units; (iii) the issuance by the Company of more than a de minimis Profits Interest (as described in Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(5)(iii), IRS Revenue Procedure 93-27, 1993-2 C.B. 343 until superseded by IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005) and any similar subsequent authority); and (iv) the liquidation of the Company within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g); provided , however , that adjustments pursuant to clauses (i), (ii) and (iii) above shall be made only if the Manager reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interest of the Members (it being hereby acknowledged that such adjustments may not ordinarily be necessary or appropriate in the case of the issuance of a Profits Interest or in the case of a contribution for Units that do not represent a material Percentage Interest or are not issued at a valuation materially in excess of the book value of other Units of the same class, as then reflected in the Members Capital Accounts).
(d) No Member shall be entitled to withdraw capital or receive distributions except as specifically provided herein. A Member shall have no obligation to the Company, to any other Member or to any creditor of the Company to restore any negative balance in the Capital Account of such Member. Except as expressly provided elsewhere herein, no interest will be paid on the balance in any Members Capital Account.
(e) Whenever it is necessary for purposes of this Agreement to determine a Members Capital Account on a per Unit basis, such amount shall be determined by dividing the Capital Account of such Member by the number of Units held of record by such Member.
Section 5.03 Distributions .
(a) Subject to Section 5.03(b) and applicable law, all cash and Property (excluding Securities in Holdco) distributed to the Company based on the Companys status as a holder of Holdco A Shares (the Flow-Through Distributions ), shall be distributed by the Company among the series of Class A Units in amounts which correspond to such series of Class A Units (and within each such series of Class A Units such Flow-Through Distributions shall be allocated pro rata in accordance with the respective Series Sharing Percentages of the Members holding Class A Units in such series).
(b) Notwithstanding anything to the contrary in this Agreement, if a distribution or amount otherwise payable to the Company pursuant to (or in accordance with) the Company Governing Documents of the Holdco Agreement is reduced as a result of the existence of any outstanding amounts under any loan made by Holdco or the Company to a Member to fund such Members purchase of Class A Units (a Management Loan ), then (A) an amount equal to such reduction shall be deemed to have been paid by the Company pursuant to this Section 5.03 to such Member and then paid by such Member to Holdco in reduction of the amounts owing under such Management Loan (in accordance with the terms thereof), and the portion of the resulting distribution otherwise due to such Member from the Company shall be reduced accordingly and (B) the portion of such distribution payable to each other Member shall be calculated as though the amount deemed to have been paid to the Member referred to in clause (A) of this Section 5.03(b) had been included in such distribution.
Section 5.04 Allocations .
(a) Net Income and Net Loss . Except as otherwise provided in this Agreement, Net Income and Net Loss (and, to the extent necessary, individual items of income, gain, loss, deduction or credit) of the Company shall be allocated among the Members in a manner such
that, after giving effect to the special allocations set forth in Sections 5.04(b) , Section 5.04(c) and Section 5.04(d) , the Capital Account balance of each Member, immediately after making such allocation, is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made to such Members pursuant to Section 5.03(a) if the Company were dissolved, its affairs wound up and its assets sold for cash equal to their Carrying Value, all Company liabilities were satisfied (limited with respect to each nonrecourse liability to the Carrying Value of the assets securing such liability), all Management Loans were satisfied, and the net assets of the Company were distributed in accordance with Section 5.03 to the Members immediately after making such allocation, minus (ii) such Members share of Company Minimum Gain and Member Nonrecourse Debt Minimum Gain, computed immediately prior to the hypothetical sale of assets.
(b) Special Allocations . The following special allocations shall be made in the following order:
(i) Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulations Section 1.704-2(f), notwithstanding any other provision of this Article V , if there is a net decrease in Company Minimum Gain during any Allocation Year, each Member shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Members share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g). Allocations pursuant to the immediately preceding sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.04(b)(i) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Member Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article V , if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Members share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.04(b)(ii) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(i)(4), and shall be interpreted consistently therewith.
(iii) Qualified Income Offset . In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income, gain and Simulated Gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of the Member as promptly as possible; provided , that an allocation pursuant to this Section 5.04(b)(iii) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.04(b)(iii) were not in this Agreement.
(iv) Nonrecourse Deductions . Nonrecourse Deductions shall be allocated to the Members in accordance with their Percentage Interests.
(v) Member Nonrecourse Deductions . Any Member Nonrecourse Deductions for any Allocation Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i)(1).
(vi) Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Members interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to such Members in accordance with their interests in the Company in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(vii) Simulated Depletion . Simulated Depletion with respect to each Depletable Property shall be allocated to the Members in the same proportion that the Members (or their predecessors in interest) were allocated the Simulated Basis of such property. For purposes of such computation, the Simulated Basis of each Depletable Property shall be allocated to each Member in accordance with such Members Capital Interest Percentage as of the time such Depletable Property is acquired by the Company, and shall be reallocated among the Members in accordance with the Members Capital Interest Percentages as determined immediately following the occurrence of an event giving rise to an adjustment to the Carrying Values of the Companys Depletable Properties pursuant to clause (ii) of the definition of Carrying Value. For purposes of computing Simulated Depletion, the Company shall apply the simulated cost depletion method under Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
(viii) Simulated Loss . Simulated Loss with respect to the disposition of a Depletable Property shall be allocated among the Members in proportion to their
allocable shares of the total amount realized from such disposition under Section 5.05(c)(ii) .
(c) Curative Allocations . The allocations set forth in Section 5.04(b)(i) through (viii) and Section 5.04(d) (the Regulatory Allocations ) are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 5.04(c) . Therefore, notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Manager shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Members Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to Section 5.04 .
(d) Loss Limitation . Net Loss allocated pursuant to Section 5.04 hereof shall not exceed the maximum amount of Net Loss that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Allocation Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Net Loss pursuant to Section 5.04 hereof, the limitation set forth in this Section 5.04(d) shall be applied on a Member by Member basis and Net Loss not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Members Capital Accounts so as to allocate the maximum permissible Net Loss to each Member under Treasury Regulations Section 1.704-1(b)(2)(ii)(d).
Section 5.05 Other Allocation Rules .
(a) Interim Allocations Due to Percentage Interest Adjustment . If a Unit is the subject of a Transfer, or the Members Percentage Interests or Series Sharing Percentages change pursuant to the terms of this Agreement during any Allocation Year, the amount of Net Income and Net Loss to be allocated to the Members for such entire Allocation Year shall be allocated to the portion of such Allocation Year which precedes the date of such Transfer or change (and if there shall have been a prior Transfer or change in such Allocation Year, which commences on the date of such prior Transfer or change) and to the portion of such Allocation Year which occurs on and after the date of such Transfer or change (and if there shall be a subsequent Transfer or change in such Allocation Year, which precedes the date of such subsequent Transfer or change), in accordance with an interim closing of the books using the semi-monthly convention pursuant to proposed Treasury Regulations Section 1.706-4(e)(2), and the amounts of the items so allocated to each such portion shall be credited or charged to the Members in accordance with Section 5.04 as in effect during each such portion of the Allocation Year in question. Such allocation shall be made without regard to the date, amount or receipt of any distributions that may have been made with respect to the Transferred Unit.
(b) Tax Allocations: Code Section 704(c) . In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, with respect to any Property contributed to the Company (i) in the case of contributed Depletable Property, the adjusted tax basis of such
Depletable Property, (ii) in the case of any other contributed Property, the income, gain, loss and deduction with respect to such Property shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Carrying Value using an allocation method set forth in Treasury Regulation 1.704-3 determined by the Manager. In the event the Carrying Value of such Property is adjusted pursuant to clause (ii) of the definition of Carrying Value, (A) in the case of any Depletable Property, the adjusted tax basis of such Depletable Property shall be reallocated among the Members upon the occurrence of such adjustment, or (B) in the case of any other Property, subsequent allocations of income, gain, loss and deduction with respect to such Property, in either case shall be made in a manner to take account of any variation between the adjusted basis of such Property for U.S. federal income tax purposes and its Carrying Value as required by Code Section 704(c) and the applicable Treasury Regulations thereunder. Following any allocation or reallocation of adjusted tax basis of Depletable Property, or for purposes of any other allocations subject to this Section 5.05(b) , the Company shall, for each Depletable Property or other Property, select from the allocation methods described in Treasury Regulation Section 1.704-3 the method that the Manager determines is in the best interest of the Company and the Members.
(c) Other Income Tax Allocations .
(i) The deduction for depletion with respect to each Depletable Property shall, in accordance with Code Section 613A(c)(7)(D), be computed for U.S. federal income tax purposes separately by the Members rather than the Company. Except as provided in Section 5.05(b) , for purposes of such computation, the proportionate share of the adjusted tax basis of each Depletable Property shall be allocated among the Members based upon their relative Capital Interest Percentages as of the date of the acquisition of, or the addition of improvements capitalized in the basis subject to depletion of, such Depletable Property by the Company. Further, upon the occurrence of an adjustment to the Carrying Values of the Depletable Properties of the Company pursuant to clause (ii) of the definition of Carrying Value, except as provided in Section 5.05(b) , the proportionate share of the adjusted tax basis of each such Depletable Property shall be reallocated among the Members based upon the relative Capital Interest Percentages of the Members as of the date of such adjustment. Each Member shall separately keep records of its share of the adjusted tax basis in each Depletable Property, adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with respect to such property and use such adjusted tax basis in the computation of its cost depletion or in the computation of its gain or loss on the disposition of such property by the Company. Upon the request of the Company, each Member shall advise the Company of its adjusted tax basis in each Depletable Property and any depletion computed with respect thereto, both as computed in accordance with the provisions of this subsection. The Company may rely on such information and, if it is not provided by the Member, may make such reasonable assumptions as it shall determine with respect thereto.
(ii) Except as provided in Section 5.05(b) , for the purposes of the separate computation of gain or loss by each Member on the sale or disposition of each Depletable Property, the Companys allocable share of the amount realized (as such term is
defined in Section 1001(b) of the Code) from such sale or disposition shall be allocated for federal income tax purposes among the Members as follows:
(A) first , to the extent such amount realized constitutes a recovery of the Simulated Basis of the property, to the Members in the same percentages as the depletable basis of such property was allocated to the Members pursuant to Section 5.04(b) , except as otherwise provided in Section 5.05 ; and
(B) second , the remainder of such amount realized, if any, shall be allocated among the Members in the same manner as Simulated Gain is allocated under Section 5.04(a) .
(d) In the event that final Treasury Regulations are promulgated by the United States Department of the Treasury requiring certain forfeiture allocations as contemplated by proposed Treasury Regulations Section 1.704-1(b)(4)(xii), the parties will amend this Agreement in such a manner as will be most beneficial to the non-forfeiting Members.
Section 5.06 Tax Withholding; Withholding Advances .
(a) Tax Withholding .
(i) If requested by the Company, each Member shall, if able to do so, deliver to the Company: (A) an affidavit in form satisfactory to the Company that the applicable Member (or its direct or indirect owners, as the case may be) is not subject to withholding under the provisions of any federal, state, local, foreign or other law; (B) any certificate that the Company may reasonably request with respect to any such laws; and/or (C) any other form or instrument reasonably requested by the Company relating to any Members status under such law; provided , that , for the avoidance of doubt, in the absence of a change in law occurring after the date hereof and except as provided in Section 5.06(a)(iii) , the Company shall not withhold U.S. federal income tax with respect to any Member that furnishes the Company with a duly completed and executed IRS Form W-9 that provides that such Member is either exempt from, or not subject to, backup withholding. In the event that a Member (or its direct or indirect owners, as the case may be) fails or is unable to deliver to the Company an affidavit described in subclause (A) of this clause (i), the Company may withhold amounts from such Member in accordance with Section 5.06(b) .
(ii) After receipt of a written request of any Member, the Company shall provide such information to such Member and take such other action as may be reasonably necessary to assist such Member in making any necessary filings, applications or elections to obtain any available exemption from, or any available refund of, any withholding imposed by any foreign taxing authority with respect to amounts distributable or items of income allocable to such Member hereunder to the extent not adverse to the Company or any Member. In addition, the Company shall, at the request of any Member, make or cause to be made (or cause the Company to make) any such filings, applications or elections; provided , that any such requesting Member shall cooperate with the Company, with respect to any such filing, application or election to
the extent reasonably determined by the Company and that any filing fees, taxes or other out-of-pocket expenses reasonably incurred by the Company and related thereto shall be paid and borne by such requesting Member or, if there is more than one requesting Member, by such requesting Members in accordance with their respective Percentage Interests.
(iii) Notwithstanding anything in this Agreement to the contrary, to the extent that the issuance of Holdco A Shares to the Company, the issuance of Class A Units to an employee of Holdco or any of its Subsidiaries and/or any distribution, payment, transfer or other action under this Agreement or the Holdco Agreement results in the receipt of compensation by such employee with respect to which the Company, Holdco or one of its Subsidiaries has a tax withholding obligation pursuant to applicable law (including, without limitation, as a result of the filing of an election under Section 83(b) of the Code), then, unless other arrangements have been made that are acceptable to the Company and Holdco, the Company will deduct or withhold from the Class A Units that would otherwise be issued to such employee that number of Class A Units with an aggregate Fair Market Value on the date of withholding equal to the aggregate amount of the Companys, Holdcos or its Subsidiarys tax withholding liability and will pay or cause to be paid such withholding obligation.
(b) Withholding Advances . To the extent the Company is required by law to withhold or to make tax payments on behalf of or with respect to any Member (e.g., backup withholding) ( Withholding Advances ), the Company may withhold such amounts and make such tax payments as so required.
(c) Deemed Withholding Advances . If amounts payable to the Company are reduced on account of taxes paid or withheld (directly or indirectly) by any Person, and such taxes are imposed on or with respect to one or more, but not all of the Members, the amount of the reduction shall be borne by the relevant Members and treated as if it were paid by the Company as a Withholding Advance with respect to such Members for all purposes of this Agreement.
(d) Repayment of Withholding Advances . All Withholding Advances made on behalf of a Member, plus interest thereon at a rate equal to the Prime Rate as of the date of such Withholding Advances, plus two percent (2.0%) per annum, shall (i) be paid on demand by the Member on whose behalf such Withholding Advances were made (it being understood that no such payment shall increase such Members Capital Account), or (ii) with the consent of the Manager, in its sole discretion, be repaid by reducing the amount of the current or next succeeding distribution or distributions which would otherwise have been made to such Member or, if such distributions are not sufficient for that purpose, by so reducing distributions otherwise payable to such Member. Whenever repayment of a Withholding Advance by a Member is made as described in clause (ii) above, for all other purposes of this Agreement such Member shall be treated as having received all distributions (whether before or upon Dissolution) unreduced by the amount of such Withholding Advance and interest thereon.
(e) Withholding Advances; Reimbursement of Liabilities . Each Member hereby agrees to reimburse the Company for any liability with respect to Withholding Advances
(including interest thereon) required or made on behalf of or with respect to such Member (including penalties imposed with respect thereto).
ARTICLE VI
CERTAIN TAX MATTERS
Section 6.01 Tax Matters Partner . The Tax Matters Partner (as such term is defined in Section 6231(a)(7) of the Code) of the Company shall be a Member designated by the Manager in its sole discretion. The Tax Matters Partner shall use its reasonable efforts to comply with the responsibilities outlined in Sections 6221 through 6233 of the Code (including the Treasury Regulations promulgated thereunder) and shall have any powers necessary to perform fully in such capacity. The Tax Matters Partner is authorized to represent the Company before taxing authorities and courts in tax matters affecting the Company and the Members in their capacity as such, and shall keep the Members promptly informed of any such administrative and judicial proceedings. The Tax Matters Partner shall be entitled to be reimbursed by the Company for all reasonable third-party costs and expenses incurred by it in connection with any administrative or judicial proceeding affecting tax matters of the Company and the Members in their capacity as such. The Tax Matters Partner shall not bind any Member to any settlement agreement or closing agreement without such Members prior written consent. Any Member who enters into a settlement agreement with any tax authority with respect to any Company item shall notify the Tax Matters Partner of such settlement agreement and its terms within thirty (30) days after the date of settlement. This provision shall survive any termination of this Agreement.
Section 6.02 U.S. Federal Income Tax Classification of the Company . The Tax Matters Partner shall, for and on behalf of the Company, take all steps as may be required to maintain the Companys classification as a partnership for U.S. federal income tax purposes. By executing this Agreement, each of the Parties consents to the authority of the Tax Matters Partner to make any election consistent with such classification and shall cooperate in the making of any such election (including providing consents and other authorizations that may be required). Except as provided herein, each Member has not taken, and shall not take (or omit to take), any action that would be inconsistent with the classification of the Company as a partnership for U.S. federal income tax purposes.
Section 6.03 Section 83(b) Elections . Each Member who acquires Class A Units acknowledges and agrees to make an election under Section 83(b) of the Code with respect to such Class A Units within thirty (30) days of such acquisition and to consult with such Members tax advisors to determine the tax consequences of such acquisition and of filing an election under Section 83(b) of the Code. Each such Member acknowledges that it is the sole responsibility of such Member, and not the responsibility of the Company, to file the election under Section 83(b) of the Code even if such Member requests the Company or any of its employees, consultants, advisors or agents to assist in making the filing. Each such Member (a) agrees that it will provide to the Company, on or before the due date for filing such election, proof that its respective election under Section 83(b) of the Code has been or will be filed timely and (b) acknowledges that it is not relying on the Company for any tax, financial or legal advice.
Section 6.04 Safe Harbor . Each Member agrees that (a) if and when Proposed Treasury Regulations Section 1.83-3(l) and the proposed revenue procedure contained in IRS
Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005) (together, the Proposed Guidance ) or any substantially similar successor rules become effective, the Manager is authorized and directed to elect the safe harbor described therein, pursuant to which the fair market value of any interest in the Company that is transferred in connection with the performance of services will be treated as being equal to the liquidation value of that interest (the Safe Harbor ), and (b) while the election described in this Section 6.04 remains effective, the Company and each of the Members (including any Member to whom a Unit is transferred in connection with the performance of services) shall comply with all requirements of the Safe Harbor described in the Proposed Guidance (or any substantially similar successor rules) with respect to all Units that are transferred in connection with the performance of services, including any requirement that such Member prepare and file all U.S. federal income tax returns reporting the income tax effects of each Unit issued by the Company in connection with the performance of services. For purposes of the Safe Harbor, the Tax Matters Partner is hereby designated as the partner who has responsibility for Federal income tax reporting by the Company and, accordingly, execution of such Safe Harbor election by the Tax Matters Partner constitutes execution of a Safe Harbor Election in accordance with the Proposed Guidance or any similar provision of any final pronouncement. A Members obligations to comply with the requirements of this Section 6.04 shall survive such Members ceasing to be a Member of the Company and the termination, dissolution, liquidation and winding up of the Company.
ARTICLE VII
MANAGEMENT OF THE COMPANY
Section 7.01 Management of the Company by the Manager . The management of the Company is vested in and shall be managed by one manager (as such term is defined in the Delaware Act) (the Manager ). The Manager is hereby granted, the full and complete, power, authority and discretion for, on behalf of and in the name of the Company, to take such actions and manage and direct the business and affairs of the Company, as it may, in its sole discretion, deem necessary or advisable to carry out any and all of the objectives and purposes of the Company, subject only to the terms of this Agreement and the Delaware Act. Except as otherwise expressly provided in this Agreement or required by the Delaware Act, to the fullest extent permitted by applicable law the Members (in their capacity as Members) will not participate in the control of the Company and will have no right, power or authority to act for or on behalf of or otherwise bind the Company and will have no right to vote on or consent to any other matter, act, decision or document involving the Company or its business. The Parties hereby agree that as of the date hereof, Holdco is and shall be the Manager until Holdco has resigned as Manager and a replacement Manager is appointed as Manager in accordance with Section 7.02 .
Section 7.02 Resignation . The Manager may not be removed by the Members, but the Manager may resign as Manager at any time. Immediately prior to any such resignation, the Manager, acting in its sole discretion, shall appoint a replacement manager to serve as the Manager; provided , however , that if Holdco is no longer the Manager, then such replacement manager shall be appointed by Holdco.
Section 7.03 Agency Authority of Managers and Officers . The Manager may authorize any officer or other Person to endorse checks, drafts, and other evidences of indebtedness made
payable to the order of the Company (but only for the purpose of deposit into the Companys accounts) or to sign contracts and obligations on behalf of the Company.
Section 7.04 Limited Liability . Subject to Article X , no Person who is a Manager or an officer of the Company shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a Manager or an officer of the Company.
Section 7.05 Appointment of Board Observers . Each Board Observer that the Company is entitled to designate pursuant to the Holdco Agreement shall be designated by the Members then holding at least fifty-one percent (51%) of the issued and outstanding Class A Units.
ARTICLE VIII
TRANSFERS OF UNITS
Section 8.01 Restrictions on Transfers .
(a) Except as provided in this Article VIII , no Member shall Transfer all or any part of its Units or any right pertaining thereto, including the right to vote or consent on any matter or to receive distributions or advances from the Company pursuant thereto without the prior approval of the Board in its sole discretion; provided , however , that, in accordance with Section 2.11 and the Section 2.01 Principle, no such prior approval of the Board shall be required in connection with any such Transfer that corresponds to a Transfer of Holdco A Shares effected at the request of such Member and in accordance with the Holdco Agreement, subject to the satisfaction of the applicable requirements described in Section 3.02(b) ; provided , further , that, at the election of either such Member or the Manager, any such Transfer of all or a portion of such corresponding Holdco A Shares may be effected by an exchange of such corresponding Holdco A Shares in redemption of the corresponding Units held by such Member followed by the Transfer by such Member of such corresponding Holdco Class A Shares to the Transferee. Any Transfer, either directly or indirectly, or issuance of Equity Securities by a Member or a Permitted Transferee, with the purpose or effect of circumventing (as determined in good faith by the Manager) the foregoing provisions, shall not be in compliance with the provisions of this Agreement, and shall be deemed a Transfer by such Member of Units in violation of this Agreement (and a breach of this Agreement by such Member) and shall be null and void ab initio .
(b) It shall be a condition precedent to any Transfer of Units otherwise permitted or approved pursuant to this Article VIII that:
(i) the Transferor shall have provided to the Company prior written notice of such Transfer at least ten (10) Business Days in advance of such Transfer;
(ii) the Transferee, in the case of a Transfer of Units, shall agree in writing to be bound by this Agreement and the terms of any Award Agreements to which such Units are subject and shall have executed and delivered an Addendum Agreement in the form attached thereto;
(iii) the Transfer shall comply with all applicable federal, state or foreign laws, including securities laws;
(iv) the Transfer will not subject the Company to any registration or reporting requirements of the Investment Company Act of 1940, as amended;
(v) the Transfer shall not impose any material liability or reporting obligation on the Company, any Member (other than the Transferor or the Transferee) or the Manager in any jurisdiction, whether domestic or foreign, or result in the Company, any Member or the Manager becoming subject to the jurisdiction of any court or governmental entity anywhere, other than the states, courts and governmental entities in which the Company or the Manager is then subject to such liability, reporting obligation or jurisdiction;
(vi) if at the time of the Transfer the Company is classified as a partnership for U.S. federal income tax purposes, the Transfer shall satisfy one or more safe harbor provisions of Treasury Regulations Section 1.7704-1 including Sections 1.7704-1(e), (f), (g), (h) and (j), relating to publicly traded partnerships;
(vii) if at the time of the Transfer the Company is classified as a partnership for U.S. federal income tax purposes, the Transfer shall not cause a Dissolution Event or, unless the Manager determines it to be immaterial, a termination of the Company pursuant to Section 708 of the Code;
(viii) the Transfer shall not cause all or any portion of the assets of the Company to constitute plan assets under United States Employee Retirement Income Security Act of 1974, as amended, or the Code; and
(ix) upon the request of the Manager, any Member undertaking a Transfer of such Units pursuant to this Article VIII shall have delivered an opinion of counsel, in form and substance reasonably satisfactory to the Manager that such Transfer complies with the conditions set forth clauses (i) through (viii) of this Section 8.01(b) . The Manager may also request officer certificates and representations and warranties from the Transferee and Transferor as to the matters set forth in this Section 8.01(b) and such other factual matters as the Manager may reasonably request.
(c) Notwithstanding anything to the contrary contained in Section 8.01 (other than the provisions of Section 8.01(b) , which shall be applicable in any event), any Transfer by any Member of (x) all or any of such Members Class A Units to a spouse, lineal ancestor, lineal descendant, legally adopted child, brother or sister of such Member, (y) all or any portion of such Members Units to a lineal descendant or legally adopted child of a brother or sister of any Person described in the immediately preceding clause (x) (any Person described in the immediately preceding clause (x) or (y), a Family Member ) or to a trust or other entity whose sole and exclusive beneficiaries are such Member and/or Family Members of such Member, or (z) not more than twenty percent (20%) of the Class A Units issued to such Member to another Member, provided that, in the case of clauses (x), (y) and (z), such Transfers would not result in a violation of applicable law, including U.S. federal or state securities laws and such Transferee
executes and delivers to the Company an Addendum Agreement in a form then agreed to by the Manager, (each such Transfer described in clause (x), (y) or (z) a Permitted Transfer and each such Person receiving Class A Units pursuant to such Permitted Transfer, a Permitted Transferee ) shall be permitted at any time without prior approval of the Manager.
(d) Notwithstanding anything to the contrary contained in this Agreement, upon the consummation of any Transfer of Units permitted pursuant to this Article VIII , if such Transferor owes any amount pursuant to any Management Loan, then until such time as all outstanding amounts under such Management Loan have been repaid in full, the Company shall direct payment of the applicable consideration received pursuant to such Transfer first to the repayment of such Management Loan, or, to the extent such consideration is received by such Transferor, such Transferor shall pay such amounts to the Company or Holdco (as applicable) as lender under such Management Loan.
Section 8.02 Tag-Along Rights .
(a) If at any time the Company receives a Tag-Along Notice, the Company shall promptly (and, in any event, within five (5) days of the Companys receipt of such Tag-Along Notice) deliver to each Member holding Class A Units a written notice setting forth the date the Tag-Along Notice was received by the Company and the Tag - Along Terms and the Companys Maximum Tag-Along Portion, and attaching a copy of the Tag-Along Notice. Each Member holding Class A Units shall have the right and option ( Tag-Along Rights ), but not the obligation, to cause the Company to repurchase, at the same price per Class A Unit as the Tag-Along Seller, up to such Members Percentage Interest of the Companys Maximum Tag-Along Portion, by delivering written notice to the Company, which notice shall specify the number of Class A Units which such Member wishes to cause the Company to repurchase, by the date that is ten (10) days after the date of receipt by such Member of the notice referred to in the immediately preceding sentence (each Member delivering such notice, a Tag-Along Member ). The rights of the Members pursuant to this Section 8.02(a) shall terminate with respect to such proposed Tag-Along Sale if not exercised by such date. The exercise by a Tag-Along Member of its Tag-Along Rights as set forth in such Members notice to the Company shall be irrevocable; provided , however , that if the principal Tag-Along Terms change with the result that the per Unit price shall be less than the per Unit price set forth in the Tag-Along Notice or the other terms and conditions shall be less favorable to the Company than those set forth in the Tag-Along Notice, the Company shall promptly notify each Tag-Along Member thereof and each such Tag-Along Member shall have five (5) Business Days to consider such changes and shall be permitted to withdraw its exercise of its Tag-Along Rights by written notice to the Company and upon such withdrawal shall be released from its obligations thereunder.
(b) If any Members exercise their Tag-Along Rights, or withdraw such exercise, the Company shall deliver a Tag-Along Exercise specifying the number of Holdco A Shares equal to the aggregate number of Class A Units of such Members to be repurchased by the Company, or withdrawing such number of Holdco A Shares equal to the aggregate number of Class A Units withdrawn by such Members in accordance with Section 8.02(a) . The Company shall repurchase, without further action on the part of the Transferring Member, the number of Class A Units of such Member equal to such Members Percentage Interest of the Holdco A Shares of the Company purchased in the Tag-Along Sale, and shall then be obligated to sell to the Proposed
Tag-Along Purchaser an equal number of Holdco A Shares on the Tag-Along Terms, subject to the proviso in Section 8.02(a) . Each participating Tag-Along Member shall, and shall cause its Affiliates to, cooperate in connection with such Tag-Along Sale and take all steps reasonably necessary or reasonably requested by the Company to consummate such Tag-Along Sale on the Tag-Along Terms; provided , however , that no Tag-Along Member shall be required to enter into any agreements, documents or instruments that contain any non-competition or similar restrictive covenants. Without limiting the generality of the immediately preceding sentence, each participating Tag-Along Member shall, subject to the provisions of any definitive agreement (including any limitations on indemnification set forth therein) entered into in connection with such Tag-Along Sale, indemnify, defend and hold harmless the Proposed Tag-Along Purchaser in any Tag-Along Sale, pro rata in accordance with the amount of consideration received by such Tag-Along Member relative to the total consideration by all stockholders of Holdco in connection with such Tag-Along Sale, from and against any losses, damages and liabilities arising from or in connection with (i) any breach of any representation, warranty, covenant or agreement of the Company or Holdco in connection with such Tag-Along Sale, and (ii) any other indemnification obligation in connection with such Tag-Along Sale relating to the business or potential liabilities of the Company, Holdco and its Subsidiaries; provided , that (A) the terms of such indemnification obligation applicable to each Tag-Along Member shall be consistent with terms applicable to the Tag-Along Seller, (B) such indemnification obligation shall be several and not joint, and (C) the aggregate maximum amount of such indemnification obligation shall not exceed the amount of consideration received by such Tag-Along Member for its Class A Units sold to the Company in connection with such Tag-Along Sale. The Tag-Along Members shall share the fees and expenses allocated to the Company pursuant to Section 8.04(e) of the Holdco Agreement pro rata in accordance with the amount of proceeds to be received by such Tag-Along Member in such Tag-Along Sale.
Section 8.03 Drag-Along Rights .
(a) Within five (5) days after the receipt by the Company of a Drag-Along Notice, the Company shall forward such Drag-Along Notice to the Members. Each Member shall, and shall cause each of its Affiliates to, cooperate in connection with the Drag-Along Sale and take all steps reasonably necessary or reasonably requested by Holdco, the Company, and the Drag-Along Purchaser to consummate the Drag-Along Sale on the Drag-Along Terms (including by waiving any appraisal or dissenters rights that may exist under any applicable law, voting for or consenting to any merger, consolidation, sale of assets or similar transaction, executing any purchase agreements, merger agreements, escrow agreements or related documents, including instruments of Transfer and providing customary several, but not joint, representations, warranties and indemnities concerning such Members valid ownership of its Class A Units, free and clear of all Liens and encumbrances (other than those arising under applicable securities laws or in connection with the Drag-Along Sale) and such Members authority, power, and right to enter into and consummate agreements relating to such transactions without violating any applicable law or other agreement; provided , however , that such agreements, documents or instruments shall not contain any non-competition or similar restrictive covenants. Without limiting the generality of the immediately preceding sentence, each Member shall, subject to the provisions of any definitive agreement (including any limitations on indemnification set forth therein) entered into in connection with a Drag-Along Sale, indemnify, defend and hold harmless the Drag-Along Purchaser in any Drag-Along Sale, pro rata in accordance with the amount of
consideration received by such Member in connection with such Drag-Along Sale as a proportion of the aggregate amount of consideration received by all Members together with all members of Holdco (excluding the Company) in connection with such Drag-Along Sale, from and against any losses, damages and liabilities arising from or in connection with (i) any breach of any representation, warranty, covenant or agreement of Holdco or the Company in connection with such Drag-Along Sale, and (ii) any other indemnification obligation in connection with such Drag-Along Sale relating to the business or potential liabilities of the Company or Holdco and its Subsidiaries; provided , that (A) such indemnification obligation shall be several and not joint, and (B) the aggregate maximum amount of such indemnification obligation shall not exceed the amount of consideration received by such Member with respect to its Class A Units in connection with such Drag-Along Sale.
(b) For the avoidance of doubt and notwithstanding anything to the contrary herein, (i) if any amount is outstanding pursuant to a Management Loan of a Member, then until such time as all outstanding amounts under such Management Loan have been repaid in full, such Member shall direct and the Company shall direct the net proceeds from such Drag-Along Sale otherwise payable to such Member to first be applied to repay such Management Loan or such portion thereof as may be repaid with such net proceeds and (ii) subject to the applicable reductions in clause (i) of this Section 8.03(b) , the net proceeds received by the Company in such Drag-Along Sale shall be distributed in the manner in which Flow-Through Distributions are distributed pursuant to Section 5.03(a) .
Section 8.04 Registration Rights . The Company shall provide the Members the ability to exercise the Companys rights under the Registration Rights Agreement on a flow-through basis, in accordance with Section 2.11 and the Section 2.01 Principle, and the Company shall provide for the Members to become parties to the Registration Rights Agreement, at their election, in the event of a dissolution of the Company pursuant to Section 11.01(c) .
Section 8.05 Repurchase .
(a) General . All Members, Transferees and Substitute Members shall be subject to this (b) .
(b) Redemption in Connection With Termination of Employment .
(i) If (A) the employment of a Member with Holdco or its Subsidiaries is terminated for Cause or (B) a Member voluntarily terminates from employment with Holdco and its Subsidiaries without Good Reason, then, for a period of one year following the date of such Members termination of employment, the Company shall have the right, but not the obligation, to repurchase from such Member, in accordance with Section 8.05(c) below, any or all of such Members (and such Members Permitted Transferees) Class A Units as of the date of such Members termination for a purchase price equal to the lesser of the Original Cost of such Units and the Fair Market Value of the Holdco A Shares attributable to such Member determined as of the date the Company elects to repurchase such Class A Units.
(ii) If (A) a Member is terminated from employment with Holdco and its Subsidiaries without Cause, (B) a Member voluntarily terminates from employment with the Holdco and its Subsidiaries for Good Reason or (C) a Members employment with the Holdco and its Subsidiaries is terminated upon such Members death or because such Member incurs a Disability, then the Company shall have the right, but not the obligation, to repurchase from such Member, in accordance with Section 8.05(c) below, any or all of such Members (and such Members Permitted Transferees) Class A Units as of the date of such Members termination for a purchase price equal to the Fair Market Value of the Holdco A Shares attributable to such Member determined as of the date the Company elects to repurchase such Class A Units.
(c) Redemption Procedure .
(i) In order to exercise the right to repurchase any Class A Units that are subject to repurchase pursuant to Section 8.05(b) (the Subject Units ), the Company shall deliver written notice to such Member, and such Members Permitted Transferees, legal representative or guardian, or the executor of such Members estate, as applicable (the Holder ), no later than the one-year anniversary of the termination of the Members employment with the Holdco and its Subsidiaries (the Trigger Date ), in which notice the Company shall set forth (i) the number of such Subject Units, (ii) the Original Cost of such Subject Units (only if such Subject Units are subject to repurchase pursuant to Section 8.05(b)(i) ), (iii) the Fair Market Value of such Subject Units as of such date, and (iv) the purchase price for such Subject Units determined by the Board in accordance with Section 8.05(b)(i) or Section 8.05(b)(ii) , as applicable (the Subject Unit Purchase Price and, such notice, a Repurchase Notice ). The Repurchase Notice shall also set a reasonable time and place for the closing of the repurchase of such Subject Units, which shall be not less than 20 calendar days nor more than 55 calendar days after the date of such Repurchase Notice; provided , however , that in the event of a Valuation Dispute with respect to such Subject Units, the closing of the repurchase of such Subject Units shall be the tenth Business Day following the Final Determination.
(ii) The Holder shall have the right to dispute in writing the Boards determination of the Fair Market Value of such Subject Units within 15 calendar days following receipt of the Repurchase Notice (the Notice Period ). If the Company has not received written notice of such a dispute from the Holder within the Notice Period, then the Subject Unit Purchase Price as determined by the Board shall be deemed to be the final Subject Unit Purchase Price. If the Company has received written notice from the Holder of such a dispute within the Notice Period (a Valuation Dispute ), then the Boards determination of the Fair Market Value of such Subject Units shall be submitted for review and final determination by an internationally recognized independent valuation firm with significant experience performing valuations of privately or publicly held companies, as the case may be, engaged in the oil and natural gas exploration and production business of similar size and scope as the Holdco and its Subsidiaries taken as a whole (the Independent Valuation Firm ) selected by the Holder, provided that such Independent Valuation Firm is approved by the Board acting in good faith. Subject to the foregoing, the Independent Valuation Firm shall review all relevant data, including any necessary books and records of the Company or Holdco, to determine the changes to the
Fair Market Value calculation, if any, necessary to resolve only the disputed items or amounts. Such determination by the Independent Valuation Firm shall be made as promptly as practical, but in no event later than 30 calendar days from its engagement, and shall be final and binding on the Company, the Holder and Holdco with respect to such Subject Units and the Subject unit Purchase Price with respect thereto (the Final Determination ). All costs charged by the Independent Valuation Firm to make such determination will be shared equally by Holdco and the Holder.
(iii) Any payment of the Subject Unit Purchase Price by the Company shall be made, at the Companys discretion, in the form of a check payable by the Company or a wire transfer of immediately available funds to an account designated by the Holder. Upon payment of the Subject Unit Purchase Price by the Company, the Subject Units shall automatically be cancelled without further action by the Company, Holdco, the Member, the Holder or any other Person.
(d) Loans . The Members acknowledge and agree that if any amount is outstanding pursuant to a Management Loan as of the date of such repurchase of Class A Units and the purchase price paid to the Company by Holdco for the Holdco A Shares is reduced as a result of the existence of such outstanding amounts, then an amount equal to such reduction shall be deemed paid by the Company to such Member as a portion of the purchase price for such Class A Units, the total purchase price for such Class A Units otherwise due to such Member shall be reduced by the amount of such reduction and the amount of such reduction shall be deemed paid by such Member to the Company in reduction of the amounts owing under such Management Loan; provided , however , that, in the event the Subject Unit Purchase Price has been determined (and calculated prior to the application of the foregoing provisions of this Section 8.05(d)) based on the Original Cost of such Subject Units (for the avoidance of doubt, because the Original Cost of such Subject Units is less than the Fair Market Value of such Subject Units), then the amount deemed to be paid by such Member to the Company pursuant to this Section 8.05(d) shall be deemed to be made in full repayment of all amounts owing under such Management Loan.
For the avoidance of doubt, any Class A Units repurchased pursuant to this (b) shall be deemed forfeited in full as of the time of receipt of payment therefor, whether in cash or by note or in accordance with Section 8.05(d) , and consequently, the holders thereof shall not be entitled to any cash distributions in respect of such Class A Units for any period thereafter.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES;
CERTAIN OTHER AGREEMENTS
Section 9.01 Representations and Warranties of the Company . By executing and delivering this Agreement, the Company hereby represents and warrants to each of the Members that the following statements are true and correct as of the date hereof:
(a) The Company is a limited liability company duly organized and validly existing under the laws of the State of Delaware. Since the date of its formation, the Company has not conducted any business or incurred any liabilities or obligations, other than liabilities and
obligations pursuant to the Delaware Act, the Original LLC Agreements or any other agreement referenced herein.
(b) Except as expressly disclosed in writing to the Members on the date hereof, the execution, delivery and performance by the Company of this Agreement are within the Companys organizational powers, have been duly authorized by all necessary organizational action on its behalf, require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority, and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which the Company is a party. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions.
(c) The Class A Units have been duly authorized, validly issued and free and clear of any Liens other than those created by the Members or arising pursuant to this Agreement or any other agreement referenced herein.
(d) The representations and warranties of Holdco, as set forth in the Holdco Agreement, are true and correct.
Section 9.02 Representations and Warranties of the Members . By executing and delivering this Agreement, each Member hereby represents and warrants to the Company and each other Member that the following statements are true and correct as of the date hereof, as of the date such Member was admitted to the Company and as of the date(s) such Member acquired Units and/or made a Capital Contribution:
(a) Such Members Units are being held for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and this Agreement.
(b) If such Member is an entity, such Member is duly organized and validly existing under the laws of its jurisdiction of organization. If such Member is a natural person, such Member has full legal capacity.
(c) The execution, delivery and performance by such Member of this Agreement are within such Members corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if such Member is an individual, are within such Members legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority, and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which such Member is a party or by which such Member or any of such Members properties is bound. This Agreement has been duly executed and delivered by such Member and constitutes a valid and binding agreement of
such Member, enforceable against such Member in accordance with its terms, subject to the Enforceability Exceptions.
(d) Such Member is an accredited investor within the meaning of Regulation D promulgated under the Securities Act or has disclosed in writing that such Member is not an accredited investor in a signed writing delivered to the Company. Such Member is familiar with the business, financial condition, properties, operations and prospects of Holdco, its Subsidiaries and the Company, and has asked such questions of the Company and the Manager and conducted such due diligence concerning such matters and concerning the Class A Units, this Agreement and the Holdco Agreement as it has desired to ask and conduct, and all such questions have been answered to its full satisfaction. Such Member has not relied upon any representations made by, or other information (whether oral or written) furnished by or on behalf of, the Manager, the Company, Holdco or any of its Subsidiaries or any director, officer, employee, agent or Affiliate of such Persons, other than as set forth in this Agreement. Such Member has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of holding Class A Units and being a Member. Such Member understands that owning Class A Units involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for such Class A Units, the risk of owning Class A Units for an indefinite period of time and the risk of losing its entire investment in the Company. Such Member is able to bear the economic risk of such investment; and such Member acknowledges that the Class A Units have not been registered under the Securities Act or any other applicable federal or state securities laws, and that the Company has no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Class A Units or to take action so as to permit sales pursuant to the Securities Act (including Rules 144 and 144A thereunder). Such Member has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company and holding Class A Units in light of its particular tax and financial situation, and has determined that the Class A Units are a suitable investment for such Member.
Section 9.03 Fiduciary Duties; Competing Activities .
(a) To the fullest extent permitted by applicable law and notwithstanding any other provision of this Agreement, the Members hereby agree that pursuant to the authority of Sections 18-1101(c)-(e) of the Delaware Act, the Members hereby eliminate any and all fiduciary duties, at law, in equity or under this Agreement, of the Manager or the Members and their respective advisors, shareholders, partners, members, Representatives and Affiliates (in each case, other than those Persons who are or were employees of Holdco or its Subsidiaries) (each, a Covered Investor ) that are owed to the Company or the Members and hereby agree that such Persons shall have no fiduciary duties to the Company or any Member; provided , however , that the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing and, for the avoidance of doubt, shall not remove or supersede any restrictions or obligations placed on any employee of Holdco or any of its Subsidiaries, including, without limitation, any of the confidentiality, non-competition and non-solicitation obligations set forth in any employment agreements between the Holdco or any of its Subsidiaries and any employee of Holdco or any of its Subsidiaries and in any Award Agreements. The provisions of this Agreement, to the extent that they restrict or eliminate the duties and liabilities of a Covered Investor otherwise existing at
law or in equity to the Company or the Members, are agreed by the Members to replace such other duties and liabilities of each such Covered Investor.
(b) In furtherance of the foregoing, the Members hereby agree that each Covered Investor may engage or invest in, independently or with others, any business activity of any type or description, including those that might be in the same business as or similar to the Company, Holdco or its Subsidiaries business and that might be in direct or indirect competition with the Company, Holdco or its Subsidiaries. Neither the Company, nor Holdco or its Subsidiaries nor any Member shall have any right in or to such other ventures or activities or to the income or proceeds derived therefrom. The pursuit of any such ventures or activities by a Covered Investor, even if competitive with the business of the Company, Holdco or its Subsidiaries, shall not be deemed wrongful or improper and shall not constitute a conflict of interest or breach of fiduciary or other duty by such Covered Investor with respect to the Company, Holdco or its Subsidiaries or the other Members. No Covered Investor who is not an employee of Holdco or its Subsidiaries shall be obligated to present any investment opportunity or prospective economic advantage to the Company, Holdco or its Subsidiaries, even if the opportunity is of the character that, if presented to the Company, Holdco or its Subsidiaries, could be taken by the Company, Holdco or its Subsidiaries, and such Covered Investor shall have the right to hold such investment opportunity or prospective economic advantage for its own account or the account of its portfolio companies (as applicable) or to recommend such opportunity to Persons other than the Company, Holdco and its Subsidiaries and the Members. In addition, to the maximum extent permitted from time to time under applicable law, the Company and the Members renounce any interest or expectancy in being offered an opportunity to participate in business opportunities that are from time to time presented to any Covered Investor who is not an employee of Holdco or its Subsidiaries, and the Company and the Members waive any claim related to the foregoing. Each Member acknowledges that the Covered Investors may own and/or manage other businesses, including businesses that may compete directly or indirectly with the Company, Holdco or its Subsidiaries and for such Covered Investors time, and each such Member hereby waives any and all rights and claims which it may otherwise have against the Covered Investors as a result of any such activities.
ARTICLE X
LIMITATION ON LIABILITY; EXCULPATION
AND INDEMNIFICATION
Section 10.01 Limitation on Liability . The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Representative of the Company, the Manager or the Members or their Representatives shall be obligated personally for any such debt, obligation or liability of the Company; provided , that the foregoing shall not alter a Members obligation to return funds wrongfully distributed to such Member.
Section 10.02 Exculpation and Indemnification .
(a) To the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, the Company shall defend, indemnify and hold harmless each Covered Person from and against any and all
Losses incurred or suffered by such Covered Person (whether as a result of any claim by any Member or any third party or otherwise) by reason of: (i) any act or omission or alleged act or omission performed or omitted to be performed on behalf of the Company in connection with the business of the Company; (ii) the fact that he or she is or was a Covered Person, or that such Covered Person is or was serving at the request of the Company as a manager, director, officer, member, partner, parent or other Representative of any other Person; or (iii) any other act or omission or alleged act or omission arising out of or in connection with the Company or the business of the Company, to the extent not reimbursed by insurance or other coverage, in each case, if: (A) such Covered Person acted or omitted to act in good faith and in the belief that such act or omission was in, or was not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reason to believe his or her conduct was unlawful, (B) such Covered Persons conduct did not constitute fraud, gross negligence or willful misconduct and (C) if such Covered Person is a Member, such Members conduct did not constitute a willful breach or violation of this Agreement. The obligations of the Company under this Section 10.02 shall be satisfied solely out of and to the extent of the Companys assets, and no Covered Person shall have any personal liability on account thereof. There shall be, and each Covered Person shall be entitled to, a rebuttable presumption that such Covered Person acted in good faith and is otherwise entitled to indemnification under this Section 10.02(a) and advancement of expenses under Section 10.02(b) .
(b) To the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit the Company: (i) shall promptly reimburse (and/or advance to the extent reasonably required) each Covered Person for reasonable legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend or defending any threatened, pending or completed lawsuit, action, investigation, suit or proceeding to which such Covered Person is a party to or is threatened to be made a party to, relating to any Losses for which such Covered Person may be indemnified pursuant to Section 10.02(a) ; and (ii) shall reimburse the Manager for all reasonable costs and expenses incurred by it in performing in its capacity as the Tax Matters Partner or in connection with any administrative or judicial proceeding affecting tax matters of the Company and the Members in their capacity as such; provided , in each case, that such reimbursement and/or advancement shall only be provided to such Covered Person or the Tax Matters Partner (as applicable) upon receipt by the Company of an undertaking by or on behalf of such Covered Person or Tax Matters Partner (as applicable) that if it is finally judicially determined that such Person is not entitled to the indemnification provided pursuant to Section 10.02(a) , then such Covered Person shall promptly reimburse the Company for any reimbursed or advanced expenses.
(c) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters such Covered Person reasonably believes are within his, her or its professional or expert competence.
(d) The rights to indemnification and advancement of expenses and the remedies provided for in this Section 10.02 are not and shall not be deemed exclusive of any other rights or remedies to which any Covered Person may at any time be entitled under any applicable law, agreement, or otherwise, but each such right or remedy under this Article X shall be cumulative
with all such other rights and remedies. No amendment, modification or repeal of this Section 10.02 or any provision hereof shall limit or restrict any right of any Covered Person under this Section 10.02 in respect of any action that such Covered Person has taken or omitted in that Covered Persons capacity as such prior to such amendment, modification or repeal.
Section 10.03 Insurance . The Company shall have the power to purchase and maintain insurance on behalf of any Covered Person against any liability asserted against such Covered Person and incurred by such Covered Person in any such capacity, or arising out of such Persons status as a Covered Person, whether or not the Company would have the power to indemnify such Covered Person against such liability under the provisions of Section 10.02 or under applicable law.
ARTICLE XI
DISSOLUTION AND TERMINATION
Section 11.01 Dissolution .
(a) The Company shall not be dissolved by the admission of Additional Members or Substitute Members pursuant to this Agreement.
(b) No Member shall (i) resign from the Company prior to the dissolution and winding up of the Company except in connection with a Transfer of Units pursuant to the terms of this Agreement, or (ii) take any action to dissolve, terminate or liquidate the Company or to require apportionment, appraisal or partition of the Company or any of its assets, or to file a bill for an accounting, except as specifically provided in this Agreement, and each Member, to the fullest extent permitted by applicable law, hereby waives any rights to take any such actions under applicable law, including any right to petition a court for judicial dissolution under Section 18-802 of the Delaware Act.
(c) The Company shall be dissolved and its business wound up upon the earliest to occur of any one of the following events (each a Dissolution Event ):
(i) at the election of the Members that together hold, in the aggregate, at least a majority of the then outstanding Class A Units; provided , that if such election is made prior to May 24, 2014, the Manager must consent to such election;
(ii) the expiration of forty-five (45) days after the sale or other disposition of all or substantially all the assets of the Company (including by distribution to the Members) unless the Manager, in its sole discretion, determines otherwise; or
(iii) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act, in contravention of this Agreement.
(d) The death, retirement, resignation, expulsion, bankruptcy, insolvency or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a Member shall not in and of itself cause dissolution of the Company.
Section 11.02 Winding Up of the Company .
(a) The Manager shall promptly notify the Members of any Dissolution Event. Upon the occurrence of a Dissolution Event, the Companys assets shall be liquidated in an orderly manner. The Manager shall act as or appoint a liquidating trustee to wind up the affairs of the Company pursuant to this Agreement. In performing its duties, the liquidating trustee is authorized to sell, distribute, exchange or otherwise dispose of the assets of the Company in accordance with the Delaware Act and in any reasonable manner that the liquidating trustee shall determine to be in the best interest of the Members.
(b) The proceeds of the liquidation of the Company shall be distributed in the following order and priority:
(i) first , to the creditors (including any Members or their respective Affiliates that are creditors) of the Company in satisfaction of all of the Companys indebtedness (whether by payment or by making reasonable provision for payment thereof, including the setting up of any reserves which are, in the judgment of the liquidating trustee, reasonably necessary therefor); and
(ii) second , to the Members, in accordance with Section 5.03 , subject to the limitations of Article V , as promptly as practicable.
Section 11.03 Distribution of Property . In the event it becomes necessary in connection with the liquidation of the Company to make a distribution of Property in-kind, subject to the priority set forth in Section 11.02 , the liquidating trustee shall have the right to compel each Member to accept a distribution of any Property in-kind (even if the percentage of the Property distributed to such Member differs from a percentage of that Property which is equal to such Members Percentage Interest), with such distribution being based upon the amount of cash that would be distributed to such Members if such Property were sold for an amount of cash equal to the fair market value of such Property, as determined by the liquidating trustee in good faith.
Section 11.04 Termination . The Company shall terminate when all of the assets of the Company, after payment of or reasonable provision for the payment of all debts and liabilities of the Company, shall have been distributed to the Members in the manner provided for in this Article XI , and the Certificate of Formation shall have been cancelled in the manner required by the Delaware Act.
Section 11.05 Survival . Termination, dissolution, liquidation or winding up of the Company for any reason shall not release any Party from any liability which at the time of such termination, dissolution, liquidation or winding up already had accrued to any other Party or which thereafter may accrue in respect to any act or omission prior to such termination, dissolution, liquidation or winding up.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Expenses . Except as otherwise agreed to in writing by Holdco or any of its Affiliates prior to the date hereof, each Member shall bear its own expenses incurred in
connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including all fees and expenses of its Representatives. Notwithstanding the exception to the foregoing, each Member shall bear any such expenses incurred after the Restructuring Date.
Section 12.02 Further Assurances . Each Member agrees to execute, acknowledge, deliver, file and record such further certificates, amendments, instruments and documents, and to do all such other acts and things, as may be required by law or as, in the reasonable judgment of the Manager, may be necessary or advisable to carry out the intent and purposes of this Agreement.
Section 12.03 Notices .
(a) Except as otherwise expressly provided in this Agreement, all notices, requests and other communications to any Party hereunder shall be in writing (including a facsimile or similar writing) and shall be given to such Party at the address or facsimile number specified for such Party on Schedule A hereto (or in the case of the Company, this Section 12.03(a) ) or as such Party shall hereafter specify for the purpose by notice to the other Parties. Each such notice, request or other communication shall be effective (i) if personally delivered, on the date of such delivery, (ii) if given by facsimile, at the time such facsimile is transmitted and the appropriate confirmation is received, (iii) if delivered by an internationally recognized overnight courier, on the next Business Day after the date when sent, (iv) if delivered by registered or certified mail, three (3) Business Days (or, if to an address outside the United States, seven (7) days) after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (v) if given by any other means, when delivered at the address specified on Schedule A or in Section 12.03(b) .
(b) All notices, requests or other communications to the Company hereunder shall be delivered to the Company at the following address and/or facsimile number in accordance with the provisions of Section 12.03(a) :
EP Energy Corporation
1001 Louisiana Street
Houston, TX 77002
Attention: Marguerite Woung-Chapman
Facsimile: (713) 997-4099
with copies to (which shall not constitute notice):
Apollo Management VII, L.P.
Apollo Commodities Management, L.P.,
with respect to Series I
9 West 57
th
Street
New York, NY 10019
Attention: Laurie Medley
Telecopier: (212) 515-3288
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: John M. Scott
Facsimile: (212) 757-3990
Section 12.04 No Third Party Beneficiaries . Notwithstanding anything herein or in any other agreement to the contrary, this Agreement is not intended to confer any rights or remedies upon, and shall not be enforceable by any Person other than the actual Parties hereto, their respective successors and permitted assigns, and, solely with respect to the provisions of Article X , each Covered Person and, solely with respect to the provisions of Section 9.03 , each Covered Investor.
Section 12.05 Waiver; Cumulative Remedies . No failure by any Party to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach of such or any other covenant, agreement, term or condition shall operate as a waiver of such or any other covenant, agreement, term or condition of this Agreement. Any Member by notice given in accordance with Section 12.03 may, but shall not be under any obligation to, waive any of its rights or conditions to its obligations hereunder, or any duty, obligation or covenant of any other Member. No waiver shall affect or alter the remainder of this Agreement but each and every covenant, agreement, term and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach. The rights and remedies provided by this Agreement are cumulative and the exercise of any one right or remedy by any Party shall not preclude or waive its right to exercise any or all other rights or remedies.
Section 12.06 Governing Law; Consent to Jurisdiction . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws. The Parties hereby declare that it is their intention that this Agreement shall be regarded as made under the laws of the State of Delaware and that the laws of said State shall be applied in interpreting its provisions in all cases where legal interpretation shall be required. Each of the Parties: (a) agrees that this Agreement involves at least US $100,000.00; (b) agrees that this Agreement has been entered into by the Parties in express reliance upon 6 Del. C. § 2708(a); (c) irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware with respect to all actions and proceedings arising out of or relating to this Agreement and the transactions contemplated hereby; (d) agrees that all claims with respect to any such action or proceeding shall be heard and determined in such courts and agrees not to commence any action or proceeding relating to this Agreement or the transactions contemplated hereby except in such courts; (e) irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding arising out of this Agreement or the transactions contemplated hereby and irrevocably and unconditionally waives the defense of an inconvenient forum; (f) irrevocably acknowledges and agrees that the Company is a commercial business entity and is a separate entity distinct from its ultimate equity holders, Holdco and/or the executive organs of the government of any state and is capable of suing and being sued; (g) agrees that its entry into this constitutes, and the exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts performed for private and commercial purposes that shall
not be deemed as being entered into in the exercise of any public function; (h) irrevocably appoints The Corporation Trust Company as its agent for the sole purpose of receiving service of process or other legal summons in connection with any such dispute, litigation, action or proceeding brought in such courts and agrees that it will maintain The Corporation Trust Company at all times as its duly appointed agent in the State of Delaware (and the Company shall reasonably assist each Member, to the extent requested by such Member, with such appointment, including by informing The Corporation Trust Company of such appointment and assisting such Member with the delivery of any documentation required for such appointment to The Corporation Trust Company) for the service of any process or summons in connection with any such dispute, litigation, action or proceeding brought in such courts and, if it fails to maintain such an agent during any period, any such process or summons may be served on it by mailing a copy of such process or summons by an internationally-recognized courier service to the address set forth next to its name in Schedule A or with respect to the Company, the address set forth in Section 12.03(b) , with such service deemed effective on the fifth (5 th ) day after the date of such mailing; and (i) agrees that a final judgment in any such action or proceeding and from which no appeal can be made shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Parties agree that any violation of this Section 12.06 shall constitute a material breach of this Agreement and shall constitute irreparable harm.
Section 12.07 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.
Section 12.08 Entire Agreement . This Agreement together with the Award Agreements, the Subscription Agreement, the Holdco Agreement, the Company Governing Documents and the Secured Promissory Note and Pledge Agreements with respect to any Management Loans constitutes the entire agreement among the Parties pertaining to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the Parties in connection herewith and therewith, and no covenant, representation or condition not expressed in this Agreement, the Subscription Agreement, the Holdco Agreement, the Company Governing Documents or any applicable Secured Promissory Note and Pledge Agreements with respect to Management Loans shall affect, or be effective to interpret, change or restrict, the express provisions of this Agreement.
Section 12.09 Headings . The titles of Articles and Sections of this Agreement are for convenience only and do not define or limit the provisions hereof.
Section 12.10 Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party under this Agreement shall not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such
illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
Section 12.11 WAIVER OF JURY TRIAL . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM, ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 12.12 Amendment . Except as otherwise expressly provided herein, this Agreement may be amended, modified or supplemented, and any provision hereof may be waived, only by a written instrument duly approved by the Board and the Members that together hold, in the aggregate, at least fifty-one percent (51%) of the Class A Units and duly executed by the Manager; provided , however , that the Manager may, without the consent of any Member, amend or modify this Agreement (including Schedule A ) or waive any provision of this Agreement (other than this Section 12.12 ), and/or the Certificate of Formation pursuant to a written instrument duly approved by the Board to the extent necessary or (as determined by the Board) desirable to issue new Class A Units, and in accordance with the terms of this Agreement and the Holdco Agreement.
Section 12.13 Confidentiality .
(a) Each of the Members shall, and shall direct those of its directors, officers, members, stockholders, partners, employees, attorneys, accountants, consultants, trustees, Affiliates and other Representatives (the Member Parties ) who have access to Confidential Information to, keep confidential and not disclose any Confidential Information without the express consent, in the case of Confidential Information acquired from the Company, of the Board or, in the case of Confidential Information acquired from another Member, such other Member, unless:
(i) such disclosure shall be required by applicable law, governmental rule or regulation, court order, administrative or arbitral proceeding;
(ii) such disclosure is reasonably required in connection with any tax audit involving the Company or any Member;
(iii) such disclosure is reasonably required in connection with any litigation against or involving the Company or any Member; or
(iv) such disclosure is reasonably required in connection with any proposed Transfer of all or any part of such Members Units in the Company; provided , that with respect to any such use of any Confidential Information referred to in this clause (iv), advance notice must be given to the Manager so that it may require any proposed Transferee that is not a Member to enter into a confidentiality agreement with terms
substantially similar to the terms of this Section 12.13 (excluding this clause (iv)) prior to the disclosure of such Confidential Information.
(b) Confidential Information shall mean any information related to the activities of the Company, Holdco and its Subsidiaries and members and managers, the Members and their respective Affiliates that a Member may acquire from the Company, Holdco or its Subsidiaries, members or managers, the Manager or the Members, or their respective Representatives, other than information that (i) is already available through publicly available sources of information (other than as a result of disclosure by such Member), (ii) was available to a Member on a non-confidential basis prior to its disclosure to such Member by the Company, or (iii) becomes available to a Member on a non-confidential basis from a third party, provided such third party is not known by such Member, after reasonable inquiry, to be bound by this Agreement or another confidentiality agreement with the Company. Such Confidential Information may include information that pertains or relates to the business and affairs of any other Member or any other Company or Holdco matters. Confidential Information may be used by a Member and its Member Parties only in connection with Company matters and in connection with the maintenance of its Units in the Company.
(c) In the event that any Member or any Member Parties of such Member is required to disclose any of the Confidential Information, such Member shall use commercially reasonable efforts to provide the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement, and such Member shall use commercially reasonable efforts to cooperate with the Company in any effort any such Person undertakes to obtain a protective order or other remedy. In the event that such protective order or other remedy is not obtained, or that the Company waives compliance with the provisions of this Section 12.13 , such Member and its Member Parties shall furnish only that portion of the Confidential Information that is legally required and shall exercise all reasonable efforts to obtain reasonably reliable assurance that the Confidential Information shall be accorded confidential treatment.
(d) Notwithstanding the provisions of Section 2.11 and the foregoing provisions of this Section 12.13 , this Section 12.13 shall not apply in respect of any Member who is or has been a party to any Award Agreement or employment agreement with Holdco or any of its Subsidiaries containing provisions as to confidentiality (which shall instead govern their obligations of confidentiality); provided , that each such Member shall nevertheless also be subject to this Section 12.13 with respect to Confidential Information consisting of: (i) the terms, provisions and existence of this Agreement, the Holdco Agreement and any agreement referenced therein or herein, (ii) any information relating to the Members, the members of Holdco or the Company or their respective Affiliates (including, as applicable, the identities of such Persons, information relating to their interests in Holdco or the corporate ownership structure of Holdco, its members or the Company), and (iii) any information obtained by or provided to such Member under the Holdco Agreement or this Agreement (including pursuant to the Section 2.01 Principle) or through any Board Observer designated by the Company or the chief executive officer of Holdco, whether through such Board Observers or such chief executive officers attendance of any Board meetings or receipt of written materials distributed to each Board Observer or such chief executive officer, in each case solely in its capacity as a representative on the Board, except that any such covered information shall not be deemed to
include any information presented by management of Holdco to the Board that relates to ordinary course financial or operational matters).
Section 12.14 Representation by Counsel . Each of the Parties has been represented by, or has had an opportunity to consult with, legal counsel in connection with the drafting, negotiation and execution of this Agreement. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any Party by any court or arbitrator or any Governmental Authority by reason of such Party having drafted or being deemed to have drafted such provision.
Section 12.15 Exhibits and Schedules . All Exhibits and Schedules attached to this Agreement are incorporated and shall be treated as if set forth herein.
Section 12.16 Specific Performance . The Parties acknowledge that money damages may not be an adequate remedy for breaches or violations of this Agreement and that any Party, in addition to any other rights and remedies which the Parties may have hereunder or at law or in equity, may, in its sole discretion, apply to a court of competent jurisdiction in accordance with Section 12.06 for specific performance or injunction or such other equitable relief as such court may deem just and proper in order to enforce this Agreement in the event of any breach of the provisions of this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each Party hereby waives (a) any objection to the imposition of such relief, and (b) any requirement for the posting of any bond or similar collateral in connection therewith.
Section 12.17 Reliance on Authority of Person Signing Agreement . If a Member is not a natural person, neither the Company nor any other Member will (a) be required to determine the authority of the individual signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such individual, or (b) be responsible for the application or distribution of proceeds paid or credited to individuals signing this Agreement on behalf of such entity.
[ Signature pages follow. ]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first written above.
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EPE MANAGEMENT INVESTORS, LLC |
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EP ENERGY CORPORATION |
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EP ENERGY CORPORATION |
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THE INITIAL MANAGER (solely for the purposes of Section 2.10): |
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EPE ACQUISITION, LLC |
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Signature Page to Third Amended and Restated Limited Liability Company Agreement
of EPE Management Investors, LLC
EXHIBIT A
Addendum Agreement
This Addendum Agreement (this Addendum Agreement ) is made this [ ] day of [ ] , 20 [ ] , by and between [ ] (the Transferee ), [ ] (the Transferor ), EPE Management Investors, LLC, a Delaware limited liability company (the Company ), and the Manager pursuant to the terms of that certain Third Amended and Restated Limited Liability Company Agreement of the Company dated as of August 30, 2013, including all exhibits and schedules thereto (the Agreement ). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
WITNESSETH :
WHEREAS, the Company and the Members entered into the Agreement to impose certain restrictions and obligations upon themselves, and to provide certain rights, with respect to the Company, the Members, the Managers and the Class A Units;
WHEREAS, the Transferee is acquiring Class A Units pursuant to a Transfer, in either case in accordance with the Agreement and any Award Agreement to which the Class A Units and/or the Transferee are subject, and in such amount as set forth in Section 4 below (the Acquired Units ); and
WHEREAS, the Agreement requires that any Person to whom Class A Units are Transferred must enter into an Addendum Agreement binding the Transferee to the Agreement to the same extent as if it were an original party thereto and imposing the same restrictions and obligations upon the Transferee and the Acquired Units as are imposed upon the Members and the Units under the Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and as a condition of the purchase or receipt by the Transferee of the Acquired Units, the Transferee acknowledges and agrees as follows:
1. The Transferee has received and read the Agreement and acknowledges that the Transferee is acquiring the Acquired Units in accordance with and subject to the terms and conditions of the Agreement and that the Acquired Units may be subject to one or more Secured Promissory Note and Pledge Agreements relating to Management Loans.
2. By the execution and delivery of this Addendum Agreement, the Transferee represents and warrants to, and agrees with the Company and the Transferor that the following statements are true and correct as of the date hereof:
(a) The Transferee is holding the Acquired Units for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and the Agreement.
(b) If the Transferee is an entity, the Transferee is duly organized and validly existing under the laws of its jurisdiction of organization. If such Transferee is a natural person, such Transferee has full legal capacity.
(c) Except as expressly disclosed in writing to the Company and the other Members, the execution, delivery and performance by the Transferee of this Addendum Agreement are within the Transferees corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if the Transferee is an individual, are within such Transferees legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority on the part of the Transferee (except as expressly disclosed in writing to the Board prior to the date hereof), and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which the Transferee is a party or by which the Transferee or any of the Transferees properties is bound. This Addendum Agreement has been duly executed and delivered by the Transferee and constitutes a valid and binding agreement of the Transferee, enforceable against the Transferee in accordance with its terms, subject to the Enforceability Exceptions.
(d) The Transferee does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the execution, delivery or performance of this Addendum Agreement by the Transferee.
(e) Except as expressly disclosed in writing by the Transferee to the Company, the Transferee is an accredited investor within the meaning of Regulation D promulgated under the Securities Act. The Transferee has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of holding the Acquired Units and being a Member. The Transferee understands that owning the Acquired Units involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for such Acquired Units, the risk of owning the Acquired Units for an indefinite period of time and the risk of losing its entire investment in the Company. The Transferee is able to bear the economic risk of such investment; is acquiring the Acquired Units for investment and solely for its own beneficial account and not with a view to or any present intention of directly or indirectly selling, Transferring, offering to sell or Transfer, participating in any distribution or otherwise disposing of all or a portion of the Acquired Units; and the Transferee acknowledges the Acquired Units have not been registered under the Securities Act or any other applicable federal or state securities laws, and that the Company has no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Acquired Units or to take action so as to permit sales pursuant to the Securities Act (including Rules 144 and 144A thereunder). The Transferee has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company and holding the Acquired Units in light of its particular tax and financial situation, and has determined that the Acquired Units are a suitable investment for the Transferee.
3. The Transferee agrees that the Acquired Units are bound by and subject to all of the terms and conditions of the Agreement, and hereby joins in, and agrees to be bound by, and shall have the benefit of, all of the terms and conditions of the Agreement to the same extent as if the Transferee were an original party to the Agreement; provided , however , that the Transferees joinder in the Agreement shall not constitute admission of the Transferee as a Member unless and until the Company executes this Addendum Agreement confirming the due admission of the Transferee. This Addendum Agreement shall be attached to and become a part of the Agreement.
4. For good and valuable consideration, the sufficiency of which is hereby acknowledged by the Transferor and the Transferee, the Transferor hereby Transfers absolutely to the Transferee the Acquired Units, including, for the avoidance of doubt, all rights, title and interest in and to the Acquired Units, with effect from the date hereof. It is hereby confirmed by the Transferor that the Transferor has complied in all respects with the provisions of the Agreement with respect to the transfer of the Acquired Units. The number of Units currently held by the Transferor, and the number of Acquired Units to be transferred and assigned pursuant to this Addendum Agreement, are as follows:
Number of Class A Units
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Number of Acquired Units to
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5. The Transferee hereby agrees to accept the Acquired Units and hereby agrees and consents to become a Member and hereby is admitted as a Member.
6. Any notice, request or other communication required or permitted to be delivered to the Transferee pursuant to the Agreement shall be given to the Transferee at the address and/or facsimile number listed beneath the Transferees signature below.
7. This Addendum Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
[ Remainder of Page Intentionally Left Blank . ]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.
THE COMPANY: |
EPE MANAGEMENT INVESTORS, LLC |
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By its manager: |
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EP ENERGY CORPORATION |
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By: |
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Name: |
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Title: |
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TRANSFEROR: |
[INSERT NAME] |
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By: |
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Name: |
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Title: |
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TRANSFEREE: |
[INSERT NAME] |
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By: |
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Name: |
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Title: |
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[INSERT TRANSFEREES ADDRESS] |
Exhibit 10.36
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this Agreement ), dated as of August 30, 2013, is executed and agreed to by and between EP Energy Corporation, a Delaware corporation (the Corporation ), and EPE Management Investors, LLC, a Delaware limited liability company ( EMI ). Capitalized terms used in this Agreement but not defined in the body hereof are defined in Exhibit A hereto.
WHEREAS , EMI was a member of EPE Acquisition, LLC, a Delaware limited liability Company (the LLC ), and was party to that certain Amended and Restated Subscription Agreement, dated as of May 24, 2012, by and between the LLC and EMI (the Prior Subscription Agreement );
WHEREAS , the LLC has been reorganized to form a new corporate holding structure for its operating business, and as part of such reorganization, EMI contributed 100% of its membership interest in the LLC to the Corporation in exchange for the issuance by the Corporation to EMI of Class A Shares; and
WHEREAS , the purpose of this Agreement is to set forth certain of the circumstances in which the Corporation shall have the right to repurchase Class A Shares from EMI.
NOW, THEREFORE , in consideration of the promises and of the mutual agreements contained in this Agreement and other good and valuable consideration, the parties hereto agree as follows:
1. Repurchase of Class A Shares
(a) If (i) the employment of a Management Investor with the Corporation or its Subsidiaries is terminated for Cause or (ii) a Management Investor voluntarily terminates from employment with the Corporation and its Subsidiaries without Good Reason, then, for a period of one year following the date of such Management Investors termination of employment, the Corporation shall have the right, but not the obligation, to repurchase from EMI, in accordance with Section 2 below, any or all of the Class A Shares attributable to such Management Investor (and such Management Investors Permitted Transferees) as of the date of such Management Investors termination for a purchase price equal to the lesser of the Original Cost of such Class A Shares and the Fair Market Value of such Class A Shares determined as of the date the Corporation elects to repurchase such Class A Shares.
(b) If (i) a Management Investor is terminated from employment with the Corporation and its Subsidiaries without Cause, (ii) a Management Investor voluntarily terminates from employment with the Corporation and its Subsidiaries for Good Reason or (iii) a Management Investors employment with the Corporation and its Subsidiaries is terminated upon such Management Investors death or because such Management Investor incurs a Disability, then the Corporation shall have the right, but not the obligation, to repurchase from EMI, in accordance with Section 2 below, any or all of the Class A Shares attributable to such Management Investor (and such Management Investors Permitted Transferees) as of the date of
such Management Investors termination for a purchase price equal to the Fair Market Value of such Class A Shares determined as of the date the Corporation elects to repurchase such Class A Shares.
2. Procedure for Repurchase of Class A Shares .
(a) In order to exercise the right to repurchase any Class A Shares that are subject to repurchase pursuant to Section 1 (the Subject Shares ), the Corporation shall deliver written notice to such Management Investor, and such Management Investors Permitted Transferee, legal representative or guardian, or the executor of such Management Investors estate, as applicable (the Holder ) and to EMI, no later than the one-year anniversary of the termination of the Management Investors employment with the Corporation and its Subsidiaries (the Trigger Date ), in which notice the Corporation shall set forth (i) the number of such Subject Shares, (ii) the Original Cost of such Subject Shares (only if such Subject Shares are subject to repurchase pursuant to Section 1(a) ), (iii) the Fair Market Value of such Subject Shares as of such date, and (iv) the purchase price for such Subject Shares determined by the Board in accordance with Section 1(a) or Section 1(b) , as applicable (the Purchase Price and, such notice, a Repurchase Notice ). The Repurchase Notice shall also set a reasonable time and place for the closing of the repurchase of such Subject Shares, which shall be not less than 20 calendar days nor more than 55 calendar days after the date of such Repurchase Notice; provided , however , that in the event of a Valuation Dispute (as defined below) with respect to such Subject Shares, the closing of the repurchase of such Subject Shares shall be the tenth Business Day following the Final Determination (as defined below).
(b) The Holder shall have the right to dispute in writing the Boards determination of the Fair Market Value of such Subject Shares within 15 calendar days following receipt of a Repurchase Notice (the Notice Period ). If the Corporation has not received written notice of such a dispute from the Holder within the Notice Period, then the Purchase Price as determined by the Board shall be deemed to be the final Purchase Price. If the Corporation has received written notice from the Holder of such a dispute within the Notice Period (a Valuation Dispute ), then the Boards determination of the Fair Market Value of such Subject Shares shall be submitted for review and final determination by an internationally recognized independent valuation firm with significant experience performing valuations of privately or publicly held companies, as the case may be, engaged in the oil and natural gas exploration and production business of similar size and scope as the Corporation and its Subsidiaries taken as a whole (the Independent Valuation Firm ) selected by the Holder, provided that such Independent Valuation Firm is approved by the Board acting in good faith. Subject to the foregoing, the Independent Valuation Firm shall review all relevant data, including any necessary books and records of the Corporation, to determine the changes to the Fair Market Value calculation, if any, necessary to resolve only the disputed items or amounts. Such determination by the Independent Valuation Firm shall be made as promptly as practical, but in no event later than 30 calendar days from its engagement, and shall be final and binding on the Corporation, the Holder, EMI and the members of EMI with respect to such Subject Shares and the Purchase Price with respect thereto (the Final Determination ). All costs charged by the Independent Valuation Firm to make such determination will be shared equally by the Corporation and the Holder.
(c) Any payment of the Purchase Price for the Subject Shares by the Corporation shall be made, at the Corporations discretion, in the form of a check payable to EMI or a wire transfer of immediately available funds to an account designated by EMI. Upon payment of the Purchase Price by the Corporation, the Subject Shares shall automatically be cancelled without further action by the Corporation, EMI, the Management Investor or any other Person.
3. Undertaking of EMI. Upon the repurchase of Class A Shares attributable to such Management Investor in accordance with this Agreement, EMI shall immediately cause the repurchase of an equivalent number of EMI Units of such Management Investor and/or its Permitted Transferees. EMI hereby agrees to take whatever additional actions and execute whatever additional documents the Corporation may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on EMI pursuant to the express provisions of this Agreement and the Stockholders Agreement.
4. General Provisions.
(a) Notices . Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (i) when delivered in person, (ii) on the first business day after such notice is sent by air express overnight courier service, or (iii) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid, in each case addressed to the following address, as applicable:
If to EMI to: |
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EP Energy Corporation |
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1001 Louisiana Street |
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Houston, TX 77002 |
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Attention: Marguerite Woung-Chapman |
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Facsimile: (713) 997-4099 |
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with a copy to (which shall not constitute notice): |
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Apollo Global Management, LLC |
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9 West 57th Street, 43rd Floor |
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New York, New York 10019 |
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Attention: Sam Oh |
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Facsimile: (212) 515-3288 |
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If to the Corporation to: |
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EP Energy Corporation |
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1001 Louisiana Street |
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Houston, TX 77002 |
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Attention: Marguerite Woung-Chapman |
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Facsimile: (713) 997-4099 |
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with a copy to (which shall not constitute notice): |
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Apollo Management VII, L.P. |
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Apollo Commodities Management, L.P., with respect to Series I |
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9 West 57 th Street |
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New York, NY 10019 |
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Attention: Laurie Medley |
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Facsimile: (212) 515-3288 |
(b) Governing Law . THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. THE PARTIES HEREBY DECLARE THAT IT IS THEIR INTENTION THAT THIS AGREEMENT SHALL BE REGARDED AS MADE UNDER THE LAWS OF THE STATE OF DELAWARE AND THAT THE LAWS OF SAID STATE SHALL BE APPLIED IN INTERPRETING ITS PROVISIONS IN ALL CASES WHERE LEGAL INTERPRETATION SHALL BE REQUIRED.
(c) Waiver of Jury Trial . IN ENTERING THIS AGREEMENT, THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHTS TO A JURY TRIAL.
(d) Amendment and Waiver . The provisions of this Agreement may be amended, modified or waived only with the prior written consent of EMI and the Corporation, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof.
(e) Severability . Any provision in this Agreement that is prohibited or unenforceable in any jurisdiction by reason of applicable Law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(f) Entire Agreement . This Agreement, the EMI Agreement and the Stockholders Agreement embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
(g) Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.
(h) Title and Headings; Construction . All Section headings in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any of the provisions hereof. The words hereof, herein and hereunder and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, including all Exhibits attached hereto, and not to any particular provision of this Agreement. All references herein to Sections and Exhibits shall, unless the context requires a different construction, be deemed to be references to the Sections of this Agreement and the Exhibits attached hereto, and all such Exhibits attached hereto are hereby incorporated herein and made a part hereof for all purposes. In the event that the Stockholders Agreement is amended following the date hereof in a manner that amends, corrects, modifies, re-titles, re-numbers or otherwise revises the Stockholders Agreement section reference within this Agreement, such section reference within this Agreement shall be deemed to continue to reference the applicable original Stockholders Agreement section, as so amended. The use herein of the word including following any general statement, term or matter shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as without limitation, but not limited to, or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. The word or as used herein is disjunctive but not necessarily exclusive. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.
(i) Gender and Plurals . Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.
(j) Successors and Assigns . Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by and against EMI, the Corporation and EMI and the Corporations respective successors and assigns (including subsequent holders of Class A Shares); provided , however , that EMIs rights and obligations under this Agreement are not assignable except in connection with a Transfer of the Class A Shares permitted under the Stockholders Agreement. Notwithstanding anything else in this Agreement or in the Stockholders Agreement, (i) each Subscribed Class A Unit shall remain subject to the terms of the Stockholders Agreement and this Agreement regardless of who holds such Subscribed Class A Unit.
(k) Rights of Third Parties . Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the parties hereto, any rights or remedies under or by reason of this Agreement.
(l) WAIVER OF PUNITIVE AND EXEMPLARY DAMAGE CLAIMS . EACH PARTY, BY EXECUTING THIS AGREEMENT, WAIVES, TO THE FULLEST EXTENT ALLOWED BY LAW, ANY CLAIMS TO RECOVER PUNITIVE, EXEMPLARY OR SIMILAR DAMAGES NOT MEASURED BY THE PREVAILING PARTYS ACTUAL
DAMAGES IN ANY DISPUTE OR CONTROVERSY ARISING UNDER, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT.
(m) Section 83(b) Election . Within 30 days after the date of issuance of the Subscribed Class A Shares, EMI agrees to timely file an election under Section 83(b) of the Code with respect to the Subscribed Class A Shares and to submit a copy of such election to the Corporation. The form of such election shall be in the form attached hereto as Exhibit B . EMI acknowledges that it is its sole responsibility, and not the responsibility of the Corporation to file the election under Section 83(b) of the Code even if EMI requests the Corporation or any of its managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) of the Corporation to assist in making such filing.
[Signatures appear on the following page]
IN WITNESS WHEREOF , the parties hereto have executed this Subscription Agreement as of the date first written above, effective for all purposes as provided above.
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EPE MANAGEMENT INVESTORS, LLC |
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By its manager: |
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EP Energy Corporation |
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By: |
/s/ Brent J. Smolik |
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Name: |
Brent J. Smolik |
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Title: |
President and Chief Executive Officer |
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EP ENERGY CORPORATION |
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By: |
/s/ Brent J. Smolik |
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Name: |
Brent J. Smolik |
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Title: |
President and Chief Executive Officer |
Signature Page to Subscription Agreement
EXHIBIT A
DEFINED TERMS
Amended and Restated Certificate of Incorporation means the Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on August 30, 2013 (as may be amended, restated or modified from time to time); provided , however , that all references to the Amended and Restated Certificate of Incorporation in the following definitions refer to the Amended and Restated Certificate of Incorporation as in effect on the date of this Agreement.
Award Agreement is defined in the Stockholders Agreement.
Board is defined in the Amended and Restated Certificate of Incorporation.
Business Day is defined in the Amended and Restated Certificate of Incorporation.
Cause as to any Management Investor has the meaning assigned to such term in an employment agreement, if any, between the Corporation or one of its Subsidiaries and such Management Investor; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the term Cause, then Cause has the meaning set forth in the Award Agreement between EEH and such Management Investor.
Class A Shares is defined in the Amended and Restated Certificate of Incorporation.
Code means the Internal Revenue Code of 1986, as amended.
Delaware LLC Act means the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq., as amended from time to time.
DGCL means the General Corporation Law of the State of Delaware, 8 Del. C. §§1-101 et seq., as amended from time to time.
Disability as to any Management Investor has the meaning assigned to such term in an employment agreement, if any, between the Corporation or one of its Subsidiaries and such Management Investor; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the terms Disability then Disability has the meaning set forth in the Award Agreement between EMI and such Management Investor.
EEH is defined in the Stockholders Agreement.
EMI Agreement is defined in the Stockholders Agreement.
EMI Units means Class A Units as defined in the EMI Agreement.
Fair Market Value is defined in the Amended and Restated Certificate of Incorporation.
Good Reason as to any Management Investor has the has the meaning assigned to such term in an employment agreement, if any, between the Corporation or one of its Subsidiaries and such Management Investor; provided , however , in the absence of such an employment agreement or if such employment agreement does not define the term Good Reason, then
Good Reason has the meaning set forth in the Award Agreement between EEH and such Management Investor.
Law means any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, injunction, award, declaration, or interpretative or advisory opinion or letter of a domestic, foreign or international governmental authority or any political subdivision thereof and shall include, for the avoidance of doubt, the DGCL and the Delaware LLC Act.
Management Investor means a member of EMI.
Management Loan is defined in the Stockholders Agreement.
Original Cost means, at any given time with respect to the Class A Shares attributable to the EMI Units held at such time by a particular Management Investor or its Permitted Transferee, the per EMI Unit amount equal to the quotient of (a) the sum of (i) the cash amount paid by the Management Investor to EMI to purchase such EMI Units and (ii) the amount of principal, if any, previously repaid by the Management Investor under a Management Loan that was obtained to purchase such EMI Units divided by (b) the number of EMI Units held by the Management Investor at such time.
Permitted Transferee is defined in the Stockholders Agreement.
Person is defined in the Amended and Restated Certificate of Incorporation.
Stockholders Agreement means the Stockholders Agreement, dated as of August 30, 2013, by and among the Corporation and the other parties thereto, as the same may be amended, restated or supplemented from time to time.
Subsidiary is defined in the Amended and Restated Certificate of Incorporation.
EXHIBIT B
SECTION 83(B) ELECTION FORM
Election to Include in
Taxable Income in Year of Transfer Pursuant
to Section 83(b) of the Internal Revenue Code
On May 24, 2012, the undersigned was awarded restricted membership units of EPE Acquisition, LLC (the LLC ). On August , 2013, the corporate holding structure of the LLC was reorganized such that the direct and indirect holders of membership interests in the LLC exchanged their interests on a one-for-one basis for shares of EP Energy Corporation (the Corporation ), a newly formed Delaware corporation. As a result of the reorganization, the direct and indirect owners of the LLC now own 100% of the Corporation, which in turn owns 100% of the business of the LLC. The shares of the Corporation received in exchange for interests in the LLC have substantially the same interests, rights, and obligations as the LLC interests, including substantially the same transfer restrictions and repurchase rights. In connection with its receipt of shares of the Corporation in exchange for the LLC interests, the undersigned hereby makes an 83(b) Election with respect to the property described below and supplies the following information in accordance with the regulations promulgated under Section 83:
1. The name, address, and taxpayer identification number of the undersigned (the Taxpayer) are:
Name: |
EPE Management Investors, LLC |
Address: |
c/o Apollo Global Management, LLC |
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9 West 57th Street, 43rd Floor |
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New York, New York 10019, Attention: Sam Oh |
Taxpayer Identification |
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Number: |
45-5086668 |
2. Description of the property with respect to which the election is being made (the Property):
Class A Shares of EP Energy Corporation (the Corporation).
3. The date on which the Property was transferred is August , 2013 (the Effective Date).
The taxable year to which this election relates is calendar year 2013.
4. Nature of the restrictions to which the Property is subject:
The Class A Shares issued to the Taxpayer are subject to various transfer restrictions and repurchase rights, and are subject to forfeiture under certain circumstances.
5. The fair market value at the time of transfer (determined without regard to any restriction other than a restriction that by its terms will never lapse) of the Property with respect to which this election is being made is $ .(1)
6. The amount paid by the Taxpayer for the Property is $ . (The Class A Shares were received in exchange for an equal number of Class A Units of EPE Acquisition, LLC, with a fair market value equivalent to the fair market value of the Class A Shares received in the exchange.)
7. A copy of this statement has been furnished to the Company as provided in Treasury Regulation Section 1.83-2(d).
8. This statement is executed on , 2013.
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Taxpayers Signature |
This statement must be filed with the Internal Revenue Service Center with which you file your U.S. federal income tax return within 30 days after the grant date of the Class A Shares. This filing should be made by registered or certified mail, return receipt requested. You are also required to (i) deliver a copy of this statement to the Company and (ii) attach a copy of this statement to your federal income tax return for the taxable year that includes the grant date. You should also retain a copy of this statement for your records.
(1) Dollar amounts in items 5 and 6 will be equal to one another.
Exhibit 10.38
STOCKHOLDERS AGREEMENT
by and among
EP ENERGY CORPORATION,
and
the STOCKHOLDERS that are parties hereto
DATED AS OF AUGUST 30, 2013
TAB LE OF CONTENTS
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ARTICLE I DEFINITIONS AND USAGE |
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2 |
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SECTION 1.01. |
Definitions |
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SECTION 1.02. |
Terms and Usage Generally |
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ARTICLE II COORDINATION |
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16 |
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SECTION 2.01. |
Coordination Between the Upper-Tier Investors and the Company |
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16 |
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ARTICLE III JOINDER; BOOKS AND RECORDS |
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SECTION 3.01. |
Joinder |
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SECTION 3.02. |
Accounting Information |
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SECTION 3.03. |
Annual Budget |
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SECTION 3.04. |
Books and Records |
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19 |
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ARTICLE IV SHARES; PREEMPTIVE RIGHTS |
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20 |
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SECTION 4.01. |
Class A Shares |
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SECTION 4.02. |
Class B Shares |
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SECTION 4.03. |
Certificates |
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24 |
SECTION 4.04. |
Preemptive Rights |
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24 |
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ARTICLE V CORPORATE GOVERNANCE |
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27 |
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SECTION 5.01. |
Board Composition |
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SECTION 5.02. |
Removal and Replacement of Directors |
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29 |
SECTION 5.03. |
Negative Control Rights |
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30 |
SECTION 5.04. |
Board Observers |
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33 |
SECTION 5.05. |
Committees |
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34 |
SECTION 5.06. |
Expense Reimbursement |
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35 |
SECTION 5.07. |
Controlled Company |
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35 |
SECTION 5.08. |
Additional Governance Matters |
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35 |
SECTION 5.09. |
Amendments to the Certificate of Incorporation and the Bylaws |
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36 |
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ARTICLE VI TRANSFERS OF SHARES |
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36 |
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SECTION 6.01. |
Restrictions on Transfers |
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36 |
SECTION 6.02. |
Certain Transfers Permitted at Any Time |
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38 |
SECTION 6.03. |
Tag-Along Rights |
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39 |
SECTION 6.04. |
Drag-Along Rights |
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43 |
SECTION 6.05. |
Right of First Refusal |
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46 |
SECTION 6.06. |
Effect of Repurchases and Transfers |
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48 |
SECTION 6.07. |
Repurchase; Forfeiture |
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48 |
TABLE OF CONTENTS
(Continued)
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Page |
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ARTICLE VII REPRESENTATIONS AND WARRANTIES; CERTAIN OTHER AGREEMENTS |
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51 |
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SECTION 7.01. |
Representations and Warranties of the Company |
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51 |
SECTION 7.02. |
Representations and Warranties of the Legacy Stockholders |
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52 |
SECTION 7.03. |
Competing Activities |
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54 |
SECTION 7.04. |
KORBA Assets |
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54 |
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ARTICLE VIII MISCELLANEOUS |
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55 |
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SECTION 8.01. |
Expenses |
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55 |
SECTION 8.02. |
Further Assurances |
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55 |
SECTION 8.03. |
Notices |
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56 |
SECTION 8.04. |
No Third Party Beneficiaries |
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57 |
SECTION 8.05. |
Waiver; Cumulative Remedies |
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57 |
SECTION 8.06. |
Governing Law; Consent to Jurisdiction |
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57 |
SECTION 8.07. |
Counterparts |
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58 |
SECTION 8.08. |
Entire Agreement |
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58 |
SECTION 8.09. |
Headings |
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59 |
SECTION 8.10. |
Termination of Agreement |
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59 |
SECTION 8.11. |
Severability |
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59 |
SECTION 8.12. |
WAIVER OF JURY TRIAL |
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59 |
SECTION 8.13. |
Amendment |
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59 |
SECTION 8.14. |
Confidentiality |
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60 |
SECTION 8.15. |
Representation by Counsel |
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62 |
SECTION 8.16. |
Exhibits and Schedules |
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62 |
SECTION 8.17. |
Specific Performance |
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62 |
SECTION 8.18. |
Reliance on Authority of Person Signing Agreement |
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62 |
SECTION 8.19. |
Restriction on Voting |
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62 |
SECTION 8.20. |
Survival of Certain LLC Agreement Tax Provisions |
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62 |
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SCHEDULE A |
Capitalization; Notice Information |
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SCHEDULE B |
Directors |
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EXHIBIT A |
Second Amended and Restated Certificate of Incorporation |
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EXHIBIT B |
Amended and Restated Bylaws |
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EXHIBIT C |
Form of Addendum Agreement |
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STOCKHOLDERS AGREEMENT
This Stockholders Agreement, dated as of August 30, 2013 (the Effective Date ), is entered into by and among EP Energy Corporation, a Delaware corporation (the Company ), and those stockholders of the Company listed on the signature pages hereto (as amended, supplemented or modified from time to time, this Agreement ). Unless otherwise specified, capitalized terms used herein shall have the respective meanings set forth in Article I . The Company, the Legacy Stockholders and any Stockholder joined as a party to this Agreement pursuant to the provisions hereof are sometimes collectively referred to herein as the Parties and each is sometimes referred to herein as a Party .
RECITALS
WHEREAS, the Company was incorporated pursuant to the DGCL by the filing of the Certificate of Incorporation of the Company with the Secretary of State of the State of Delaware on August 8, 2013 (the Original Certificate of Incorporation );
WHEREAS, the Company amended and restated the Original Certificate of Incorporation by filing the Amended and Restated Certificate of Incorporation of the Company with the Secretary of State of the State of Delaware on the Effective Date (as the same may be amended, restated or otherwise modified from time to time, the Certificate of Incorporation );
WHEREAS, each Legacy Stockholder or its predecessor in interest (as applicable) was a party to that certain Second Amended and Restated Limited Liability Company Agreement of EPE Acquisition, LLC, a Delaware limited liability company (the LLC ), dated as of May 24, 2012 (the LLC Agreement ), and each Legacy Class A Stockholder or its predecessor in interest (as applicable) held membership interests in the form of Class A Units in the LLC and the Legacy Class B Stockholder held membership interests in the form of Class B Units in the LLC;
WHEREAS, in connection with a restructuring of the LLC and its Subsidiaries as contemplated in the LLC Agreement, certain of the Legacy Class A Stockholders contributed their Class A Units in the LLC to the Company in exchange for the issuance by the Company to such Legacy Class A Stockholders of Class A Shares and the Legacy Class B Stockholder contributed its Class B Units in the LLC to the Company in exchange for the issuance by the Company to the Legacy Class B Stockholder of Class B Shares;
WHEREAS, certain other Legacy Class A Stockholders, which previously held Class A Units in the LLC indirectly through their predecessors in interest, contributed their entire ownership interests in such predecessors in interest to the Company in exchange for the issuance by the Company to such Legacy Class A Stockholders of Class A Shares and the Company now holds indirectly through its ownership of such predecessors in interest, such Class A Units in the LLC; and
WHEREAS, certain of the Legacy Stockholders registration rights following an IPO shall be governed by a Registration Rights Agreement, dated as of the date hereof, by and among the Company and the parties thereto (as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the Registration Rights Agreement ).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. Definitions . (a) The following terms shall have the following meanings for the purposes of this Agreement:
Access Stockholder means Texas Oil & Gas Holdings LLC, a Delaware limited liability company, and/or its Permitted Transferees (as the case may be).
Addendum Agreement means an Addendum Agreement in the form attached hereto as Exhibit C .
Affiliate shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Apollo Stockholder shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Applicable Governance Rules means, with respect to any period of time following the Registration Statement Effective Date, applicable federal and state securities Laws and the rules of the NYSE relating to the Board and the corporate governance of the Company, including, without limitation, Rule 10A-3 of the Exchange Act and Rule 303A of the NYSE Listed Company Manual.
Available Cash shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Available Cash Dividends shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Award Agreement means, with respect to EEH Units issued by EEH, the Management Incentive Unit Agreement setting forth the vesting, forfeiture, repurchase and other terms applicable to such EEH Units.
Board means the Board of Directors of the Company.
Business Day shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Bylaws means the Bylaws of the Company adopted as of the Effective Date, as the same may be amended, restated or supplemented from time to time.
Capital Proceeds shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Capital Transaction shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Change of Control means: (i) an acquisition by any Person or group of Persons of Equity Securities of the Company, whether already outstanding or newly issued, in a transaction or series of transactions, if immediately thereafter such Person or group of Persons (other than the Apollo Stockholder, the Principal Stockholders or their respective Affiliates or a wholly-owned Subsidiary of the Company) has, or would have, directly or indirectly, beneficial ownership of fifty percent (50%) or more of the combined Equity Securities or voting power of the Company, excluding, for the avoidance of doubt, Class B Shares; (ii) the sale of all or substantially all ( i.e. , eighty percent (80%) or more) of the assets of the Company and its Subsidiaries, taken as a whole, directly or indirectly, to any Person or group of Persons (other than the Apollo Stockholder, the Principal Stockholders or their respective Affiliates or a wholly-owned Subsidiary of the Company) in a transaction or series of transactions; or (iii) the consummation of a tender offer, merger, recapitalization, consolidation, business combination, reorganization or other transaction, or series of related transactions, involving the Company and any other Person or group of Persons; unless, in the case of clause (iii) of this definition, both (1) then-existing Legacy Stockholders, immediately prior to such transaction or the first transaction in such series of transactions, will beneficially own more than fifty percent (50%) of the combined Equity Securities or voting power of the Company (or, if the Company will not be the surviving entity in such transaction or series of transactions, such surviving entity) immediately after such transaction or series of transactions and (2) individuals who are Directors, immediately prior to such transaction or the first transaction in such series of transactions, will be entitled to cast at least a majority of the votes of the Board (or the board of managers or equivalent body of such surviving entity, as the case may be) after the closing of such transaction or series of transactions. As used in this definition of Change of Control, the term group shall have the same meaning of such term is used in Rule 13d-5 of the United States Securities Exchange Act of 1934, as amended. For the avoidance of doubt, this definition of Change of Control shall not include an IPO.
Class A Shares means shares of Class A common stock of the Company, par value $0.01 per share.
Class A Stockholder means a holder of Class A Shares.
Class B Consideration shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Class B Exchange shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Class B Exchange Amount shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Class B Shares means shares of Class B common stock of the Company, par value $0.01 per share.
Class B Stockholder means a holder of Class B Shares.
Co-Investment Stockholder means each of or, collectively (i) EPE 892 Co-Investors I, L.P., a Delaware limited partnership, (ii) EPE 892 Co-Investors II, L.P., a Delaware limited partnership, (iii) EPE 892 Co-Investors III, L.P., a Delaware limited partnership, (iv) EPE Domestic Co-Investors, L.P., a Delaware limited partnership, and (v) EPE Overseas Co-Investors (FC), L.P., a Caymans Islands exempted limited partnership.
Code means the Internal Revenue Code of 1986, as amended.
Company Governing Documents means, collectively, the Certificate of Incorporation and the Bylaws.
control (including the terms controlling and controlled ), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of such subject Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.
Debt Securities means Securities evidencing Indebtedness of the Company and its Subsidiaries of the type set forth in clause (ii) of the definition of Indebtedness.
DGCL means the Delaware General Corporation Law, as amended.
Drag-Along Portion means, with respect to each Legacy Class A Stockholder in connection with a Drag-Along Sale, a number of Class A Shares equal to (i) if the Prospective Drag-Along Seller(s) is not the Company, (A) the number of Class A Shares held by such Legacy Class A Stockholder, multiplied by (B) a fraction, expressed as a percentage, the numerator of which is the number of Class A Shares to be acquired from the Prospective Drag-Along Seller in the Drag-Along Notice and the denominator of which is the number of Class A Shares held by such Prospective Drag-Along Seller(s), or (ii) if the Prospective Drag-Along Seller(s) is the Company, (A) the number of Class A Shares held by such Legacy Class A Stockholder, multiplied by (B) a
fraction, expressed as a percentage, the numerator of which is the number of Class A Shares to be acquired by the Drag-Along Purchaser in the Drag-Along Notice and the denominator of which is the number of issued and outstanding Class A Shares.
EEH means EPE Employee Holdings, LLC, a Delaware limited liability company.
EEH II means EPE Employee Holdings II, LLC, a Delaware limited liability company.
EEH Agreement means the Third Amended and Restated Limited Liability Company Agreement of EEH, dated as of the date hereof, as the same may be amended, supplemented or otherwise modified from time to time.
EEH Corresponding Shares means, with respect to each EEH Member, a number of Class B Shares held by EEH that corresponds to the number of EEH Units of each series of EEH Units held by such EEH Member.
EEH Member means a member of EEH.
EEH Units means the Class B Units, as defined in the EEH Agreement.
EMI means EPE Management Investors, LLC, a Delaware limited liability company.
EMI Agreement means the Third Amended and Restated Limited Liability Company Agreement of EMI, dated as of the date hereof, as the same may be amended, supplemented or otherwise modified from time to time.
EMI Member means a member of EMI.
EMI Corresponding Class A Shares means, with respect to any EMI Member, a number of Class A Shares held by EMI that corresponds to the number of EMI Units held by such EMI Member.
EMI Proportionate Share means, with respect to any EMI Member, as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the number of EMI Units held by such EMI Member as of such date and the denominator of which is the aggregate number of EMI Units held by all of the EMI Members as of such date.
EMI Units means the Class A Units, as defined in the EMI Agreement.
Enforceability Exceptions means (i) any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors rights generally, and (ii) any legal
principles of general applicability governing the availability of equitable remedies, including principles of commercial reasonableness, good faith and fair dealing (whether considered in a proceeding in equity or at law or under applicable legal codes).
EPE Overseas Co-Investors means each of, or collectively, (i) EPE Overseas Co-Investors, L.P., a Cayman Islands exempted limited partnership, (ii) EPE Overseas Co-Investors II, L.P., a Cayman Islands exempted limited partnership and (iii) EPE Overseas Co-Investors III, L.P., a Cayman Islands exempted limited partnership. For the avoidance of doubt, each of EPE Overseas Co-Investors, L.P., EPE Overseas Co-Investors II, L.P. and EPE Overseas Co-Investors III, L.P. is a limited partner of EPE Overseas Co-Investors (FC), L.P., which is a Co-Investment Stockholder.
Equity Security has the meaning ascribed to such term in Rule 405 under the Securities Act, and in any event, includes any security having the attendant right to vote for directors or similar representatives and any general or limited partner interest in any Person.
Exchange Act means the United States Securities Exchange Act of 1934 (as amended) and the rules and regulations thereunder.
Fair Market Value shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Fiscal Year shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
GAAP shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Governmental Authority means any: (i) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (ii) U.S. and other federal, state, local, municipal, foreign or other government; or (iii) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity, any court or other tribunal).
Hedging Obligation means, with respect to any Person, any liability of such Person under any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.
Indebtedness of a Person means, at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (excluding contingent obligations under surety bonds), (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising and paid in
the ordinary course of business, (iv) the capitalized amount of all capital leases of such Person, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, bankers acceptance, surety bond or similar instrument, (vi) all Equity Securities of such Person subject to repurchase or redemption otherwise than at the sole option of such Person, (vii) all obligations of a type described in clauses (i) through (vi) and clauses (viii) and (ix) of this definition secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (viii) all Hedging Obligations of such Person, and (ix) all Indebtedness of others guaranteed by such Person. Any obligation constituting Indebtedness solely by virtue of the preceding clause (vii) shall be valued at the lower of the Fair Market Value of the corresponding asset and the aggregate unpaid amount of such obligation.
Independent Director means a Director who, as of the date of such Directors election or appointment to the Board and as of any other date on which the determination is being made, a Director who would qualify as an independent director of the Company, each Legacy Stockholder and their respective Affiliates under Rule 303A(2) of the NYSE Listed Company Manual (assuming for this purpose that it applies to each such Person).
IPO shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
KNOC Stockholder means Korea National Oil Corporation, a corporation duly organized and existing under the laws of Korea, and/or its Permitted Transferees (as the case may be).
Legacy Class A Pro Rata Portion means, as of any date of determination, with respect to any Legacy Class A Stockholder, a fraction, expressed as a percentage, the numerator of which is the number of Class A Shares held by such Legacy Class A Stockholder as of such date and the denominator of which is the aggregate number of Class A Shares held by all of the Legacy Class A Stockholders as of such date.
Legacy Class A Stockholder means a holder of Class A Shares as of the date hereof that is a party to this Agreement and any Permitted Transferee thereof joined to this Agreement as a party.
Legacy Class B Stockholder means a holder of Class B Shares as of the date hereof that is a party to this Agreement, any Permitted Transferee thereof joined to this Agreement as a party and EEH II following the issuance of Class B Shares to EEH II pursuant to Section 4.02(b) and its joinder to this Agreement as a Party.
Legacy Stockholder means any Legacy Class A Stockholder or Legacy Class B Stockholder.
Letter Agreements means, collectively, the letter agreements entered into prior to the date hereof by and among certain Affiliates of the Apollo Stockholder
and certain Upper-Tier Co-Investors (in each case, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof).
Leverage Ratio means with respect to the Company and its Subsidiaries or their predecessors in interest (as applicable) on a consolidated basis, as of any date of determination, the quotient of (i) the aggregate notional principal amount of all outstanding Indebtedness, divided by (ii) for the last four (4) fiscal quarters for which financial statements are available, net income plus , without duplication, (A) interest expense, (B) income taxes (whether paid or deferred) and (C) depreciation and amortization.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.
Losses means, with respect to any indemnity specified herein, the amount of any liability, loss, cost, expense, claim, award, judgment, settlement, obligation, damage, injury, tax, fine, Lien, penalty or deficiency incurred or suffered by any Person entitled to indemnification hereunder arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise, including interest thereon and reasonable fees, expenses and disbursements of attorneys, consultants, accountants or other Representatives and experts incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.
Major Stockholder means, as of any date of determination, any Legacy Class A Stockholder (other than the Apollo Stockholder, the Principal Stockholders and EMI) that holds at least 200,000 Class A Shares, but less than 500,000 Class A Shares; provided , however , that if any such Legacy Class A Stockholder ceases to hold at least 200,000 Class A Shares, such Legacy Class A Stockholder shall cease to be a Major Stockholder. Notwithstanding the foregoing, a Co-Investment Stockholder shall only be deemed a Major Stockholder with respect to each of its Upper-Tier Co-Investors who would otherwise be a Major Stockholder if such Upper-Tier Co-Investor held a portion of such Co-Investment Stockholders Class A Shares directly (based on such Upper-Tier Co-Investors relative direct or indirect percentage interest in the equity of such Co-Investment Stockholder), rather than indirectly through such Co-Investment Stockholder (each, a Major Upper-Tier Co-Investor ); provided , however , that if a Major Upper-Tier Co-Investor ceases to hold equity interests (whether directly or indirectly) in such Co-Investment Stockholder representing a direct or indirect capital investment in the Company of at least $200,000,000, such Co-Investment Stockholder shall cease to be deemed a Major Stockholder with respect to any such Major Upper-Tier Co-Investor; provided , further , that solely for the purposes of Section 3.04 , each Upper-Tier Co-Investor of such Co-Investment Stockholder that holds Equity Securities (whether
directly or indirectly) in such Co-Investment Stockholder representing an indirect capital investment in the Company of at least $49,300,000, shall be deemed a Major Upper-Tier Co-Investor. Following the Registration Statement Effective Date, the thresholds set forth in this definition shall be read to give effect to any Class A Share split or recapitalization consummated in connection with such IPO in an equitable manner so as to preserve the original intent of the Parties hereunder with respect to this definition and to give effect to the relative proportionate ownership of Class A Shares among the Legacy Class A Stockholders.
Major Upper-Tier Co-Investor has the meaning ascribed to such term in the definition of Major Stockholder.
Majority-in-Interest means, as of any date of determination, the Legacy Class A Stockholders holding a majority of the outstanding Class A Shares held by the Legacy Class A Stockholders as of such date.
Management Agreements means, collectively, the MIP Agreement, the Award Agreements, the Subscription Agreement, employment agreements and other similar documentation entered into by and among the Company, EMI, EEH with or relating to certain employees and members of management of the Company and its Subsidiaries.
Management Fee Agreement means the Management Fee Agreement, dated as of May 24, 2012, by and among the LLC, one or more of the Companys Subsidiaries and certain Stockholders, Affiliates of certain Stockholders and certain Upper-Tier Co-Investors set forth on the signature pages thereto, as the same may be amended, supplemented or otherwise modified from time to time.
Marketable Securities means Securities that are (i) traded on an established U.S. national or non-U.S. securities exchange, (ii) reported through NASDAQ or a comparable established non-U.S. over-the-counter trading system, or (iii) otherwise traded over-the-counter or purchased and sold in transactions effected pursuant to Rule 144A under the Securities Act and that are the subject of registration rights exercisable after customary lock-up periods or are otherwise freely tradable.
Maximum ROFR Portion means, with respect to any Eligible Class A Stockholder exercising its right of first refusal pursuant to Section 6.05 , a number of Specified Class A Shares equal to (i) the number of Specified Class A Shares proposed to be Transferred in the ROFR Notice, multiplied by (ii) a fraction, expressed as a percentage, the numerator of which is the number of Class A Shares held by such Eligible Class A Stockholder and the denominator of which is the number of Class A Shares held by all Eligible Class A Stockholders.
Maximum Tag-Along Portion means, with respect to any Tag-Along Stockholder exercising its Tag-Along Rights, a number of Class A Shares equal to (i) the number of Class A Shares held by such Tag-Along Stockholder, multiplied by (ii) a fraction expressed as a percentage, the numerator of which is the number of Class A
Shares proposed to be sold by the Tag-Along Seller in such Tag-Along Sale and the denominator of which is the aggregate number of Class A Shares held by such Tag-Along Seller.
MIP Agreement means the Management Incentive Plan Agreement entered into by EEH and the Company, dated as of the date hereof, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, evidencing the issuance of the Class B Shares to EEH.
MOIC shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
NYSE means the New York Stock Exchange.
Person means any individual, firm, corporation, partnership, limited liability company, trust, estate, joint venture, Governmental Authority or other entity.
Preemptive Stockholder means each Legacy Class A Stockholder and any Permitted Transferee thereof.
Principal Stockholders means, collectively, the Riverstone Stockholder, the KNOC Stockholder and the Access Stockholder.
Pro Rata or Pro Rata Portion means, as of any date of determination, (i) with respect to any Legacy Class A Stockholder, a fraction, expressed as a percentage, the numerator of which is the number of Class A Shares held by such Legacy Class A Stockholder as of such date and the denominator of which is the number of Class A Shares outstanding as of such date, (ii) with respect to each EEH Member, a fraction, expressed as a percentage, the numerator of which is the number of EEH Units held by such EEH Member as of such date and the denominator of which is the number of EEH Units outstanding as of such date, and (iii) with respect to any Stockholder of any other group or class of Stockholders, a fraction, expressed as a percentage, the numerator of which is the number of Shares or other Equity Securities of the Company (as the case may be) held by such Stockholder as of such date and the denominator of which is the aggregate number of Shares or other Equity Securities of the Company (as the case may be) held by all of the Stockholders of such group or class as of such date.
Qualified Offering means an IPO or Subsequent Public Offering (i) for which cash proceeds to be received by the Company and the holders of Equity Securities participating in such offering (or series of offerings and without deducting underwriting discounts, expenses and commissions) are at least $250,000,000, (ii) where the Equity Securities being registered in such IPO or Subsequent Public Offering are listed on a national securities exchange, and (iii) where the MOIC after giving effect to such IPO or Subsequent Public Offering (or series of offerings) would be at least two (2).
Registrable Securities has the meaning set forth in the Registration Rights Agreement.
Registration Statement Effective Date means the first day of the effectiveness of a Company registration statement under the Securities Act in connection with an IPO (other than a registration statement on Forms S-4 or S-8).
Representatives means with respect to any specified Person, such Persons current, former or future (as applicable) officers, directors, managers, shareholders, partners, members, equity holders, parents, agents, employees, representatives (including attorneys, accountants, consultants, bankers and financial advisors of such Person or its Affiliates) and Affiliates (including, with respect to any Legacy Class A Stockholder, any Director(s) and Board Observer(s) designated by such Legacy Class A Stockholder).
Restructuring Agreement means the Restructuring Agreement, dated as of August 30, 2013, by and among the LLC, EPE Overseas Co-Investors (DC), LLC, a Delaware limited liability company, EPE 892 and TE Co-Investors (DC), LLC, a Delaware limited liability company, Apollo (EPE Intermediate DC I), LLC, a Delaware limited liability company, Apollo (EPE Intermediate DC II), LLC, a Delaware limited liability company, and the other parties listed on the signature pages thereto.
Riverstone Stockholder shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Sale shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Secondary Offering shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Securities means any stock, shares, units, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as securities or any certificates of interest, shares or participations in temporary or interim certificates for purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
Securities Act means the United States Securities Act of 1933 (as amended) and the rules and regulations thereunder.
Shares means, collectively, Class A Shares and Class B Shares.
Specified Stockholders shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Stockholder shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Subscription Agreement means the Subscription Agreement entered into by EMI and the Company, dated as of the date hereof, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, pursuant to which the Company was granted certain rights to repurchase Class A Shares to EMI.
Subsequent Public Offering shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Subsequent Sale shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Subsidiary shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Threshold Capital Transaction shall have the meaning set forth in the Certificate of Incorporation, as in effect on the Effective Date.
Transaction Fee Agreement means the Transaction Fee Agreement, dated as of May 24, 2012, by and among the LLC, one or more of the Companys Subsidiaries and certain Stockholders, and Affiliates of certain Stockholders, set forth on the signature pages thereto, as the same may be amended, supplemented or otherwise modified from time to time.
Transfer means any sale, assignment, transfer, exchange, gift, bequest, pledge, hypothecation or other disposition or encumbrance, direct or indirect, in whole or in part, by operation of law or otherwise, and shall include all matters deemed to constitute a Transfer under Article VI . The terms Transferred , Transferring , Transferor and Transferee have meanings correlative to the foregoing.
Treasury Regulations mean the regulations promulgated under the Code.
Unvested Class B Share means any Class B Share that has not vested pursuant to the terms and conditions of the MIP Agreement.
Upper-Tier Agreements means, collectively, the limited partnership agreements, limited liability company agreements and other organizational, constituent or structural documents entered into by (or prepared for the benefit of) the Upper-Tier Investors in respect of their direct and indirect ownership interests (by way of equity, debt or otherwise) in one or more of the Legacy Stockholders (including, for the avoidance of doubt, each Co-Investment Stockholder, EPE Overseas Co-Investors, EMI and EEH).
Upper-Tier Co-Investor means any Person who is the direct or indirect ultimate holder of Equity Securities in a Co-Investment Stockholder or an EPE Overseas Co-Investor (including any Permitted Transferee (as defined in the applicable Upper-Tier Agreement) of such Person), in such Persons capacity as a limited partner or other equity
holder of a limited partnership or other investment vehicle, or series of limited partnerships or other investment vehicles, that, in turn, directly or indirectly holds an equity interest in such Co-Investment Stockholder or such EPE Overseas Co-Investor. For the avoidance of doubt: (i) each direct limited partner, member or other investor of any Co-Investment Stockholder or any EPE Overseas Co-Investor shall constitute an Upper-Tier Co-Investor, and (ii) the term Upper-Tier Co-Investor does not include the Upper-Tier Management Investors.
Upper-Tier Investors means, collectively, the Upper-Tier Co-Investors and the Upper-Tier Management Investors.
Upper-Tier Management Investor means any EEH Member or EMI Member that is a holder of vested EEH Units, unvested EEH Units or EMI Units, as applicable.
Vested Class B Share means any Class B Share that has vested pursuant to the terms and conditions of the MIP Agreement.
(b) As used in this Agreement, each of the following capitalized terms shall have the meaning ascribed to them in the Section set forth opposite such term:
Term |
|
Section |
Access Director |
|
Section 5.01(a) |
Accounting Firm |
|
Section 3.02(b) |
Additional Purchase Right |
|
Section 4.04(b) |
Additional Securities |
|
Section 4.04(a) |
additional vehicle |
|
Section 2.01(a) |
Agreement |
|
Preamble |
Annual Budget |
|
Section 3.03 |
Apollo Director |
|
Section 5.01(a) |
Applicable Obligations |
|
Section 2.01(a)(ii) |
Applicable Rights |
|
Section 2.01(a)(i) |
Applicable Understandings |
|
Section 2.01(a)(iii) |
Board Designation Rights |
|
Section 5.01(e) |
Board Observer |
|
Section 5.04(b) |
CEO |
|
Section 5.01(a) |
Certificate of Incorporation |
|
Recitals |
Class I Director |
|
Section 5.01(b)(i) |
Class II Director |
|
Section 5.01(b)(ii) |
Class III Director |
|
Section 5.01(b)(iii) |
Committee |
|
Section 5.05(a) |
Company |
|
Preamble |
Company Option Period |
|
Section 6.05(b) |
Confidential Information |
|
Section 8.14(b) |
Director |
|
Section 5.01(a) |
Term |
|
Section |
Disinterested Director Approval |
|
Section 5.03(b) |
Drag-Along Notice |
|
Section 6.04(a) |
Drag-Along Purchaser |
|
Section 6.04(a) |
Drag-Along Sale |
|
Section 6.04(a) |
Drag-Along Shares |
|
Section 6.04(a) |
Drag-Along Terms |
|
Section 6.04(a) |
EEH Corresponding Excess Amount |
|
Section 6.07(d)(i) |
Effective Date |
|
Preamble |
Eligible Class A Stockholder |
|
Section 6.05(a) |
Eligible Class A Stockholder Option Period |
|
Section 6.05(b) |
Eligible Class A Stockholders |
|
Section 6.05(a) |
Excess Specified Class A Shares |
|
Section 6.05(b) |
Exercise Notice |
|
Section 6.05(b) |
Family Member |
|
Section 6.02 |
KNOC Director |
|
Section 5.01(a) |
KNOC Stockholder Indemnified Parties |
|
Section 7.04 |
KORBA |
|
Section 7.04 |
KORBA Assets |
|
Section 7.04 |
Korea |
|
Section 7.04 |
Legacy Stockholder Parties |
|
Section 8.14(a) |
LLC |
|
Recitals |
LLC Agreement |
|
Recitals |
LLC Taxable Periods |
|
Section 8.20(a)(i) |
Major Upper-Tier Co-Investor |
|
Section 1.01 |
Management Loan |
|
Section 4.02(c)(ii) |
Member Acceptance |
|
Section 6.07(d)(i) |
Negative Control Condition |
|
Section 5.03(a) |
Offering Class A Stockholder |
|
Section 6.05(a) |
Original Certificate of Incorporation |
|
Recitals |
Parties |
|
Preamble |
Party |
|
Preamble |
Permitted Transfer |
|
Section 6.02 |
Permitted Transferee |
|
Section 6.02 |
Preemptive Notice |
|
Section 4.04(b) |
Preemptive Right |
|
Section 4.04(a) |
Proposed Offeree(s) |
|
Section 4.04(a) |
Proposed ROFR Purchaser |
|
Section 6.05(a) |
Proposed Tag-Along Purchaser |
|
Section 6.03(a) |
Prospective Drag-Along Seller |
|
Section 6.04(a) |
Redemption Notice |
|
Section 6.07(d)(i) |
Redemption Window |
|
Section 6.07(d)(i) |
Registration Rights Agreement |
|
Recitals |
Related Party Transaction |
|
Section 5.03(b) |
Replacement Director |
|
Section 5.02(b) |
Riverstone Director |
|
Section 5.01(a) |
Term |
|
Section |
ROFR Notice |
|
Section 6.05(a) |
ROFR Purchase Price |
|
Section 6.05(a) |
ROFR Purchase Terms |
|
Section 6.05(a) |
Section 2.01 Principle |
|
Section 2.01(a) |
Special Board Approval |
|
Section 5.03(a) |
Specified Class A Shares |
|
Section 6.05(a) |
Tag-Along Exercise |
|
Section 6.03(c) |
Tag-Along Notice |
|
Section 6.03(b) |
Tag-Along Rights |
|
Section 6.03(a) |
Tag-Along Sale |
|
Section 6.03(a) |
Tag-Along Seller |
|
Section 6.03(a) |
Tag-Along Stock |
|
Section 6.03(d) |
Tag-Along Stockholder |
|
Section 6.03(c) |
Tag-Along Terms |
|
Section 6.03(b) |
Third-Party Issuance |
|
Section 4.04(d) |
Valuation Determination |
|
Section 6.07(d)(i) |
Valuation Request |
|
Section 6.07(d)(i) |
SECTION 1.02. Terms and Usage Generally .
(a) The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed to be references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. The terms clause(s) and subparagraph(s) shall be used herein interchangeably. The words include, includes and including shall be deemed to be followed by the phrase without limitation. All accounting terms not defined in this Agreement shall have the meanings determined by GAAP. The words hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to a Person are also to its permitted successors and permitted assigns. Unless otherwise expressly provided herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified, supplemented or restated, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Each reference herein (other than in any Schedule or Exhibit) to Share numbers or amounts shall be appropriately adjusted for any Share split, recapitalization, recombination, reclassification or the like with respect to such Shares occurring after the date hereof. Any references herein to US$, $ or dollars shall mean U.S. dollars.
(b) For purposes of this Agreement, ownership of Class A Shares by a Legacy Class A Stockholder and each Permitted Transferee thereof shall be aggregated for purposes of satisfying any ownership thresholds set forth herein.
ARTICLE II
COORDINATION
SECTION 2.01. Coordination Between the Upper-Tier Investors and the Company via the Co-Investment Stockholders, the EPE Overseas Co-Investors, EMI and EEH .
(a) One or more Affiliates of the Apollo Stockholder have formed certain Legacy Stockholders (specifically, and for the avoidance of doubt, each Co-Investment Stockholder, the EPE Overseas Co-Investors EMI and EEH) as special purpose investment vehicles through which their respective Upper-Tier Investors indirectly invest in the Company. In each case, an Affiliate of the Apollo Stockholder shall serve at all times as the general partner, manager, adviser, managing member, controlling stock-holder or in a similar control-based capacity (whether through the ownership of voting securities, as trustee or executor, by contract or otherwise) with respect to each such Legacy Stockholder (and with respect to any additional partnership, limited liability company, corporation or other vehicle through which the Upper-Tier Investors hold their interests in each such Legacy Stockholder indirectly (an additional vehicle )). In applying the provisions of this Agreement, the Certificate of Incorporation and the Bylaws, the Parties agree that each such Legacy Stockholder shall exercise, comply with, satisfy and otherwise determine equitably its rights, interests, entitlements, obligations, liabilities, agreements, covenants, acknowledgments and understandings for all purposes of this Agreement, the Certificate of Incorporation and the Bylaws for and with respect to each of its Upper-Tier Investors, but, in each case, solely with respect to those Class A Shares or Class B Shares (as applicable) that each such Upper-Tier Investor would have held directly (based on such Upper-Tier Investors relative direct or indirect percentage interests in the equity of its Legacy Stockholder) (in each case, under and in accordance with the terms of this Agreement, the Certificate of Incorporation and the Bylaws, as applicable, and the applicable Upper-Tier Agreements) (the Section 2.01 Principle ). Accordingly, but without limiting the generality of the foregoing, the Parties agree and acknowledge that:
(i) with respect to the rights, interests and entitlements of any such Legacy Stockholder hereunder and thereunder (including those rights, interests and entitlements set forth in Articles III , IV , V and VI ) (collectively, the Applicable Rights ), such Legacy Stockholder may exercise, enforce or seek the benefit of any Applicable Rights of such Legacy Stockholder hereunder with respect to one or more of its Upper-Tier Investors pursuant to the Section 2.01 Principle (and, similarly, with respect to the Applicable Rights of a Major Stockholder hereunder, the applicable Co-Investment Stockholder may exercise, enforce or seek the benefit of any such Applicable Rights with respect to one or more of its Major Upper-Tier Co-Investors pursuant to the Section 2.01 Principle);
(ii) with respect to the obligations and liabilities imposed on any such Legacy Stockholder hereunder and thereunder (including those obligations and liabilities set forth in Articles VI and VII ) (collectively, the Applicable Obligations ), such Legacy Stockholder is expected to take any and all actions with respect to one or more of its Upper-Tier Investors reasonably necessary to allow such Legacy Stockholder to comply with or satisfy such Applicable Obligations, in each case, pursuant to the Section 2.01 Principle (and, similarly, with respect to the Applicable Obligations imposed on a Major Stockholder hereunder, the applicable Co-Investment Stockholder is expected to take any and all actions with respect to one or more of its Major Upper-Tier Co-Investors reasonably necessary to allow such Co-Investment Stockholder to comply with or to satisfy such Applicable Obligations, in each case, pursuant to the Section 2.01 Principle);
(iii) with respect to any other agreements, covenants, acknowledgements or understandings of or with respect to any such Legacy Stockholder hereunder and thereunder (collectively, Applicable Understandings ) such Legacy Stockholder may recognize and give effect to any such Applicable Understanding with respect to one or more of its Upper-Tier Investors pursuant to the Section 2.01 Principle (and, similarly, with respect to any other Applicable Understandings of or with respect to a Major Stockholder hereunder, the applicable Co-Investment Stockholder may recognize and give effect to any such Applicable Understanding with respect to one or more of its Major Upper-Tier Co-Investors pursuant to the Section 2.01 Principle); and
(iv) whenever any such Legacy Stockholder has the right to vote on, consent to, approve or has been afforded any other similar rights with respect to any matter, such Legacy Stockholders vote, consent, approval or exercise of such other similar right shall be cast or exercised on a look through basis, as though each of its Upper-Tier Investors was exercising such vote, consent, approval or similar right directly in accordance with the Section 2.01 Principle based on each such Upper-Tier Investors instructions to the Legacy Stockholder through any additional vehicle with respect to such vote, consent, approval or other similar right.
(b) For the avoidance of doubt, with respect to any Upper-Tier Investor, the Upper-Tier Agreements to which it is a party contains terms and provisions complementary to this Section 2.01 (but, in each case, solely with respect to those Class A Shares or Class B Shares (as applicable) that such Upper-Tier Investor would have held directly (based on such Upper-Tier Investors relative direct or indirect percentage interests in the equity of its Stockholder) had such Upper-Tier Investor been a direct Stockholder). Notwithstanding the foregoing, the Section 2.01 Principle is not intended to, and shall not be implemented or interpreted by the Legacy Stockholders or the Company in such a manner as to, cause an Upper-Tier Investor or any additional vehicle to be treated as owning Shares or an interest in any additional vehicle (except, in all cases, an interest that is legally owned by the Upper-Tier Investor or the additional vehicle directly or through entities that are disregarded as separate from their owner for U.S. federal income tax purposes), in all cases for any purpose (including for U.S. federal income tax purposes).
ARTICLE III
JOINDER; BOOKS AND RECORDS
SECTION 3.01. Joinder .
(a) The name, address, class and number of Shares held of record of each Legacy Stockholder, and the respective Pro Rata Portion of each Legacy Stockholder, in each case as of the date hereof, are set forth on Schedule A . Notwithstanding anything to the contrary in this Agreement, when any Shares are issued, repurchased, redeemed or Transferred in accordance with this Agreement to or from any Stockholder that is or will become a party to this Agreement, the Company shall promptly thereafter amend Schedule A to reflect such issuance, repurchase, redemption or Transfer, the joining of the recipient of such Shares as a substitute Party and the resulting Pro Rata Portion of each Legacy Stockholder and such newly joined Party in its capacity as a Legacy Stockholder and no consent of any Party shall be required in connection with any such amendment.
(b) No Transferee of any Shares initially held by any Legacy Stockholder shall be deemed to be a Party or acquire any rights hereunder, unless (i) such Shares are Transferred in compliance with the provisions of this Agreement (including Article VI ) and with respect to the Class B Shares, in accordance with the MIP Agreement and the applicable Award Agreement and (ii) such Transferee shall have executed and delivered to the Company such instruments as the Company deems necessary or desirable, in its reasonable discretion, to effectuate such Transfer and to confirm the agreement of such Transferee to be bound by all the terms and provisions of this Agreement, including an Addendum Agreement. Upon complying with the immediately preceding sentence, without the need for any further action of any Person, such Transferee or recipient shall be deemed a Party and a Legacy Stockholder. Such Transferee shall enjoy the same rights, and be subject to the same obligations, as the Transferor; provided , that such Transferor shall not be relieved of any obligation or liability hereunder arising prior to the consummation of such Transfer but shall be relieved of all future obligations with respect to the Shares so Transferred. As promptly as practicable after the joinder of such Transferee as a Party, the books and records of the Company shall be changed to reflect such joinder. Notwithstanding anything to the contrary herein, including Section 8.13 , in the event of any joinder of a Transferee pursuant to this Section 3.01(b) , this Agreement shall be deemed amended to reflect such joinder, and any formal amendment of this Agreement (including Schedule A attached hereto) in connection therewith shall only require execution by the Company and such newly joined Party to be effective. The provisions of this Section 3.01 shall apply to any Person that is issued Shares in accordance with the terms hereof (including EEH II pursuant to Section 4.02(b) ) mutatis mutandis .
(c) If a Legacy Stockholder shall Transfer all (but not less than all) its Shares, such Legacy Stockholder shall thereupon cease to be a Legacy Stockholder and a Party and shall not otherwise have any ongoing rights, or otherwise be entitled to any benefits, under this Agreement; provided , however , that notwithstanding
the foregoing, such Legacy Stockholder shall continue to be bound by the provisions of Section 8.14 .
SECTION 3.02. Accounting Information .
(a) Accounting Method . For financial reporting purposes, the books and records of the Company shall be kept on the accrual method of accounting and in accordance with GAAP, in each case, applied in a consistent manner and such books and records shall reflect all Company transactions.
(b) Financial Reports . The books and records of the Company shall be audited as of the end of each Fiscal Year by a Big Four accounting firm (an Accounting Firm ) selected by the Board or the audit committee thereof. The Company shall provide, or otherwise make available, to each Legacy Class A Stockholder (other than EMI and any Legacy Class A Stockholder who notifies the Company in writing that it no longer wishes to receive the following information): (i) on an annual basis, within ninety (90) days after the end of each Fiscal Year, an audited consolidated balance sheet, statement of operations and statement of cash flow of the Company and its Subsidiaries, audited by the Accounting Firm; (ii) on a quarterly basis, within forty-five (45) days after the end of each fiscal quarter, an unaudited quarterly and year-to-date consolidated balance sheet and related statement of operation and statement of cash flow of the Company and its Subsidiaries; (iii) within fifteen (15) Business Days after each calendar month beginning on the first day of the first calendar month after the Closing Date, a monthly report of operations of the Company and its Subsidiaries; and (iv) on an annual basis, within thirty (30) days after the end of each Fiscal Year, the Annual Budget. Such annual, quarterly and monthly financial information referred to in clauses (i) and (ii) above will be prepared in all material respects in accordance with GAAP, subject to year-end audit adjustments and the absence of notes in the case of such quarterly and monthly financial information.
SECTION 3.03. Annual Budget . At least thirty (30) days prior to the end of each Fiscal Year, the Company shall deliver to the Board drafts of the current multi-year business plan (or an update of a prior business plan, as applicable) for the Company and its Subsidiaries and an operating budget (together, the Annual Budget ) for the Company and its Subsidiaries covering the next succeeding Fiscal Year. Such Annual Budget shall be subject to the approval of the Board.
SECTION 3.04. Books and Records . The Company shall keep full and accurate books of account and other records of the Company and its Subsidiaries at its principal place of business. During regular business hours, upon reasonable notice and in a manner that does not unreasonably interfere with the business of the Company and its Subsidiaries, the Apollo Stockholder and each Principal Stockholder and Major Stockholder (a) shall have access to inspect such books and records and the properties of the Company and its Subsidiaries for purposes reasonably related to its ownership of Class A Shares or other Equity Securities of the Company, and (b) upon reasonable request, shall be afforded the opportunity to discuss the affairs of the Company and its Subsidiaries with members of management of the Company. Any request for access to
the books, records, properties and members of management of the Company and its Subsidiaries (as applicable) pursuant to Section 220 of the DGCL shall be granted during regular business hours, upon reasonable notice and in a manner that does not unreasonably interfere with the business of the Company and its Subsidiaries and subject to such other reasonable restrictions permitted by Section 220 of the DGCL. Notwithstanding anything to the contrary herein and for the avoidance of doubt, none of EMI, EMH, or any Upper-Tier Management Investor shall have the right to make, whether directly or indirectly (through EMI or EEH in the case of any Upper-Tier Management Investor), any request of such type or nature as described in this Section 3.04 (other than such requests as are permitted pursuant to Section 220 of the DGCL, which requests shall be subject to the provisions of the immediately preceding sentence). It is acknowledged, understood and agreed that the information contained on Schedule A , each as amended from time to time, other than the names and addresses of the Legacy Stockholders and information on the applicable Schedule that is opposite the name of the requesting Person, shall not be provided to EMI, the EMI Members, the Legacy Class B Stockholders or the EEH Members, other than the CEO and the chief financial officer of the Company, for the purpose of preserving privacy with respect to Share ownership, unless the Board determines otherwise.
ARTICLE IV
SHARES; PREEMPTIVE RIGHTS
SECTION 4.01. Class A Shares . The number of Class A Shares issued to Legacy Class A Stockholders shall be listed on Schedule A , which may be amended from time to time by the Company as required to reflect changes in the number of Class A Shares held by the Legacy Class A Stockholders (including as a result of any repurchase of such Class A Shares pursuant to Section 6.07 ) and to reflect the addition of Legacy Stockholders, or cessation of status as such, or any adjustments for any Class A Share split, Class A Share dividend, recapitalization, recombination, reclassification, or other similar transaction with respect to Class A Shares occurring after the date hereof, and as of the date hereof, the Company has issued to each Legacy Class A Stockholder the number of Class A Shares set forth opposite such Legacy Class A Stockholders name on Schedule A under the heading Number of Class A Shares Held of Record. EMI covenants and agrees, to the extent of its rights under the EMI Agreement, to maintain and enforce the EMI Agreement.
SECTION 4.02. Class B Shares .
(a) General . The number of Class B Shares issued shall be listed on Schedule A , which may be amended from time to time by the Company as required to reflect repurchases and forfeitures of Class B Shares pursuant to this Agreement and the Certificate of Incorporation or the issuance of Class B Shares to EEH II pursuant to Section 4.02(b) or to reflect adjustments for any Class B Share split, Class B Share dividend, recapitalization, recombination, reclassification, or other similar transaction with respect to Class B Shares occurring after the date hereof. EEH hereby covenants and agrees, to the extent of its rights under the EEH Agreement, to maintain and enforce the EEH Agreement.
(b) Issuances by the Company; Incentive Awards . Other than in connection with any adjustment to Class B Shares in connection with a Class B Share split, Class B Share dividend, recapitalization, or the like with respect to Class B Shares occurring after the date hereof, the Company shall not issue any Class B Shares (in whole or fractional numbers) after the date hereof; provided , that promptly following the Effective Date the Company, without further action of the Board, shall issue 70,000 Class B Shares to EEH II and, upon such issuance, EEH II shall execute and deliver an Addendum Agreement to the Company and the Company shall amend Schedule A to reflect such issuance in accordance with Section 3.01 . For the avoidance of doubt, the remaining authorized but unissued Class B units of the LLC have been cancelled in connection with the Restructuring and shall not be available for further issuance by the Company as the successor in interest to the LLC. The Parties agree that the Company shall cause EEH II to grant incentive awards in the aggregate with respect to the full 70,000 Class B Shares issued to EEH II as aforesaid to employees of the Company and its Subsidiaries that would entitle such grantees to receive proceeds in respect of 100% of the Class B Shares held by EEH II corresponding to such incentive awards (including, for the avoidance of doubt, Class A Shares received by EEH II upon a Class B Exchange) and such proceeds shall in all events be distributed to the grantees within six (6) months of EEH IIs receipt thereof. The terms and conditions of such incentive awards, the making of such grants and the allocation among such grantees (including the number and amount of such incentive awards), shall (i) to the extent such grantees are non-officer employees of the Company and its Subsidiaries, be approved by the CEO in his discretion, and (ii) to the extent such grantees are officers of the Company and its Subsidiaries, be approved by the compensation committee of the Board in its discretion; provided , that the CEO may recommend officer grantees to the compensation committee of the Board for its consideration. It is the Companys intention that if the Board otherwise determines to issue incentive awards to Upper-Tier Management Investors or other employees of the Company or its Subsidiaries, then the Board shall have the authority to implement an equity-based incentive compensation plan under which the Company shall reserve a number of Class A Shares for issuance to such Upper-Tier Management Investors or other employees of the Company or its Subsidiaries in accordance with such plan.
(c) Distributions of Class B Shares upon a Capital Transaction or Class B Exchange; Treatment of Management Loans; Proceeds from a Repurchase of Class B Shares .
(i) Immediately prior to the consummation of a Threshold Capital Transaction or a Class B Exchange, EEH shall distribute to each EEH Member his or her Pro Rata Portion of (A) in the case of a Threshold Capital Transaction, the Class B Shares held by EEH, or (B) in the case of a Class B Exchange, the Class B Exchange Amount. Upon the consummation of such Threshold Capital Transaction or Class B Exchange, as applicable, each EEH Member shall be entitled to receive its Pro Rata Portion of any Capital Proceeds or Class A Shares and/or cash in lieu of fractional Class A Shares, as applicable, distributable or issuable in respect of such Class B Shares to the extent set forth in the Certificate of Incorporation. EEH shall cause each EEH Member to comply with and be bound by any representations, warranties, covenants and
agreements (including indemnification obligations) on a Pro Rata basis, to the extent agreed by EEH in any documentation, delivered to the Company in connection with a Class B Exchange pursuant to the Certificate of Incorporation in accordance with the Section 2.01 Principle.
(ii) If the Company makes or has made a loan to any to Upper-Tier Management Investor to fund all or any portion of such Upper-Tier Management Investors purchase of EMI Units (each such loan, inclusive of both the principal amount and any accrued and unpaid interest thereon, a Management Loan ), then until such time as all outstanding amounts under such Management Loan have been repaid in full, including by the reductions described in this Section 4.02(c)(ii) , (A) each distribution of Capital Proceeds otherwise payable to EMI shall be reduced by an amount equal to (x) the amount of such distribution, multiplied by (y) the EMI Proportionate Share attributable to such Upper-Tier Management Investor and (B) if such Upper-Tier Management Investor is also an EEH Member, each distribution of Capital Proceeds or Class B Consideration otherwise payable to EEH, shall be reduced by an amount corresponding to the amount that would be distributable by EEH to such EEH Member in respect of such Upper-Tier Management Investors EEH Units if the amount payable by the Company to EEH (but for this clause (2)) were distributed to EEH pursuant to the Certificate of Incorporation and immediately thereafter distributed by EEH to the EEH Members pursuant to the EEH Agreement, and the amounts specified in clauses (A) and (B), if any, shall be applied to the repayment of any such Management Loan. Notwithstanding the foregoing, for all accounting and other purposes under this Agreement, the amounts of (1) any such reduction pursuant to clause (A) of this Section 4.02(c)(ii) of a distribution otherwise payable to EMI pursuant to the Certificate of Incorporation shall be deemed to have been distributed to EMI (and immediately thereafter distributed by EMI to such Upper-Tier Management Investor pursuant to the EMI Agreement and then paid by such Upper-Tier Management Investor to the Company) and (2) any such reduction pursuant to clause (B) of this Section 4.02(c)(ii) of a distribution otherwise payable to EEH pursuant to the Certificate of Incorporation shall be deemed to have been distributed to EEH (and immediately thereafter distributed by EEH to such Upper-Tier Management Investor pursuant to the EEH Agreement and then paid by such Upper-Tier Management Investor to the Company) .
(iii) Any amount paid (or reduced upon application of Section 4.02(c)(ii) ) to EEH in connection with any repurchase of Class B Units pursuant to Section 6.07 shall be treated as an advance distribution of, and shall reduce by like amount, the next amounts otherwise distributable to the Class B Stockholders pursuant to the Certificate of Incorporation. Notwithstanding anything to the contrary set forth in this Agreement, if any Class B Shares are exchanged pursuant to a Class B Exchange, then the amount of any Capital Proceeds to be distributed to the Class B Stockholders pursuant to the Certificate of Incorporation following such Class B Exchange ( provided , that such related Capital Transaction is a Threshold Capital Transaction or that a Threshold Capital Transaction has been previously consummated) shall be reduced by any amount paid (or reduced upon application of Section 4.02(d)(ii) ) to EEH in connection with any repurchase of Class B Shares pursuant to Section 6.07 . In addition, in connection with any Class B Exchange, the calculations of the number of Class A Shares issued to EEH in
connection with any Class B Exchange shall take into account any amounts paid (or reduced upon application of Section 4.02(c)(ii) ) to EEH in any repurchase of Class B Shares pursuant to Section 6.07 and such number of Class A Shares issued shall be reduced accordingly.
(d) Acceleration of Vesting of Class B Shares in a Class B Exchange; Redemption of Class A Shares .
(i) If the number of Class B Shares to be exchanged by the Company in connection with a Class B Exchange exceeds the number of Vested Class B Shares held by EEH, then, notwithstanding the vesting schedule set forth in the MIP Agreement, a number of Unvested Class B Shares equal to such excess shall vest as of immediately prior to such Class B Exchange and be exchanged in such Class B Exchange up to the Class B Exchange Amount, with any such Class B Shares vesting earlier than as provided in the MIP Agreement to be those out of the next successive group or groups of Class B Shares scheduled to vest under the MIP Agreement.
(ii) Solely for purposes of the provisions relating to a Class B Exchange under the Certificate of Incorporation and any related defined terms used therein, a Sale shall be deemed to include any repurchase or redemption of Class A Shares by the Company from the Specified Stockholders. Without limiting the generality of the immediately preceding sentence, if such repurchase or redemption of Class A Shares occurs prior to the first Sale, then such repurchase or redemption of Class A Shares shall be deemed to be the first Sale solely for the purposes of the provisions relating to a Class B Exchange under the Certificate of Incorporation and any related defined terms used therein.
(e) Recording of Secondary Sales for Legacy Class A Stockholders; Class B Exchange Expenses . The Legacy Class A Stockholders shall promptly notify the Company of any and all Sales or Subsequent Sales, as applicable, for purposes of determining whether a Class B Exchange is to be consummated pursuant to the Certificate of Incorporation. Upon the consummation of a Class B Exchange, the Class B Exchange Amount shall be cancelled by the Company and such cancelled Class B Shares shall not be reissued at any time. The Company shall ensure that following an IPO, Class A Shares issued to the Class B Stockholders pursuant to a Class B Exchange shall be immediately freely transferable under federal securities laws by the Class B Stockholders under a resale registration statement to be filed as soon as reasonably practicable following such IPO and the Company shall use its commercially reasonable efforts to ensure such registration statement is maintained effective at all times thereafter pursuant to applicable federal securities laws. The Company shall bear all of the costs and expenses associated with a Class B Exchange, including the costs and expenses incurred in connection with filing and maintaining a resale registration statement and any underwriting discounts and commissions and brokerage commissions payable by the Class B Stockholders in connection with sales of Class A Shares received by the Class B Stockholders pursuant to a Class B Exchange. For the avoidance of doubt, the rights and benefits applicable to the Class B Stockholders provided pursuant to the foregoing
provisions of this Section 4.02 shall be subject to the Section 2.01 Principle (and, thereby, made available to the EEH Members).
SECTION 4.03. Certificates . Issued and outstanding Shares held by the Legacy Stockholders shall be uncertificated; provided , that the Board may expressly elect to evidence Shares by certificates and if the Board so elects, in addition to any other legend which the Company may deem advisable under the Securities Act, all certificates representing Shares issued to Legacy Stockholders shall be endorsed as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF AUGUST 30, 2013, BY AND AMONG THE ISSUER OF SUCH SECURITIES AND THE OTHER PARTIES NAMED THEREIN. THE TERMS OF SUCH STOCKHOLDERS AGREEMENT INCLUDE, AMONG OTHER THINGS, RESTRICTIONS ON TRANSFER. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER.
SECTION 4.04. Preemptive Rights .
(a) Subject to Section 4.04(e) , until the earlier of a Qualified Offering and a Change of Control, if the Company proposes to issue any additional Shares or other Equity Securities or Debt Securities, or any rights to subscribe for, or option to purchase, or otherwise acquire, any of the foregoing (collectively, Additional Securities ), to any Person(s) (the Proposed Offeree(s) ) or enter into any contract relating to the issuance of such Additional Securities through a private issuance or private placement, then each Preemptive Stockholder shall have the right to purchase ( Preemptive Right ), on the same terms and at the same purchase price per share or other unit of such Additional Securities offered to the Proposed Offeree(s), that number of Additional Securities so that such Preemptive Stockholder would, in the aggregate, after the issuance of all such Additional Securities, hold a Pro Rata Portion of such Additional Securities in the same proportion to each other Preemptive Stockholders Pro Rata Portion in such Additional Securities as their respective Pro Rata Portions immediately prior to such issuance.
(b) In connection with any Preemptive Right, the Company shall, by written notice (the Preemptive Notice ), provide an offer to sell to each Preemptive Stockholder that number of Additional Securities in accordance with Section 4.04(a) , which Preemptive Notice shall include the applicable purchase price per share or other unit, aggregate amount of Additional Securities offered, number or amount of Additional Securities offered to such Preemptive Stockholder based on the respective Pro Rata Portions of the Preemptive Stockholders immediately prior to such issuance, name of Proposed Offeree(s) (if then known), proposed closing date, place and time for the issuance thereof (which shall be no less than thirty (30) days from the date of such notice), and any other material terms and conditions of the offer. Within fifteen (15) days from the date of receipt of the Preemptive Notice, any Preemptive Stockholder wishing to exercise its Preemptive Right concerning such Additional Securities shall deliver notice to the Company setting forth the number of Additional Securities which such Preemptive Stockholder commits to purchase (which may be for all or any portion of such Additional Securities offered to such Preemptive Stockholder in the Preemptive Notice). Each Preemptive Stockholder shall have the additional right (the Additional Purchase Right ) to offer in its notice of exercise to purchase any or all of the Additional Securities not accepted for purchase by any other Preemptive Stockholder, in which event such Additional Securities not accepted by any other Preemptive Stockholder shall be deemed to have been offered to and accepted by the Preemptive Stockholders exercising such Additional Purchase Right in proportion to their respective Pro Rata Portions immediately prior to such issuance on the same terms and at the same price per share or other unit as those specified in the Preemptive Notice, but in no event shall any Preemptive Stockholder exercising its Additional Purchase Right be allocated a number of Additional Securities in excess of the maximum number such Preemptive Stockholder has offered to purchase in its notice of exercise. Each Preemptive Stockholder so exercising its right under this Section 4.04 shall be entitled and obligated to purchase that number of Additional Securities specified in such Preemptive Stockholders notice on the terms and conditions set forth in the Preemptive Notice. Any Additional Securities not accepted for purchase by the Preemptive Stockholders pursuant to this Section 4.04 shall be offered to the Proposed Offeree on the same terms and price per share or other unit as set forth in the Preemptive Notice; provided , however , if such Proposed Offeree does not consummate the purchase of such Additional Securities within ninety (90) days following delivery of the Preemptive Notice, any subsequent proposed issuance of Additional Securities shall once again be subject to the terms of this Section 4.04 .
(c) Notwithstanding anything to the contrary in Section 5.03(b) , no issuance of Additional Securities by the Company to any Preemptive Stockholder pursuant to the exercise by such Preemptive Stockholder of its Preemptive Rights shall require Disinterested Director Approval if all of the other Preemptive Stockholders are entitled to Preemptive Rights in connection with such issuance.
(d) Notwithstanding the requirements of this Section 4.04 , the Company may proceed with any issuance of Additional Securities to a Proposed Offeree (other than any Legacy Stockholder) that would otherwise be subject to this Section 4.04 prior to having complied with the provisions of this Section 4.04 (such issuance, a Third-Party Issuance ); provided , that the Company shall:
(i) provide to each Preemptive Stockholder prompt notice of such Third-Party Issuance;
(ii) within a reasonable period of time (but in any event not more than five (5) Business Days) following the Third-Party Issuance, offer to issue to each Preemptive Stockholder such number or amount of Additional Securities of the type issued in the Third-Party Issuance as may be requested by such Preemptive Stockholder (not to exceed the number or amount of such Additional Securities which is sufficient for such Preemptive Stockholder to hold, after the issuance of all such Additional Securities, its Pro Rata Portion of such Additional Securities as its Pro Rata Portion immediately prior to the Third-Party Issuance), as it would have had if the Company had served a Preemptive Notice pursuant to, and such Preemptive Stockholder had exercised its rights in full under Section 4.04(a) and Section 4.04(b) prior to the Third-Party Issuance, on the same terms and conditions (including price) with respect to such Additional Securities as the Proposed Offerees received in the Third-Party Issuance;
(iii) keep such offer open for a period of fifteen (15) days, during which period, each such Preemptive Stockholder may accept such offer by sending an irrevocable written acceptance to the Company committing to purchase in accordance with the procedures set forth in Section 4.04(b) , an amount of such Additional Securities (not to exceed the amount specified in the offer made pursuant to Section 4.04(d)(ii) ); and
provided , further , that (A) for all purposes under this Agreement, any issuance of Additional Securities to a Preemptive Stockholder pursuant to this Section 4.04(d) shall be deemed to have occurred on the date of the consummation of the applicable Third-Party Issuance and (B) during the period commencing on the consummation of the applicable Third-Party Issuance and ending on the earlier of (x) the consummation of the issuance of Additional Securities to a Preemptive Stockholder pursuant to this Section 4.04(d) and (y) the expiration of the fifteen (15)-day period specified in clause (iii) above, the Additional Securities issued to the Proposed Offeree pursuant to this Section 4.04(d) shall not be taken into account in calculating the Pro Rata Portion of any Stockholder for any purposes under this Agreement.
(e) The provisions of this Section 4.04 shall not apply to issuances of Additional Securities by the Company as follows:
(i) any issuance of Additional Securities upon the exchange, exercise or conversion of any units, options, warrants, debentures or other convertible securities in accordance with their terms that are outstanding on the date hereof or issued after the date hereof in a transaction that complies with the provisions of this Section 4.04 ;
(ii) any issuance of Equity Securities of the Company, including options, warrants or convertible securities, to officers, employees, managers or consultants of the Company or its Subsidiaries in connection with such Persons employment or consulting arrangements with the Company or its Subsidiaries;
(iii) any issuance of Equity Securities of the Company, including options, warrants or convertible securities, in each case, to the extent approved by a Disinterested Director Approval, in connection with (A) any direct or indirect merger, consolidation, business combination or other acquisition transaction involving the Company or its Subsidiaries (whether through merger, recapitalization, acquisition of stock or assets or otherwise) or (B) any joint venture or strategic partnership entered into primarily for purposes other than raising capital (as determined by the Board in its sole discretion);
(iv) any issuance of Additional Securities in connection with any Share split, Share dividend or similar distribution or recapitalization;
(v) any issuance of Equity Securities of the Company, including options, warrants or convertible securities, pursuant to a registered public offering or in connection with an IPO;
(vi) any issuance of Class A Shares in exchange for Class B Shares; or
(vii) the issuance of Class B Shares to EEH II pursuant to Section 4.02(b) .
ARTICLE V
CORPORATE GOVERNANCE
SECTION 5.01. Board Composition .
(a) The Board shall, prior to the Registration Statement Effective Date, be comprised of ten (10) directors (each such director of the Board, a Director ), as follows: (i) five (5) Directors shall be designated by the Apollo Stockholder (each, an Apollo Director ); (ii) two (2) Directors shall be designated by the Riverstone Stockholder (each, a Riverstone Director ); (iii) one (1) Director shall be designated by the KNOC Stockholder (the KNOC Director ), (iv) one (1) Director shall be designated by the Access Stockholder (the Access Director ) and (v) one (1) Director shall be the Chief Executive Officer of the Company (the CEO ).
(b) Notwithstanding the foregoing, as of Registration Statement Effective Date, the Company Governing Documents will be amended and restated in the forms set forth on Exhibit A and Exhibit B hereto. Following such amendment and restatement of the Company Governing Documents and subject to this Agreement and Applicable Governance Rules, the Board shall comprise of thirteen (13) Directors and shall be divided into three classes as follows:
(i) Class I shall consist of (A) two (2) Apollo Directors, (B) one (1) Riverstone Director, and (C) one (1) Independent Director designated by the Apollo Stockholder, each of whom shall serve an initial one (1)-year term (each, a Class I Director );
(ii) Class II shall consist of (A) one (1) Apollo Director, (B) one (1) KNOC Director, (C) one (1) Access Director, and (D) one (1) Independent Director designated by the Riverstone Stockholder, each of whom shall serve an initial two (2)-year term (each, a Class II Director ); and
(iii) Class III shall consist of (A) two (2) Apollo Directors, (B) one (1) Riverstone Director, (C) one (1) Independent Director designated by the Apollo Stockholder, and (D) the CEO, each of whom shall serve an initial three (3)-year term (each, a Class III Director ).
The Apollo Stockholder shall designate one (1) Independent Director to the Board on the Registration Statement Effective Date and designate one (1) Independent Director within one (1) year following the Registration Statement Effective Date and the Riverstone Stockholder shall designate one (1) Independent Director within ninety (90) days following the Registration Statement Effective Date; provided , that the two (2) Independent Directors required to be designated following the Registration Statement Effective Date by the Apollo Stockholder and the Riverstone Stockholder may, at the election of the Apollo Stockholder or the Riverstone Stockholder (as applicable) be designated to the Board on the Registration Statement Effective Date.
(c) Notwithstanding anything to the contrary provided in Section 5.01(a) and Section 5.01(b) , the right of certain Stockholders, as specified in Section 5.01(a) and Section 5.01(b) , to designate Directors to the Board shall be subject to the following:
(i) (A) If the Apollo Stockholder ceases to hold at least seventy-five percent (75%) of the Class A Shares that it held as of the date hereof, but continues to hold at least fifty percent (50%) of the Class A Shares that it held as of the date hereof, the Apollo Stockholder shall be entitled to designate four (4) Directors and, following the Registration Statement Effective Date, two (2) Independent Directors to the Board; (B) if the Apollo Stockholder ceases to hold at least fifty percent (50%) of the Class A Shares that it held as of the date hereof, but continues to hold at least twenty-five percent (25%) of the Class A Shares that it held as of the date hereof, the Apollo Stockholder shall be entitled to designate two (2) Directors and, following the Registration Statement Effective Date, one (1) Independent Director to the Board; (C) if the Apollo Stockholder ceases to hold at least twenty-five percent (25%) of the Class A Shares that it held as of the date hereof, but continues to hold at least ten percent (10%) of the Class A Shares that it held as of the date hereof, the Apollo Stockholder shall be entitled to designate one (1) Director and, following the Registration Statement Effective Date, no Independent Directors to the Board; and (D) if the Apollo Stockholder ceases to hold at least ten percent (10%) of the Class A Shares that it held as of the date hereof, the Apollo Stockholder shall not be entitled to designate any Directors to the Board or to be represented on any Committee.
(ii) (A) If a Principal Stockholder ceases to hold at least fifty percent (50%) of the Class A Shares that it held as of the date hereof, but continues to hold at least twenty percent (20%) of the Class A Shares that it held as of the date
hereof, such Principal Stockholder shall not be entitled to designate any Director to the Board or be represented on any Committee; provided , however , that such Principal Stockholder shall be entitled to designate one (1) Board Observer (or, solely in the case of the Riverstone Stockholder, two (2) Board Observers) and, following the Registration Statement Effective Date, the Riverstone Stockholder shall be entitled to designate one (1) Independent Director to the Board; and (B) if such Principal Stockholder ceases to hold at least twenty percent (20%) of the Class A Shares that it held as of the date hereof, such Principal Stockholder shall not be entitled to designate a Board Observer and, following the Registration Statement Effective Date, with respect to the Riverstone Stockholder, it shall not be entitled to designate an Independent Director to the Board.
(d) The Apollo Stockholder shall have the right to appoint any Director as the Chairman of the Board.
(e) Notwithstanding anything to the contrary herein, the right to designate Directors or Board Observers to the Board pursuant to this Section 5.01 or Section 5.04 , as applicable (the Board Designation Rights ), is personal to each Legacy Class A Stockholder to whom such rights have been granted, and such rights shall not be transferred in connection with the Transfer of any Class A Shares held by such Legacy Class A Stockholder or otherwise, except in connection with a Permitted Transfer.
(f) The names of each Director and the Legacy Class A Stockholder who designated such Director shall be set forth on Schedule B and the Company may amend Schedule B from time to time without the consent of the Board or any Legacy Stockholder to reflect any resignation, retirement, removal, replacement or designation of any Director that has been effected pursuant to this Agreement.
SECTION 5.02. Removal and Replacement of Directors .
(a) Each Director will serve on the Board for such term as set forth in the Company Governing Documents. A Director that is appointed by the Apollo Stockholder or by a Principal Stockholder may be removed and replaced at any time and for any reason (or no reason) only at the direction and upon the approval of the Apollo Stockholder or the Principal Stockholder that designated such Director to the Board. Any Director designated by the Apollo Stockholder or a Principal Stockholder who is no longer entitled to designate such Director pursuant to Section 5.01(c) may be removed upon the approval of a majority of the other Directors; provided , that such majority shall exclude any other Director designated by the Apollo Stockholder or such Principal Stockholder, as the case may be, to the extent that the Apollo Stockholder or such Principal Stockholder, as the case may be, had previously designated the Director who is being removed. The Apollo Stockholder or such Principal Stockholder, as the case may be, shall cooperate with the other Directors and the Company in removing such Director, including by causing such Director to resign from his seat on the Board. Notwithstanding anything to the contrary in this Section 5.02 , in the event that the Apollo Stockholder or any Principal Stockholder loses its right to designate a Director pursuant to Section 5.01(c) , (i) if such Legacy Class A Stockholder is still entitled to designate one (1) or more Directors to the Board, such Legacy Class A Stockholder may choose, in its
sole discretion, which of its designated Directors shall resign from the Board and (ii) if such Legacy Class A Stockholder loses such Board Designation Right following the Registration Statement Effective Time, such resigning Director shall serve out the remainder of his or her term prior to resigning from the Board.
(b) Any vacancy on the Board (whether caused by the death, incapacity, resignation or removal of such Director) shall be filled by a majority vote of the Directors then in office; provided , that for so long as the Legacy Class A Stockholders hold more than fifty percent (50%) of the outstanding Class A Shares, in the event that such vacancy is with respect to a Director that the Apollo Stockholder, a Principal Stockholder or a Majority-in-Interest is entitled to designate to the Board pursuant to this Article V , then each of the Apollo Stockholder, the Principal Stockholders and the Majority-in-Interest shall cause their respective designated Directors then in office to vote in favor of the replacement Director so designated by the Apollo Stockholder, such Principal Stockholder or the Majority-in-Interest (as the case may be). If the Apollo Stockholder or any Principal Stockholder loses its Board Designation Rights with respect to any Board seat and the Legacy Class A Stockholders hold more than fifty percent (50%) of the outstanding Class A Shares, then any vacancy created by the loss of such Board Designation Right shall be filled by a vote of the Majority-in-Interest (each Director designated by such Majority-in-Interest a Replacement Director ); provided , that (i) each Replacement Director shall be an Independent Director and (ii) any potential Replacement Directors fees or similar compensation paid to such Replacement Director shall be taken into account in determining whether such person would qualify as an Independent Director. If the Legacy Class A Stockholders hold more than fifty percent (50%) of the outstanding Class A Shares, a Majority-in-Interest shall have the right to designate a Replacement Director to the Board in the event of the death, incapacity, resignation or removal of a Replacement Director. The Legacy Class A Stockholders hereby covenant and agree to use good faith efforts to fill any vacancy on the Board as promptly as reasonably practicable.
SECTION 5.03. Negative Control Rights .
(a) For so long as the Legacy Class A Stockholders hold twenty-five percent (25%) or more of the outstanding Class A Shares and either the Apollo Stockholder or the Riverstone Stockholder is entitled to designate at least one (1) Director pursuant to this Agreement (the Negative Control Condition ), then the following actions shall require the approval of a majority of all of the Directors then in office, which majority shall include at least one (1) Director designated by the Apollo Stockholder, and at least one (1) Director designated by a Principal Stockholder or one (1) Replacement Director, in each case, for so long as such Legacy Class A Stockholder or the Majority-in-Interest (as applicable) is entitled to designate at least one (1) Director pursuant to this Agreement (such Board approval, a Special Board Approval ):
(i) any increase or decrease in the size or composition of (A) the Board or (B) prior to the Registration Statement Effective Date, the audit or compensation committees of the Board;
(ii) any fundamental changes to the nature of the business of the Company and its Subsidiaries, taken as a whole as of the date hereof, which involves entry by the Company or any of its Subsidiaries into material new and unrelated lines of business;
(iii) any entry by the Company or any of its material Subsidiaries into voluntary liquidation, dissolution or commencement of bankruptcy or insolvency proceedings, the adoption of a plan with respect to any of the foregoing or the decision not to oppose any similar proceeding commenced by a third party;
(iv) the consummation of a Change of Control (including a Drag-Along Sale) or prior to the Registration Statement Effective Date, an IPO;
(v) any material acquisition of assets or equity interests of any Person or any material disposition of assets or equity interests of the Company or its Subsidiaries, in a single transaction or a series of transactions consummated during any twelve-month period, that would involve aggregate consideration payable or receivable by the Company or its Subsidiaries in excess of $100,000,000;
(vi) any redemption, repurchase or other acquisition by the Company of its Equity Securities, other than (A) pursuant to Section 6.07 , (B) pursuant to an offer made to all Legacy Stockholders in their capacity as holders of such class of Equity Securities pro rata in accordance with each such Legacy Stockholders Pro Rata Portion with respect to such Equity Securities (regardless of whether any or all of such Legacy Stockholders elect to participate in such redemption, repurchase or other acquisition), or (C) pursuant to Section 6.05(b) ;
(vii) the incurrence of an aggregate amount of Indebtedness of the Company and its Subsidiaries taken as a whole (other than (A) Indebtedness of the Company and its Subsidiaries as of the date hereof or any refinancing thereof up to the same maximum principal amount of such Indebtedness outstanding as of the date hereof or (B) capital leases contemplated by an Annual Budget) in excess of $250,000,000 or that would result in a Leverage Ratio of 2.5 or greater;
(viii) hiring or firing the CEO, the Chief Financial Officer of the Company or any other member of senior management of the Company and its Subsidiaries, or approving the compensation arrangements of the CEO, the Chief Financial Officer of the Company or any other member of senior management of the Company and its Subsidiaries (subject to the prior approval of the compensation committee of the Board); provided , that any such approval shall be given in accordance with all Applicable Governance Rules and shall be subject to compliance with Section 162(m) of the Code and the related Treasury Regulations and Rule 16b-3 under the Exchange Act, to the extent that the Board elects to satisfy Section 162(m)s outside directors requirements or Rule 16b-3s non-employee directors requirements;
(ix) any payment or declaration of any dividend or other distribution on any Shares or other Equity Securities of the Company or entering into a recapitalization transaction the primary purpose of which is to pay a dividend, other than intra-company dividends among the Company and its Subsidiaries;
(x) approval of the Companys Annual Budget;
(xi) any authorization, creation (by way of reclassification, merger, consolidation or otherwise) or issuance of any Equity Securities of any kind of the Company or its Subsidiaries (other than (A) the issuance of Class B Shares to EEH II or (B) pursuant to any equity compensation plan of the Company approved by the compensation committee of the Board or the issuance of Equity Securities of a Subsidiary of the Company to the Company or a wholly-owned Subsidiary of the Company), including any designation of the rights (including special voting rights) of one or more classes of preferred stock of the Company;
(xii) entry by the Company or any of its Subsidiaries into any agreement that would restrict any Legacy Class A Stockholder (or any of its Affiliates) from entering into or continuing to operate in any line of business or in any geographic area;
(xiii) changing any significant accounting policy of the Company, except as required by GAAP;
(xiv) settling, compromising or initiating any material litigation by the Company or its Subsidiaries;
(xv) any adoption, approval or issuance of any poison pill, stockholder or similar rights plan by the Company or its Subsidiaries or any amendment of such plan after the adoption thereof has received Special Board Approval;
(xvi) any amendment, restatement, modification or waiver of this Agreement;
(xvii) any amendment, restatement, modification or waiver of the Company Governing Documents, except as contemplated by Section 5.01(b) ; and
(xviii) the creation of a non-wholly owned Subsidiary of the Company, other than any non-wholly owned Subsidiary that is an operating joint venture or similar arrangement entered into by the Company or any of its Subsidiaries in the ordinary course of business consistent with past practice.
(b) The consummation of any transaction or series of related transactions involving the Company or any of its Subsidiaries, on the one hand, and any Legacy Stockholder, Director or Affiliate of any Legacy Stockholder or Director (including, for the avoidance of doubt, any Upper-Tier Investor), on the other hand, other than (i) a transaction or series of related transactions that is (A) consummated in the
ordinary course of business of the Company or such Subsidiary, (B) on arms length terms and (C) de minimis in nature (it being understood that any transaction or series of related transactions that involves goods, services, property or other consideration valued in excess of $10,000 shall not be deemed to be de minimis ), (ii) any transaction contemplated by the Transaction Fee Agreement, the Management Fee Agreement, any Management Agreement or any successor agreement thereto (excluding any transactions contemplated by material amendments to the foregoing agreements), and (iii) an acquisition of Additional Securities by a Preemptive Stockholder pursuant to an exercise of its Preemptive Rights pursuant to Section 4.04 ; provided , that all of the other Preemptive Stockholders are entitled to Preemptive Rights with respect to such acquisition (each such transaction, a Related Party Transaction ), shall in each case require the approval of a majority of the Directors, other than those Directors that are (or whose Affiliates are) party to such Related Party Transaction or have been designated by the Legacy Class A Stockholders that are party, or whose Affiliates are party to, such Related Party Transaction (such approval, a Disinterested Director Approval ).
SECTION 5.04. Board Observers .
(a) Each Major Stockholder shall be entitled to designate one (1) Board Observer; provided , that if such Major Stockholder ceases to hold at least fifty percent (50%) of the Class A Shares that it held as of the date hereof, it shall no longer be entitled to designate a Board Observer. EMI shall be entitled to designate two (2) employees of the Company or its Subsidiaries to serve as Board Observers; provided , that (A) if EMI ceases to hold one-hundred percent (100%), but continues to hold at least fifty percent (50%), of the Class A Shares that it held as of the date hereof, EMI shall be entitled to designate one (1) employee of the Company or its Subsidiaries to serve as a Board Observer, and (B) if EMI ceases to hold fifty percent (50%) of the Class A Shares that it held as of the date hereof, it shall no longer be entitled to designate any Board Observers.
(b) Each Board observer that any Legacy Class A Stockholder is entitled to designate pursuant to this Agreement (each, a Board Observer ) shall have the right to attend (in person or telephonically, at each such Board Observers discretion) each meeting of the Board as an observer (and not as a Director) and shall not have the right to vote at any such meeting or act on behalf of the Board; provided , that such Board Observer may be excluded from all or any portion of any such meeting to the extent that the Board determines in good faith and upon the advice of counsel to the Company that such exclusion is required to preserve the attorney-client privilege between the Company and its counsel, or to the extent the respective interests of the Company and its Subsidiaries, and those of the Legacy Class A Stockholder that such Board Observer represents (or its Affiliates or Upper-Tier Investors), as to the matter(s) to be discussed or actions to be taken during such portion of such meeting, conflict or could be perceived to conflict (in the good faith judgment of the Board); provided , further , that any exclusion of a Board Observer from all or any portion of any meeting for any reason other than as set forth in the immediately preceding proviso shall require the prior written consent of the Legacy Class A Stockholder that is entitled to designate such Board Observer pursuant to this Article V (such consent not to be unreasonably withheld, conditioned or delayed).
The Company will send, or cause to be sent, to each Board Observer the notice of the time and place of any such meeting in the same manner and at the same time as notice is sent to the Directors. The Company shall also provide, or cause to be provided, to each Board Observer copies of all notices, reports, minutes and other documents and materials at the same time and in the same manner as they are provided to the Directors; provided , that the failure to deliver or make available one or more of the items described in this sentence or the preceding sentence shall not affect the validity of any action taken by the Board.
SECTION 5.05. Committees .
(a) The Board may, by resolution, designate from among the Directors one or more committees (including an audit committee and a compensation committee) (each, a Committee ), and delegate to such Committee such power, authority and responsibility as the Board determines is appropriate subject to the limitations set forth in the DGCL or in the establishment of the Committee; provided , however , that in no event shall the Board designate an executive committee or similar committee to exercise all or substantially all of the power of the Board when not in session; and provided , further , that each of the audit committee and the compensation committee shall comprise of four (4) Directors designated by the Apollo Stockholder so long as it is entitled to designate a Director to the Board and one (1) Director designated by each of the Principal Stockholders that is then entitled to designate a Director to the Board, except that following the Registration Statement Effective Date, the function and composition of the audit committee and the compensation committee shall comply with Applicable Governance Rules. Notwithstanding the foregoing, for so long as any Legacy Class A Stockholder has Board Designation Rights, each Committee (other than, prior to the Registration Statement Effective Date, the audit committee and the compensation committee, and following the Registration Statement Effective Date subject to Applicable Governance Rules) shall comprise of such number of members that are consistent with, and reflects, the Board Designation Rights of the Legacy Class A Stockholders set forth in Section 5.01 , and for so long as the Negative Control Condition is satisfied (but subject to all Applicable Governance Rules), the Board shall only delegate such power, authority and responsibility to a Committee in a manner that is consistent with, and that does not circumvent, the requirements set forth in Section 5.03(a) . For the avoidance of doubt, following the Registration Statement Effective Date, the ability of the Board to form a Committee shall be subject to the Applicable Governance Rules and the rights and responsibilities of any such Committee and its composition shall be subject to the Applicable Governance Rules and only to the extent they do not conflict with the Applicable Governance Rules, the provisions of this Agreement. Subject to the other provisions of this Section 5.05 , Board Observers shall be entitled to attend (in person or telephonically, at each such Board Observers discretion) Committee meetings as observers (and not as Directors that are members of such Committee) and shall not have the right to vote at any such meeting or act on behalf of such Committee and such attendance shall otherwise be conducted in a manner that is consistent with the other provisions of this Agreement (including the provisos of Section 5.04(b) ), except where such attendance would be required to be disclosed pursuant to Applicable Governance
Rules (unless the Legacy Class A Stockholder entitled to designate such Board Observer consents to such disclosure and such disclosure is in fact made).
(b) The provisions of this Article V (other than Sections 5.01 , 5.02 , and 5.04 ) relating to the Board and the Directors shall apply to each Committee and its members, mutatis mutandis .
SECTION 5.06. Expense Reimbursement . The Company and its Subsidiaries shall reimburse each Legacy Stockholder for all reasonable, out-of-pocket fees and expenses incurred in connection with: (a) conducting the activities of the Board and its Committees whether through a Director or a Board Observer, or (b) material transactions approved by the Board such as public offerings, private placements, financings, amendments to this Agreement and Registration Rights Agreement, recapitalizations and any transactions that would involve a Change of Control; provided , that (i) clause (a) shall not apply to EMI and EEH, and (ii) in the case of clause (b), such fees and expenses shall be reimbursed only if incurred in connection with the modification of such Legacy Stockholders rights and obligations solely as a Stockholder and as a result of the consummation of any such material transaction.
SECTION 5.07. Controlled Company .
(a) The Legacy Class A Stockholders agree and acknowledge that (i) by virtue of this Agreement, they will be acting as a group within the meaning of Section 13(d)(3) of the Exchange Act following the Registration Statement Effective Date for the purpose of causing the Company to qualify as a controlled company under Section 303A of the NYSE Listed Company Manual, and (ii) by virtue of the fact that the Legacy Class A Stockholders will own more than fifty percent (50%) of the Class A Shares outstanding as of the Registration Statement Effective Date (and therefore more than fifty percent (50%) of the voting power of the Class A Shares outstanding as of the Registration Statement Effective Date), the Company will qualify as of the Registration Statement Effective Date as a controlled company within the meaning of Section 303A of the NYSE Listed Company Manual.
(b) For so long as the Company qualifies as a controlled company for purposes of the NYSE rules, the Company will elect to be a controlled company for purposes of the NYSE rules, and will disclose in its annual meeting proxy statement that it is a controlled company and the basis for that determination. If the Company ceases to qualify as a controlled company for purposes of the NYSE rules, the Legacy Class A Stockholders and the Company will take whatever action may be reasonably necessary, if any, to cause the Company to comply with the NYSE rules as then in effect.
SECTION 5.08. Additional Governance Matters . Without limiting the generality of Section 8.02 , each of the Legacy Class A Stockholders agrees that it shall vote its Class A Shares and any Class A Shares that it holds proxies or powers of attorney with respect to or execute consents, as the case may be, and take all other necessary action (including nominating and electing Director designees, and calling an annual or
special meeting of Stockholders and causing their respective Director designees (if any) to vote for or approve or abstain from voting for or approving in respect of matters brought before the Board) in order to ensure that the composition of the Board is as set forth in this Article V and otherwise to give effect to the provisions of this Article V . The nominating committee of the Board shall only nominate the applicable Director designee designated by such Legacy Class A Stockholder or Majority-in-Interest entitled to designate such seat on the Board; provided, that such designee satisfies the applicable qualification requirements. Notwithstanding the foregoing provisions of this Article V , following the Registration Statement Effective Date, the rights of the Legacy Class A Stockholders under this Article V shall be subject to compliance with Applicable Governance Rules and, with respect to the compensation committee, subject to compliance with Section 162(m) of the Code and the related Treasury Regulations and Rule 16b-3 under the Exchange Act to the extent that the Board elects to satisfy Section 162(m)s outside directors requirements or Rule 16b-3s non-employee directors requirements.
SECTION 5.09. Amendments to the Certificate of Incorporation and the Bylaws . Each of the Legacy Class A Stockholders and the Legacy Class B Stockholders agrees that it shall not vote its Shares in favor of any amendment, modification or waiver of, or otherwise act to amend, modify or waive, any provision of the Certificate of Incorporation or the Bylaws in a manner that would disproportionately and materially adversely affect the interests of any Legacy Stockholder (in relation to any other Legacy Stockholder or class of Legacy Stockholders after taking into account or giving effect to the relative designations, preferences and/or special rights of the Shares held by such Legacy Stockholder or class of Legacy Stockholders immediately prior to such amendment, modification or waiver) without the written approval of such Legacy Stockholder.
ARTICLE VI
TRANSFERS OF SHARES
SECTION 6.01. Restrictions on Transfers .
(a) Until the earlier of (i) May 24, 2016 and (ii) the second (2 nd ) anniversary of the consummation of a Qualified Offering, except as provided in this Article VI (including Section 6.01(b) and Section 6.02 ) or with Disinterested Director Approval, no Legacy Stockholder shall Transfer all or any part of its Shares or any right pertaining thereto, including the right to vote or consent on any matter or to receive distributions or advances from the Company pursuant thereto. Any such Transfer, either directly or indirectly, or issuance of Equity Securities by a Legacy Stockholder or its Upper-Tier Investors, with the purpose or effect of circumventing (as determined in good faith by the Board) the foregoing restriction, shall not be in compliance with the provisions of this Agreement, and shall be deemed a Transfer by such Legacy Stockholder of Shares in violation of this Agreement (and a breach of this Agreement by such Legacy Stockholder) and shall be null and void ab initio . The restrictions on Transfer set forth in this Section 6.01 shall in any event expire upon a Change of Control.
(b) The following Transfers of Class A Shares shall not be subject to the restrictions set forth in Section 6.01(a) : (i) any Permitted Transfer, (ii) any Transfer of Shares in connection with a Drag-Along Sale, (iii) any Transfer of Class A Shares in connection with the valid exercise of Tag-Along Rights under Section 6.03 , (iv) any Transfer of Class A Shares pursuant to a public offering in accordance with the Transferring Legacy Class A Stockholders exercise of registration rights pursuant to the Registration Rights Agreement, and (v) following the consummation of a Qualified Offering, but prior to the second (2 nd ) anniversary thereof and, in the case of any Transfer described in this clause (v), subject to the approval of the Board and after the application of the Companys internal conflict of interest policies that are in effect at such time, any Transfer of Registrable Securities, as applicable, (1) pursuant to Rule 144 or pursuant to a block sale to a financial institution in the ordinary course of such Legacy Class A Stockholders or its Upper-Tier Co-Investors trading business, or (2) to such Legacy Class A Stockholders or its Upper-Tier Co-Investors investors or to charitable organizations. Notwithstanding the foregoing, if a Legacy Class A Stockholder desires to effect a Transfer of Shares pursuant to clause (v) of the immediately preceding sentence, then prior to requesting Board approval of such Transfer, such requesting Legacy Class A Stockholder shall provide reasonable advance written notice to each of the other Legacy Class A Stockholders setting forth the number of Securities to be Transferred and if known, the price or the estimated price at which each such Security will be Transferred.
(c) Notwithstanding anything to the contrary set forth in this Section 6.01 (including, for the avoidance of doubt, the last sentence of Section 6.01(a) ), but subject to the provisions of Section 6.02 : (i) until the earlier of (A) May 24, 2016 and (B) the second (2 nd ) anniversary of the consummation of a Qualified Offering, neither EMI nor its Upper-Tier Management Investors shall Transfer all or any part of its Class A Shares or EMI Units (as applicable) or any right pertaining thereto without the prior approval of the Board at any time, except as otherwise provided in clauses (i), (ii), (iii) and (iv) of Section 6.01(b) ; and (ii) except for a Transfer of Class B Shares in connection with a Drag-Along Sale or pursuant to a Permitted Transfer, a Threshold Capital Transaction, a Class B Exchange, a dissolution of EEH in accordance with the EEH Agreement or a repurchase pursuant to Section 6.07 , no Legacy Class B Stockholder nor its Upper-Tier Management Investors (as applicable) shall Transfer all or any part of its Class B Shares or EEH Units (as applicable) or any right pertaining thereto without the prior approval of the Board at any time.
(d) It shall be a condition precedent to any Transfer otherwise permitted or approved pursuant to this Article VI that:
(i) the Transferor shall have provided to the Company prior written notice of such Transfer at least ten (10) Business Days in advance of the proposed date of such Transfer;
(ii) the Transferee, in the case of a Transfer of Shares, shall agree in writing to be bound by this Agreement and shall have executed and delivered an Addendum Agreement and an addendum agreement to the Registration Rights Agreement in the form attached thereto;
(iii) the Transfer shall comply with all applicable federal, state or foreign laws, including securities laws;
(iv) the Transfer will not subject the Company to the registration or reporting requirements of the Investment Company Act of 1940, as amended;
(v) the Transfer shall not impose any material liability or reporting obligation on the Company or any Legacy Stockholder (other than the Transferor or the Transferee) in any jurisdiction, whether domestic or foreign, or result in the Company any Legacy Stockholder (other than the Transferor or Transferee) becoming subject to the jurisdiction of any court or governmental entity anywhere, other than the states, courts and governmental entities in which the Company or such Legacy Stockholder is then subject to such material liability, reporting obligation or jurisdiction;
(vi) the Transfer shall not cause all or any portion of the assets of the Company to constitute plan assets under United States Employee Retirement Income Security Act of 1974, as amended, or the Code; and
(vii) upon the request of the Board, any Legacy Stockholder undertaking a Transfer of such Shares pursuant to this Article VI shall have delivered an opinion of counsel, in form and substance reasonably satisfactory to the Board that such Transfer complies with the conditions set forth in this Section 6.01(d)(i) through (vi) . The Board may also request officer certificates and representations and warranties from the Transferee and Transferor as to the matters set forth in this Section 6.01(d) and such other factual matters relating to the Transfer as the Board may reasonably request.
(e) Notwithstanding anything to the contrary contained in this Agreement, upon the consummation of any Transfer permitted pursuant to this Article VI of (i) EMI Corresponding Class A Shares attributable to any EMI Member or (ii) EEH Corresponding Shares attributable to any EEH Member, if such EMI Member or EEH Member, as applicable, owes any amount pursuant to any Management Loan, then until such time as all outstanding amounts under such Management Loan have been repaid in full, EMI or EEH, as applicable, shall direct payment of the applicable consideration received pursuant to such Transfer first to the repayment of such Management Loan, or, to the extent such consideration is received by EMI or EEH, such Legacy Stockholder shall pay such amounts to the Company as lender under such Management Loan.
SECTION 6.02. Certain Transfers Permitted at Any Time . Notwithstanding anything to the contrary contained in Section 6.01 (other than the provisions of clause (d) of Section 6.01 , which shall be applicable in any event), any Transfer by any Legacy Stockholder of all or any portion of its respective Shares (including, for the avoidance of doubt, by the issuance of Equity Securities by such Legacy Stockholder or its Upper-Tier Investor), (a) in the case of a Legacy Class A Stockholder (other than EMI) to an Affiliate of such Legacy Stockholder (other than a portfolio company of a Transferring Stockholder or any entity controlled by such
portfolio company), (b) (I) solely with respect to Upper-Tier Management Investors of EMI, Transfers of EMI Units among such Upper-Tier Management Investors; provided , however , that no such Upper-Tier Management Investor shall Transfer to another Upper-Tier Management Investor more than twenty percent (20%) of the number of EMI Units issued by EMI to such Transferring Upper-Tier Management Investor; and (II) solely with respect to EMI and EEH, any Transfers of Class A Shares, EMI Units or EEH Units to (x) a spouse, lineal ancestor, lineal descendant, legally adopted child, brother or sister of such Upper-Tier Management Investor of EMI or EEH or (y) a lineal descendant or legally adopted child of a brother or sister of any Person described in the immediately preceding clause (x) (any Person described in the immediately preceding clause (x) or (y), a Family Member ) or to a trust or other entity whose sole and exclusive beneficiaries are such EMI or such EEH Upper-Tier Management Investor and/or Family Members of such EMI or EEH Upper-Tier Management Investor; provided , that any such Transfer described in clause (I) or (II) of this Section 6.02 would not result in a violation of applicable law, including U.S. federal or state securities laws and such Transferee executes and delivers to the Company an Addendum Agreement, (c) in the case of a Legacy Class A Stockholder (other than EMI) any Transfer by an Upper-Tier Co-Investor of such Legacy Class A Stockholder that involves the issuance of Equity Securities of a Person that controls, directly or indirectly, such Upper-Tier Co-Investor, so long as such Person owns material assets in addition to its interest in such Upper-Tier Co-Investor and such Transfer or issuance is pursuant to a bona fide transaction and not with the purpose or effect of circumventing (as determined in good faith by the Board) the restrictions on Transfer set forth herein, or (d) in the case of the Apollo Stockholder, a Transfer by an investor holding direct or indirect passive non-control equity interests in such Apollo Stockholder of such interests to another similarly situated outside investor in accordance with the constituent terms of the governing documents of the Apollo Stockholder (each such Transfer, a Permitted Transfer , and each such Person receiving Shares pursuant to Transfers described in clauses (a) through (d) above, a Permitted Transferee ) shall be permitted at any time without prior approval of the Board. Notwithstanding anything to the contrary in this Agreement, (A) a Transfer of Class A Shares by a Legacy Class A Stockholder in a public offering in accordance with such Transferring Legacy Class A Stockholders exercise of registration rights pursuant to the Registration Rights Agreement shall be permitted at any time without prior approval of the Board and shall not be subject to the requirements of Section 6.01(d) (other than clauses (iii), (iv) and (vi) of Section 6.01(d) ), and (B) a Transfer of Class A Shares by a Legacy Class A Stockholder described in Section 6.01(b)(v)(1) shall not be subject to the requirements of Section 6.01(d) (other than clauses (iii), (iv) and (vi) of Section 6.01(d) ).
SECTION 6.03. Tag-Along Rights .
(a) Subject to Section 6.05 below, in the event that any Legacy Class A Stockholder (the Tag-Along Seller ) shall propose to Transfer any of its Class A Shares to any Person or Persons ( Proposed Tag-Along Purchaser ), including (for the avoidance of doubt) another Legacy Stockholder or Legacy Stockholders, in a Transfer permitted or approved in accordance with this Agreement (other than (i) pursuant to a Permitted Transfer, (ii) pursuant to a Drag-Along Sale, (iii) pursuant to a public offering
in accordance with the Tag-Along Sellers exercise of registration rights pursuant to the Registration Rights Agreement, or (iv) following the consummation of a Qualified Offering) (a Tag-Along Sale ), each other Legacy Class A Stockholder holding Class A Shares shall have the right and option ( Tag-Along Rights ), but not the obligation, to participate in such Tag-Along Sale, at the same price per Class A Share as the Tag-Along Seller (which shall take into account all consideration proposed to be paid by the Proposed Tag-Along Purchaser to the Tag-Along Seller in connection with such Tag-Along Sale) and on the same terms as the Tag-Along Sale proposed by the Tag-Along Seller by Transferring up to its Maximum Tag-Along Portion.
(b) Such Tag-Along Seller shall notify each Legacy Class A Stockholder of any proposed Tag-Along Sale at least thirty (30) days prior to the proposed effective date of such proposed Tag-Along Sale (a Tag-Along Notice ), which notice may be delivered only following compliance with all of the provisions of Section 6.05 , if applicable. Any Tag-Along Notice shall set forth that the Proposed Tag-Along Purchaser has been informed of the Tag-Along Rights in Section 6.03(a) and has agreed to purchase Class A Shares held by the Legacy Class A Stockholders, the number of Class A Shares proposed to be Transferred to the Proposed Tag-Along Purchaser, the identity of the Proposed Tag-Along Purchaser, the amount and type of consideration proposed to be paid per Class A Share, the terms of the Proposed Tag-Along Purchasers financing, if any, the proposed effective date for the Tag-Along Sale and any other terms and conditions of the Transfer (the Tag-Along Terms ).
(c) Each other Legacy Class A Stockholder (each, a Tag-Along Stockholder ) may exercise its Tag-Along Rights in connection with a Tag-Along Sale described in a Tag-Along Notice by delivering notice to the Tag-Along Seller within twenty (20) days from the date of receipt of the Tag-Along Notice. The Tag-Along Rights of the Tag-Along Stockholders pursuant to this Section 6.03 shall terminate with respect to such proposed Transfer if not exercised within such twenty (20)-day period. Such notice from a Tag-Along Stockholder shall specify the number of Class A Shares which such Tag-Along Stockholder wishes to include in the proposed Transfer if less than the Maximum Tag-Along Portion. In no event shall any Tag-Along Stockholder be permitted to sell more than its Maximum Tag-Along Portion in connection with a Tag-Along Sale. The exercise by a Tag-Along Stockholder of Tag-Along Rights as set forth in such notice (the Tag-Along Exercise ) shall be irrevocable, and, to the extent such offer is accepted, the Tag-Along Stockholder shall be bound and obligated to Transfer on the same terms and conditions, with respect to each Class A Share Transferred, as the Tag-Along Seller, up to such number of Class A Shares specified in such Tag-Along Exercise; provided , however , that if the principal terms of the Tag-Along Sale change with the result that the per Class A Share price shall be less than the per Class A Share price set forth in the Tag-Along Notice or the other terms and conditions shall be less favorable to the Tag-Along Stockholders than those set forth in the Tag-Along Notice, such Tag-Along Stockholder shall have five (5) Business Days to consider such changes and shall be permitted to withdraw its Tag-Along Exercise by written notice to the Tag-Along Seller and upon such withdrawal shall be released from its obligations thereunder.
(d) The Tag-Along Seller shall attempt to obtain the inclusion in the Tag-Along Sale of (i) all of the Class A Shares that each Tag-Along Stockholder has elected to Transfer in its Tag-Along Exercise, and (ii) all of the Class A Shares that the Tag-Along Seller proposed to Transfer in its Tag-Along Notice (such Class A Shares collectively, the Tag-Along Stock ). In the event the Tag-Along Seller shall be unable to obtain the inclusion of such entire number of Tag-Along Stock in the Tag-Along Sale, the number of Tag-Along Stock shall be allocated among the Tag-Along Stockholders which have delivered a Tag-Along Exercise in accordance with Section 6.03(c) and the Tag-Along Seller in proportion, as nearly as practicable, as follows:
(i) there shall be first allocated to each such Tag-Along Stockholder a number of Class A Shares equal to the lesser of (A) the number of Class A Shares included by such Tag-Along Stockholder in its Tag-Along Exercise, and (B) a number of Class A Shares equal to (x) the number of Class A Shares that the Proposed Tag-Along Purchaser has agreed to acquire in such Tag-Along Sale, multiplied by (y) such Tag-Along Stockholders Legacy Class A Pro Rata Portion;
(ii) there shall then be allocated to the Tag-Along Seller a number of Class A Shares equal to the lesser of (A) the number of Class A Shares included by the Tag-Along Seller in its Tag-Along Notice, and (B) a number of Class A Shares equal to (x) the number of Class A Shares that the Proposed Tag-Along Purchaser has agreed to acquire in such Tag-Along Sale, multiplied by (y) such Tag-Along Sellers Legacy Class A Pro Rata Portion; and
(iii) the balance, if any, not allocated pursuant to clauses (i) and (ii) above shall be allocated to the Tag-Along Seller, or in such other manner as the Tag-Along Seller may otherwise agree.
(e) Following the expiration of the twenty (20)-day period referred to in Section 6.03(c) , the Tag-Along Seller shall notify each Tag-Along Stockholder, which shall have exercised its Tag-Along Rights in accordance with this Section 6.03 , of the number of Tag-Along Stock that such Tag-Along Stockholder may include in the Tag-Along Sale pursuant to this Section 6.03 . Each such Tag-Along Stockholder shall then be entitled and obligated to sell to the Proposed Tag-Along Purchaser such number of Tag-Along Stock on the Tag-Along Terms, subject to the proviso in Section 6.03(c) . Each participating Tag-Along Stockholder shall, and shall cause each of its Affiliates (including any of its Upper-Tier Co-Investors and in the case of EMI, its Upper-Tier Management Investors) to, cooperate in connection with such Tag-Along Sale and take all steps reasonably necessary or reasonably requested by the Company, the Tag-Along Seller, the Proposed Tag-Along Purchaser and the other participating Tag-Along Stockholders to Transfer its Tag-Along Stock in such Tag-Along Sale to the Proposed Tag-Along Purchaser and otherwise consummate such Tag-Along Sale on the Tag-Along Terms (including by executing any purchase agreements, escrow agreements or related documents, including instruments of Transfer and providing customary several, but not joint, representations, warranties and indemnities concerning such participating Tag-Along Stockholders valid ownership of its Tag-Along Stock, free and clear of all Liens and encumbrances (other than those arising under this Agreement,
applicable securities laws or in connection with such Tag-Along Sale) and such Tag-Along Stockholders authority, power and right to enter into and consummate agreements relating to such transactions without violating any applicable law or other agreement; provided , however , that such agreements, documents or instruments shall not contain any non-competition or similar restrictive covenants). Without limiting the generality of the immediately preceding sentence, each participating Tag-Along Stockholder and the Tag-Along Seller shall, subject to the provisions of any definitive agreement (including any limitations on indemnification set forth therein) entered into in connection with such Tag-Along Sale, indemnify, defend and hold harmless the Proposed Tag-Along Purchaser in any Tag-Along Sale, pro rata in accordance with the amount of consideration received by such Tag-Along Stockholder or the Tag-Along Seller, as applicable, in connection with such Tag-Along Sale as a proportion of the aggregate amount of consideration received by all such Tag-Along Stockholders and the Tag-Along Seller in connection with such Tag-Along Sale, from and against any losses, damages and liabilities arising from or in connection with (i) any breach of any representation, warranty, covenant or agreement of the Company in connection with such Tag-Along Sale, and (ii) any other indemnification obligation in connection with such Tag-Along Sale relating to the business or potential liabilities of the Company and its Subsidiaries; provided , that (A) the terms of such indemnification obligation applicable to each Tag-Along Stockholder shall be consistent with terms applicable to the Tag-Along Seller, (B) such indemnification obligation shall be several and not joint, and (C) the aggregate maximum amount of such indemnification obligation shall not exceed the amount of consideration received by such Tag-Along Stockholder or the Tag-Along Seller in connection with such Tag-Along Sale. All reasonable fees and expenses incurred by the Tag-Along Seller and each Tag-Along Stockholder (including in respect of financial advisors, accountants and counsel) in connection with a Tag-Along Sale pursuant to this Section 6.03 shall be shared by the Tag-Along Seller and each Tag-Along Stockholder participating in such Tag-Along Sale pro rata in accordance with the amount of proceeds to be received by the Tag-Along Seller and each such Tag-Along Stockholder in such Tag-Along Sale.
(f) In the event that, following delivery of a Tag-Along Notice, the twenty (20)-day period set forth in Section 6.03(c) shall have expired without any valid exercise of the rights under Section 6.03(c) by any Tag-Along Stockholder, the Tag-Along Seller shall have the right, during the ninety (90)-day period following the expiration of such twenty (20)-day period, to Transfer to the Proposed Tag-Along Purchaser, its Shares on the Tag-Along Terms without any further obligation under this Section 6.03 . In the event that the Tag-Along Seller shall not have consummated such Transfer within such ninety (90)-day period, any subsequent proposed Tag-Along Sale shall once again be subject to the terms of this Section 6.03 .
(g) If any amount is outstanding pursuant to a Management Loan, then until such time as all outstanding amounts under such Management Loan have been repaid in full, the net proceeds from such Tag-Along Sale otherwise payable to EMI shall first be applied to repay such Management Loan or such portion thereof as may be repaid with such net proceeds as if such net proceeds based on the provisions set forth in Section 4.02(c)(ii) were distributed by the Company in accordance therewith.
(h) The provisions of this Section 6.03 shall terminate upon the earlier of the consummation of a Qualified Offering and the consummation of a Change of Control.
SECTION 6.04. Drag-Along Rights .
(a) In the event that (i) (A) the Company or any Legacy Class A Stockholder (the Prospective Drag-Along Seller ) receives an offer from a third party (which, for the avoidance of doubt, shall not include any Legacy Class A Stockholder, any Upper-Tier Investor or any of their respective Affiliates) (a Drag-Along Purchaser ) to purchase or otherwise acquire a number of Class A Shares (whether directly or indirectly, including for the avoidance of doubt, through a Transfer of the direct or indirect Equity Securities of any or all of the Legacy Stockholders) in a transaction (or series of related transactions) that would result in a Change of Control, (B) such transaction has been approved by a Special Board Approval, (C) at least eighty percent (80%) of the consideration offered by the Drag-Along Purchaser consists of cash or Marketable Securities, and (D) the MOIC implied in such transaction would be at least two (2) (such transaction, a Drag-Along Sale ), or (ii) following May 24, 2017, such Drag-Along Sale has been approved by the Apollo Stockholder or the Legacy Class A Stockholders holding in the aggregate at least forty percent (40%) of the Class A Shares then held by the Legacy Class A Stockholders (in which case, for the avoidance of doubt, such Drag-Along Sale must satisfy the requirements set forth in clauses (i)(A), (i)(C) and (i)(D) above, but no other approval, including a Special Board Approval pursuant to clause (i)(B) of this Section 6.04(a) shall be required), then the Prospective Drag-Along Seller shall provide written notice to each Legacy Stockholder at least thirty (30) days prior to the proposed effective date of the proposed Drag-Along Sale (the Drag-Along Notice ) which notice shall set forth that the Drag-Along Purchaser has been informed of the provisions of this Section 6.04 and has agreed to consummate a Drag-Along Sale, the number of Class A Shares (the Drag-Along Shares ) proposed to be acquired in such proposed Drag-Along Sale by the Drag-Along Purchaser (where applicable), the identity of the Drag-Along Purchaser, the amount and type of consideration proposed to be paid per Drag-Along Stock, the proposed closing date of such proposed Drag-Along Sale and any other material terms and conditions of such proposed Drag-Along Sale (the Drag-Along Terms ).
(b) If the Prospective Drag-Along Seller consummates the proposed Drag-Along Sale, each Legacy Class A Stockholder shall (i) be bound and obligated to sell its Drag-Along Portion of its Class A Shares in the proposed Drag-Along Sale on the Drag-Along Terms; and (ii) shall receive the same form and amount of consideration per Class A Share to be received by each other Legacy Class A Stockholder in such proposed Drag-Along Sale for its Class A Stock. If any Legacy Class A Stockholder is given an option as to the form and amount of consideration to be received, each other Legacy Class A Stockholder will be given the same option. Unless otherwise agreed by the Legacy Class A Stockholders, any non-cash consideration shall be allocated among the Class A Shares held by the Legacy Class A Stockholders pro rata based on the aggregate amount of such consideration to be received in respect of such Class A Shares. If the Prospective Drag-Along Seller has not completed the proposed
Drag-Along Sale within 180 days after the date of delivery of the Drag-Along Notice, the Drag-Along Notice shall be null and void, each Legacy Class A Stockholder shall be released from its obligations under the Drag-Along Notice and it shall be necessary for a separate Drag-Along Notice to be furnished and the terms and provisions of this Section 6.04 separately complied with, in order to consummate such proposed Drag-Along Sale pursuant to this Section 6.04 ; provided , however , that if a Majority-in-Interest shall have executed a definitive agreement within such period, the terms of any such definitive agreement shall continue to apply to such Drag-Along Sale and the Legacy Class A Stockholders shall not be released from their obligations under this Section 6.04 unless and until such definitive agreement is terminated.
(c) Each Legacy Stockholder shall, and shall cause each of its Affiliates (including any Upper-Tier Investors) to, cooperate in connection with the Drag-Along Sale and take all steps reasonably necessary or reasonably requested by the Company, the Drag-Along Purchaser and the other Legacy Stockholders to Transfer its Drag-Along Stock in such Drag-Along Sale to the Drag-Along Purchaser (or cancel its Class B Shares to the extent required pursuant to Section 6.04(d) in the case of Legacy Class B Stockholders) and otherwise consummate the Drag-Along Sale on the Drag-Along Terms (including by waiving any appraisal or dissenters rights that may exist under any applicable law, voting for or consenting to any merger, consolidation, sale of assets or similar transaction, executing any purchase agreements, merger agreements, escrow agreements or related documents, including instruments of Transfer and providing customary several, but not joint, representations, warranties and indemnities concerning such Legacy Stockholders valid ownership of its Shares, free and clear of all Liens and encumbrances (other than those arising under applicable securities laws or in connection with the Drag-Along Sale) and such Legacy Stockholders authority, power, and right to enter into and consummate agreements relating to such transactions without violating any applicable law or other agreement; provided , however , that such agreements, documents or instruments shall not contain any non-competition or similar restrictive covenants). Without limiting the generality of the immediately preceding sentence, each Legacy Stockholder shall, subject to the provisions of any definitive agreement (including any limitations on indemnification set forth therein) entered into in connection with a Drag-Along Sale, indemnify, defend and hold harmless the Drag-Along Purchaser in any Drag-Along Sale, pro rata in accordance with the amount of consideration received by such Legacy Stockholder in connection with such Drag-Along Sale as a proportion of the aggregate amount of consideration received by all such Legacy Stockholders in connection with such Drag-Along Sale, from and against any losses, damages and liabilities arising from or in connection with (i) any breach of any representation, warranty, covenant or agreement of the Company in connection with such Drag-Along Sale, and (ii) any other indemnification obligation in connection with such Drag-Along Sale relating to the business or potential liabilities of the Company and its Subsidiaries; provided , that (A) if the Prospective Drag-Along Seller is a Legacy Class A Stockholder, the terms of such indemnification obligation applicable to each other Legacy Stockholder shall be consistent with terms applicable to the Prospective Drag-Along Seller, (B) such indemnification obligation shall be several and not joint, and (C) the aggregate maximum amount of such indemnification obligation shall not exceed
the amount of consideration received by such Legacy Stockholder in connection with such Drag-Along Sale.
(d) For the avoidance of doubt and notwithstanding anything to the contrary herein, (i) if any amount is outstanding pursuant to a Management Loan, then until such time as all outstanding amounts under such Management Loan have been repaid in full, the net proceeds from such Drag-Along Sale otherwise payable to EMI or EEH, as applicable, shall first be applied to repay such Management Loan or such portion thereof as may be repaid with such net proceeds based on the provisions set forth in Section 4.02(c)(ii) as if such net proceeds were distributed by the Company in accordance therewith, and (ii) all outstanding Class B Shares shall be automatically cancelled upon the consummation of a Drag-Along Sale in accordance with this Section 6.04 , and each Legacy Class B Stockholder shall, subject to the terms and provisions of this Agreement (including, for the avoidance of doubt, clause (i) of this Section 6.04(d) ), be entitled to receive, in connection with such Drag-Along Sale in respect of its Class B Shares that were cancelled in such Drag-Along Sale, an amount equal to the amount, if any, that would be distributable to the Legacy Class B Stockholders if an amount equal to the product of (A) the aggregate consideration paid to the Legacy Class A Stockholders for their Class A Shares in the Drag-Along Sale and (B) a fraction, (1) the numerator of which is the aggregate number of Class A Shares outstanding immediately prior to the consummation of such Drag-Along Sale held by the Legacy Class A Stockholders and (2) the denominator of which is the aggregate number of Class A Shares acquired by the Drag-Along Purchaser in such Drag-Along Sale, was treated as a distribution of Capital Proceeds pursuant to the Certificate of Incorporation.
(e) Notwithstanding clause (ii) of Section 6.04(d) , but subject to clause (i) of Section 6.04(d) and in accordance with Section 6.04(c)) , in connection with any Drag-Along Sale, the Company and the Prospective Drag-Along Seller may, in their sole discretion, structure such Drag-Along Sale such that some or all of the Class B Shares are either (i) exchanged by the Company for newly issued Class A Shares pursuant to a Class B Exchange in accordance with the Certificate of Incorporation immediately prior to such Drag-Along Sale, which Class A Shares shall either be (A) freely transferable under federal securities laws by the Class B Stockholders under a resale registration statement to be filed concurrently with or as soon as reasonably practicable following such Drag-Along Sale and the Company shall use its reasonable best efforts to ensure such registration statement is maintained effective at all times thereafter pursuant to applicable federal securities laws, or (B) sold in connection with such Drag-Along Sale, or (ii) sold directly to the Drag-Along Purchaser pursuant to such Drag-Along Sale; provided , that in no event shall the Legacy Class B Stockholders be entitled to receive consideration from such Drag-Along Sale that is less than or in excess of what they would have otherwise received pursuant to a Class B Exchange in accordance with the Certificate of Incorporation if the remaining Class B Shares were exchanged by the Company as if all Class A Shares then held by the Specified Stockholders were being sold at the per Class A Share purchase price being paid by the Drag-Along Purchaser in such Drag-Along Sale. For the avoidance of doubt, the Legacy Class B Stockholders shall receive the same form of consideration paid to the Legacy Class A Stockholders in connection with such Drag-Along Sale.
(f) The provisions of this Section 6.04 shall terminate upon the consummation of a Change of Control.
SECTION 6.05. Right of First Refusal .
(a) In the event that any Legacy Class A Stockholder shall propose to Transfer any of its Class A Shares to any Person or Persons (the Proposed ROFR Purchaser ) (other than (i) pursuant to a Permitted Transfer, (ii) pursuant to a Drag-Along Sale, (iii) pursuant to the valid exercise of Tag-Along Rights pursuant to Section 6.03 , (iv) any Transfer of Class A Shares pursuant to a public offering in accordance with the Transferring Legacy Class A Stockholders exercise of registration rights pursuant to the Registration Rights Agreement or (v) following the consummation of a Qualified Offering), such Legacy Class A Stockholder (the Offering Class A Stockholder ) shall deliver a written notice (the ROFR Notice ) to the Company, the Apollo Stockholder, each Major Stockholder, each Principal Stockholder and any Legacy Stockholder that is a Permitted Transferee of the foregoing (collectively, the Eligible Class A Stockholders and each, an Eligible Class A Stockholder ) specifying in reasonable detail the number of Class A Shares proposed to be Transferred in such transaction (the Specified Class A Shares ), the offered purchase price per Class A Share therefor, which must be in cash (the ROFR Purchase Price ), and any other material terms and conditions (the ROFR Purchase Terms ).
(b) For a period of twenty (20) days after the ROFR Notice has been delivered to the Eligible Class A Stockholders (the Eligible Class A Stockholder Option Period ), each Eligible Class A Stockholder shall be entitled to purchase up to its Maximum ROFR Portion of the Specified Class A Shares by delivering a written notice (an Exercise Notice ) to the Offering Class A Stockholder and the Company prior to the expiration of the Eligible Class A Stockholder Option Period, specifying the number of Specified Class A Shares to be purchased at the ROFR Purchase Price (up to such Eligible Class A Stockholders Maximum ROFR Portion), its agreement (if applicable) to purchase Excess Specified Class A Shares (as defined below) and the amount thereof, and its acceptance of the ROFR Purchase Terms. The failure of an Eligible Class A Stockholder to respond within the Eligible Class A Stockholder Option Period shall be deemed to be a waiver of such Eligible Class A Stockholders rights under this Section 6.05(b) with respect to such Transfer. If any Eligible Class A Stockholder does not fully subscribe for its Maximum ROFR Portion of Specified Class A Shares that it is entitled to purchase pursuant to this Section 6.05(b) , then each other fully participating Eligible Class A Stockholder who shall have elected to do so in its Exercise Notice shall have the right to purchase that percentage of the Specified Class A Shares not so subscribed for (the Excess Specified Class A Shares ) determined by dividing (i) the number of Class A Shares then held by such fully participating Eligible Class A Stockholder, by (ii) the aggregate number of Class A Shares then owned by all fully participating Eligible Class A Stockholders who elected to purchase their Maximum ROFR Portion of Specified Class A Shares. The procedure described in the immediately preceding sentence shall be repeated until there are no remaining Excess Specified Class A Shares or all fully participating Eligible Class A Stockholders have been given the opportunity to purchase such Excess Specified Class A Shares elected in their respective
Exercise Notices. If any Excess Specified Class A Shares remain following the completion of such procedure, then for a period of twenty (20) days following the completion of such procedure (the Company Option Period ), the Company shall be entitled to purchase all or any portion of such remaining Excess Specified Class A Shares by delivering a written notice to the Offering Class A Stockholder and the Eligible Class A Stockholders prior to the expiration of the Company Option Period, specifying the number of remaining Excess Specified Class A Shares to be purchased at the ROFR Purchase Price and its acceptance of the ROFR Purchase Terms. The failure of the Company to deliver such written notice within the Company Option Period shall be deemed to be a waiver of the Companys rights under this Section 6.05(b) with respect to such proposed Transfer of the Specified Class A Shares.
(c) If the Company and the Eligible Class A Stockholders do not elect in the aggregate to purchase all of the Specified Class A Shares within the Eligible Class A Stockholder Option Period or the Company Option Period (as applicable), then, provided that the Offering Class A Stockholder has also complied with the provisions applicable to a Tag-Along Seller under Section 6.03 , to the extent applicable, the Offering Class A Stockholder may Transfer all of such Specified Class A Shares not purchased by the Company and the Eligible Class A Stockholders pursuant to this Section 6.05 (except to the extent reduced pursuant to the exercise of Tag-Along Rights) to the Proposed ROFR Purchaser at a price that is not less than the ROFR Purchase Price and on terms that are not materially more favorable in the aggregate to the Proposed ROFR Purchaser than the ROFR Purchase Terms, but only to the extent such Transfer is completed within one-hundred and twenty (120) days after the expiration of the Eligible Class A Stockholder Option Period or the Company Option Period (as applicable). If such Transfer to the Proposed ROFR Purchaser is not completed within such period for any reason, the Offering Class A Stockholder and the Specified Class A Shares shall again be subject to the provisions of this Section 6.05 in connection with any future attempt to Transfer all or any portion of its Class A Shares and no Transfer of such Specified Class A Shares may be made thereafter by the Offering Class A Stockholder without again offering the same to the Eligible Class A Stockholders and the Company in accordance with this Section 6.05 .
(d) The closing of the purchase by the Company or the Eligible Class A Stockholders of any Specified Class A Shares pursuant to Section 6.05(b) , shall be held at the principal executive office of the Company at 11:00 a.m., Eastern time, on the thirtieth (30 th ) day after the delivery of the Exercise Notices by the Eligible Class A Stockholders or the written notice by the Company required under Section 6.05(b) , as the case may be, and as may be extended for up to an additional thirty (30) days if the approval of any Governmental Authority is required to be obtained in connection with such transaction, or at such other time or place as the participating Eligible Class A Stockholders or the Company, as the case may be, and the Offering Class A Stockholder shall agree. At such closing, the Offering Class A Stockholder shall pay all requisite transfer taxes payable in connection with such transaction and shall Transfer such number of Specified Class A Shares purchased pursuant to Section 6.05(b) to the participating Eligible Class A Stockholders or the Company, as applicable, free and clear of any Liens (other than those arising under applicable securities laws, under this Agreement or in
connection with such transaction) and such Offering Class A Stockholder shall represent and warrant that it is the beneficial and record owner of such Specified Class A Shares and that it holds such Specified Class A Shares free and clear of any Liens. Such Offering Class A Stockholder shall also deliver to the participating Eligible Class A Stockholders and the Company, as applicable, such other documents and instruments of Transfer as may be reasonably requested by the participating Eligible Class A Stockholders and the Company, as applicable. Each Eligible Class A Stockholder and the Company, as applicable, shall deliver at such closing, payment in full in immediately available funds for the Specified Class A Shares purchased by it.
(e) The provisions of this Section 6.05 shall terminate upon the earlier of the consummation of a Qualified Offering and the consummation of a Change of Control.
SECTION 6.06. Effect of Repurchases and Transfers .
(a) Unless otherwise expressly specified in this Agreement, any Class A Shares repurchased by the Company in accordance with the terms of this Agreement shall not be automatically cancelled and instead shall, unless the Board elects otherwise, be held available for reissuance by the Company subject to Section 5.03 ; provided , that so long as such Class A Shares are so held by the Company, such Class A Shares shall not entitle the Company to any voting or other rights otherwise associated with issued and outstanding Class A Shares.
(b) When any Shares are Transferred in accordance with the terms of this Agreement, the Company shall cause such Transfer to be registered on the books of the Company, including Schedule A . The Transferee will succeed to the attributes of the Transferor of the Transferred Shares (including, for the avoidance of doubt, Capital Contributions, Unpaid Class A Preferred Return, Unrecovered Capital, Prior Distributions, in each case, as such terms are defined in the Certificate of Incorporation) for purposes of applying the provisions of the Certificate of Incorporation to such Transferred Shares, except as otherwise provided in any amendment to this Agreement joining the Transferee as a Party. If the Transferee already owns Shares, any calculations or determination to be made under the Certificate of Incorporation shall be made separately with respect to the Transferred Shares and the Shares already owned.
SECTION 6.07. Repurchase; Forfeiture .
(a) General . Each of Section 6.07(a) , Section 6.07(b) and Section 6.07(c) are subject to (i) with respect to Class A Shares issued to EMI, the provisions of the Subscription Agreement and (ii) with respect to Class B Shares issued to EEH, the MIP Agreement. All Transferees of EMI and EEH shall be subject to Section 6.07(a) , Section 6.07(b) and Section 6.07(c) .
(b) Vesting Schedule . Subject to Section 4.02(d) , the Class B Shares shall vest in accordance with the terms and conditions of the MIP Agreement and related Award Agreement governing the issuance of such Class B Shares.
(c) Share Redemption and Forfeiture .
(i) Class B Shares issued to EEH shall be subject to forfeiture to the Company and repurchase by the Company as provided in the MIP Agreement, and Class A Shares issued to EMI shall be subject to repurchase by the Company, as provided in the Subscription Agreement.
(ii) If any amount is outstanding pursuant to a Management Loan as of the date of such repurchase of Class A Shares or Class B Shares, then the purchase price for such Class A Shares or Class B Shares, as applicable, shall first be applied to repay such Management Loan or such portion thereof pursuant to the terms of such Management Loan as if such purchase price were distributed by the Company in accordance therewith.
For the avoidance of doubt, any Class A Shares or Class B Shares repurchased pursuant to this Section 6.07 shall be deemed forfeited in full as of the time of receipt of payment therefore, whether in cash or by note or in accordance with Section 6.07(c)(ii) or Section 6.07(d)(ii) , and consequently, the holder thereof shall not be entitled to any cash distributions in respect of such Class A Shares or Class B Shares for any period thereafter, including during the time that any note issued by the Company in respect of the purchase price of such Class A Shares or Class B Shares pursuant to this Section 6.07 remains outstanding.
(d) Repurchases Upon Request .
(i) Notwithstanding anything to the contrary in this Agreement, any EEH Member (other than the CEO or the chief financial officer of the Company) who is an employee of the Company or any Subsidiary of the Company shall have the right but not the obligation to, during the first five (5) Business Days of the month of June (the Redemption Window ) of each year following May 24, 2017, deliver written notice to the CEO (a Redemption Notice ) requesting that a portion of the EEH Corresponding Shares attributable to such EEH Member which are Vested Class B Shares be repurchased by the Company and that EEH repurchase that same number of EEH Units from such EEH Member at the Fair Market Value of such EEH Corresponding Shares and shall set a closing date for such repurchase, which shall not be less than ten (10) days and not more than fifty-five (55) days after the date of receipt by the CEO of such Member Acceptance; provided , however , that no EEH Member or any other Person shall have such right, and the Company shall not repurchase any Class B Shares and EEH shall not repurchase any EEH Units pursuant to this Section 6.07(d) , after the consummation of a Threshold Capital Transaction. EEH and such EEH Member shall execute and deliver all documentation and agreements reasonably requested by the Company to reflect such repurchase, but the failure of EEH or such EEH Member to execute or deliver any such documentation shall not affect the validity of such repurchase pursuant to this Section 6.07(d) . In connection with any repurchase pursuant to this Section 6.07(d) , such EEH Member shall at a minimum make customary representations and warranties concerning (A) such EEH Members valid title to and ownership of the EEH Units, free of all Liens (excluding those arising under applicable securities laws),
(B) such EEH Members authority, power and right to enter into and consummate such repurchase, (C) the absence of any violation, default or acceleration of any agreement to which such EEH Member is subject or by which its assets are bound as a result of such repurchase, and (D) the absence of, or compliance with, any governmental or third party consents, approvals, filings or notifications required to be obtained or made by such EEH Member in connection with such EEH Units. Such EEH Member shall specify in such Repurchase Notice the reason for such request, including any financial needs for the CEO to consider. If the CEO receives such Redemption Notice during the Redemption Window, the CEO shall notify the Board in writing that a financial need of such EEH Member exists (a Valuation Request ) only if the CEO determines in good faith, based on the facts and circumstances, that such EEH Member has financial needs that warrant a repurchase of the EEH Corresponding Shares attributable to such EEH Member (giving special consideration and priority to EEH Members with an immediate financial need). Within thirty (30) days of receipt by the Board of such Valuation Request the Board shall cause the Company to provide written notice of the Fair Market Value of such EEH Corresponding Shares to the CEO and such EEH Member (the Valuation Determination ). Within ten (10) days of such EEH Members receipt of such Value Determination, such EEH Member shall provide written notice to the CEO as to whether such EEH Member either accepts such Valuation Determination (a Member Acceptance ) and if such EEH Member fails to deliver such Member Acceptance within such time period, such EEH Member shall be deemed to have rejected such Valuation Determination. If such EEH Member delivers such Member Acceptance within such time period, the CEO shall have the right to cause the Company to repurchase a portion of such EEH Corresponding Shares attributable to such EEH Member for the Fair Market Value specified in such Valuation Determination (and upon such repurchase, EEH shall repurchase from such EEH Member the same number of EEH Units as the EEH Corresponding Shares attributable to such EEH Member so repurchased); provided , however , that the CEO shall not cause the Company to repurchase (I) during any Fiscal Year, EEH Corresponding Shares with a Fair Market Value of more than $15,000,000 in the aggregate, (II) during any fiscal year, from any EEH Member (or Permitted Transferees thereof), more than twelve and one-half percent (12.5%) of the maximum number of EEH Corresponding Shares attributable to such EEH Member, or (III) in the aggregate, from any EEH Member (or Permitted Transferees thereof), more than twenty-five percent (25%) of the maximum number of EEH Corresponding Shares attributable to such EEH Member. For the avoidance of doubt, the CEO may determine that the Company shall not repurchase any Class B Shares pursuant to this Section 6.07(d) to the extent the CEO makes such determination in good faith and after taking into account factors including cash on hand and Available Cash, the working capital and capital expenditure needs of the Company and its Subsidiaries, reasonable reserves and the continued compliance with the Companys and its Subsidiaries obligations under their respective debt instruments and debt-related documents. Notwithstanding anything to the contrary in this Section 6.07(d)(i) , the CEO shall not approve any repurchase of EEH Corresponding Shares or cause the Company to repurchase any EEH Corresponding Shares unless such repurchase complies with applicable law and, to the knowledge of the CEO (after reasonable due inquiry; provided , that the CEO shall be deemed to have actual knowledge of the debt instruments and debt-related documents to which the
Company and its Subsidiaries are parties or otherwise have obligations in respect thereof) any contracts or agreements to which the Company or any of its Subsidiaries are parties or otherwise have obligations in respect thereof. Any EEH Units repurchased from any such employee pursuant to the foregoing provisions of this Section 6.07(d)(i) (and the Corresponding EEH Units) shall be cancelled and, as a result of the repurchase, the total number of EEH Units held by such employee (and the Corresponding EEH Units) shall be reduced correspondingly. In addition, if a Threshold Capital Transaction is consummated following the repurchase of any such employees EEH Units, and the Fair Market Value per unit of the repurchased EEH Corresponding Shares (determined, on a volume-weighted-averaged basis, in the event that there are multiple repurchases of EEH Corresponding Shares, in each case based on the Fair Market Value per repurchased EEH Corresponding Shares) exceeds the Fair Market Value per repurchased EEH Corresponding Share of the remaining EEH Corresponding Shares attributable to such employee at the time of the consummation of such Threshold Capital Transaction (such excess, the EEH Corresponding Excess Amount ), then the amount that would otherwise be distributable in respect of such remaining EEH Corresponding Shares attributable to such employee shall be reduced by an amount equal to (x) the EEH Corresponding Excess Amount, multiplied by (y) the number of such repurchased EEH Corresponding Shares. The amount of such reduction shall be distributed in respect of the other Class B Shares pro rata .
(ii) If any amount is outstanding pursuant to a Management Loan as of the date of a repurchase pursuant to this Section 6.07(d) , then the purchase price for such Class B Shares shall first be applied to repay such Management Loan or such portion thereof pursuant to the terms of such Management Loan as if such purchase price were distributed by the Company in accordance therewith.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES;
CERTAIN OTHER AGREEMENTS
SECTION 7.01. Representations and Warranties of the Company . By executing and delivering this Agreement, the Company hereby represents and warrants to each of the Legacy Stockholders that the following statements are true and correct as of the date hereof:
(a) The Company is a corporation duly organized and validly existing under the laws of the State of Delaware.
(b) Except as expressly disclosed in writing to the Legacy Stockholders on the date hereof, the execution, delivery and performance by the Company of this Agreement are within the Companys organizational powers, have been duly authorized by all necessary organizational action on its behalf, require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority, and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or
other instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of the Companys properties is bound. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions.
(c) The Company has full power and authority to issue and deliver the Class A Shares and Class B Shares in accordance with the terms hereof and the applicable Management Agreements. The Class A Shares and the Class B Shares, when issued and delivered in accordance with the terms hereof, will be duly authorized, validly issued and free and clear of any Liens other than those created by the Legacy Stockholders or arising pursuant to this Agreement.
(d) As of the date hereof, (i) the capitalization of the Company and the ownership of Class A Shares and the Class B Shares by the Legacy Stockholders will be as set forth in Schedule A , (ii) other than the Class A Shares and Class B Shares set forth in Schedule A , there are no outstanding Equity Securities of the Company, including options, warrants or convertible securities, (iii) other than this Agreement, the Registration Rights Agreement and the Management Agreements, there are no agreements on the part of the Company to issue, sell or distribute any of its Securities or material assets, (iv) other than as set forth in this Agreement, the Management Agreements, the Company Governing Documents, the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its Securities or to pay any dividend or make any distribution in respect thereof, (v) other than as set forth in this Agreement and the Registration Rights Agreement, no Person is entitled to any rights with respect to the registration of any Securities of the Company under the Securities Act (or the securities laws of any other jurisdiction), and (vi) other than as set forth in this Agreement, the Company Governing Documents, none of the outstanding Equity Securities of the Company is subject to any preemptive rights, rights of first refusal or similar rights on the part of the Company or any other Person.
(e) As of the date hereof, there are no actions, proceedings or investigations pending or, to the knowledge of the Company, threatened against the Company or its controlled Affiliates that would be reasonably expected to have a material adverse effect on the Company or its controlled Affiliates.
(f) The Company is duly qualified under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on its business, operations, financial condition, properties or assets taken as a whole or its ability to perform its obligations under this Agreement or the Registration Rights Agreement.
SECTION 7.02. Representations and Warranties of the Legacy Stockholders . By executing and delivering this Agreement, each Legacy Stockholder hereby represents and warrants to the Company and each other Legacy Stockholder that the following statements are true and correct as of the date hereof:
(a) Such Legacy Stockholders Shares are being held for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and this Agreement.
(b) If such Legacy Stockholder is an entity, such Legacy Stockholder is duly organized and validly existing under the laws of its jurisdiction of organization. If such Legacy Stockholder is a natural person, such Legacy Stockholder has full legal capacity.
(c) Except as expressly disclosed in writing to the Company and the other Legacy Stockholders on the date hereof, the execution, delivery and performance by such Legacy Stockholder of this Agreement are within such Legacy Stockholders corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if such Legacy Stockholder is an individual, are within such Legacy Stockholders legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority (except as expressly disclosed in writing to the Company prior to the date hereof), and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which such Legacy Stockholder is a party or by which such Legacy Stockholder or any of such Legacy Stockholders properties is bound. This Agreement has been duly executed and delivered by such Legacy Stockholder and constitutes a valid and binding agreement of such Legacy Stockholder, enforceable against such Legacy Stockholder in accordance with its terms, subject to the Enforceability Exceptions.
(d) Such Legacy Stockholder acknowledges that the offering and sale of the Shares have not been and will not be registered under the Securities Act, and are being made in reliance upon federal and state exemptions for transactions not involving a public offering. In furtherance thereof, except as disclosed in one or more of the Management Agreements, such Legacy Stockholder represents and warrants that it is an accredited investor (as defined in Regulation D promulgated under the Securities Act) and such Legacy Stockholder and has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the risks of its investment in the Shares. Such Legacy Stockholder agrees that it will not take any action that could have an adverse effect on the availability of the exemption from registration provided by Regulation D promulgated under the Securities Act with respect to the offer and sale of the interests in the Company. In connection with the purchase of Shares, such Legacy Stockholder meets all applicable suitability standards imposed on it by applicable law.
(e) Such Legacy Stockholder has been given the opportunity to (i) ask questions of, and receive answers from, the Company concerning the terms and conditions of the Shares and other matters pertaining to an investment in the Company, and (ii) obtain any additional information necessary to evaluate the merits and risks of an investment in the Company that the Company can acquire without unreasonable effort or expense. In considering its investment in the Shares, such Legacy Stockholder has
evaluated for itself the risks and merits of such investment, and is able to bear the economic risk of such investment, including a complete loss of capital, and in addition has not relied upon any representations made by, or other information (whether oral or written) furnished by or on behalf of, the Company or its Subsidiaries or any director, officer, employee, agent or Affiliate of such Persons, other than as set forth in this Agreement. Such Legacy Stockholder has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company in light of its particular tax and financial situation, and has determined that the Shares are a suitable investment for such Legacy Stockholder.
SECTION 7.03. Competing Activities . Notwithstanding anything to the contrary in the Certificate of Incorporation, any business activity of any type or description or any other corporate opportunity presented solely and exclusively to the Company or its Subsidiaries shall not be presented, offered or made available to any Legacy Stockholder or Legacy Stockholders unless (a) the Board has voted to reject such opportunity, and (b) the concession of such opportunity to such Legacy Stockholder or Legacy Stockholders has been approved by the Company by a Disinterested Director Approval. Upon receiving the approvals described in the immediately preceding sentence, such Legacy Stockholder or Legacy Stockholders shall be afforded access to and the right to pursue such opportunity in accordance with the Certificate of Incorporation.
SECTION 7.04. KORBA Assets . In the event of an emergency under the Korea Overseas Resources Business Act ( KORBA ) pursuant to which the KNOC Stockholder is required or requested by the relevant government agency in the Republic of Korea ( Korea ) to procure and sell to Korea such portion of the oil and gas produced by the Company and its Subsidiaries that the KNOC Stockholder would have been entitled to receive if such assets were distributed in kind to the Legacy Class A Stockholders as Capital Proceeds pursuant to the Certificate of Incorporation, (such portion of oil and gas, the KORBA Assets ), the Company shall, to the extent reasonably practicable and as permitted by applicable law, cooperate with the KNOC Stockholder in such procurement and sale; provided , that (a) such cooperation shall not negatively detract from or materially interfere with the business of the Company or its Subsidiaries or the performance by the employees of the Company or its Subsidiaries of their duties, (b) the KNOC Stockholder shall not have sold or Transferred (other than to an Affiliate) any of its Shares, and (c) the Company and its Subsidiaries shall not be required to enter into any arrangement with the KNOC Stockholder with respect to the KORBA Assets if the Company or any of its Subsidiaries reasonably anticipates commencing an IPO or Change of Control within three (3) months after the date that the KNOC Stockholder intends to effect such arrangement. Notwithstanding anything to the contrary in the immediately preceding sentence, entry into any arrangement with the KNOC Stockholder with respect to the KORBA Assets shall (i) be at the Companys sole discretion, (ii) be on terms and conditions reasonably acceptable to the Company and the other Legacy Class A Stockholders (including price and credit support to be posted by the KNOC Stockholder in connection therewith), (iii) be subject to all applicable laws, and
(iv) not require the Company or any of its Subsidiaries to violate, terminate, breach or amend, or otherwise result in the violation, termination, breach or amendment of, any contract, agreement or other arrangement to which it is a party. Prior to entering into any such arrangement with respect to the KORBA Assets, the KNOC Stockholder shall deliver to the Company legal opinions from counsel reasonably acceptable to the Company that such arrangement does not violate, breach or contravene the laws of the United States of America and any other applicable law. The KNOC Stockholder hereby agrees to indemnify, defend and hold harmless the Company, the other Stockholders and their respective current, former and future officers, directors, managers, equity holders, partners, members, Affiliates and Representatives (the KNOC Stockholder Indemnified Parties ) from and against any and all Losses incurred or suffered by any KNOC Stockholder Indemnified Party arising from or relating to the entry by the Company or any of its Subsidiaries into such arrangement with respect to the KORBA Assets. Any such arrangement with respect to the KORBA Assets shall automatically terminate in the event that the KNOC Stockholder breaches its indemnification obligation set forth in the immediately preceding sentence. Notwithstanding anything to the contrary, the KNOC Stockholder may not assign any of its rights under this Section 7.04 to any Person other than its controlled Affiliates.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Expenses . Except as otherwise provided herein, in the Registration Rights Agreement, in the Company Governing Documents or in any Letter Agreement, each Legacy Stockholder shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby including all fees and expenses of its Representatives.
SECTION 8.02. Further Assurances . Each Legacy Stockholder agrees to execute, acknowledge, deliver, file and record such further certificates, amendments, instruments and documents, and to do all such other acts and things, as may be required by law or as, in the reasonable judgment of the Board, may be necessary or advisable to carry out the intent and purposes of this Agreement. Without limiting the generality of the foregoing, each Legacy Class A Stockholder shall vote its Class A Shares and any Class A Shares it holds proxies or powers of attorney with respect to or execute consents, as the case may be, and take all other necessary action, to ensure that the Company Governing Documents facilitate and do not at any time conflict with any provision of this Agreement and permit the Legacy Stockholders to receive the benefits to which the Legacy Stockholders are entitled under this Agreement. Subject to compliance with all Applicable Governance Rules, the Company agrees that it will (and will cause its officers and its Subsidiaries to take all such action as shall be necessary (including by voting all shares of capital stock or other Equity Securities that it holds in each of its Subsidiaries, either in a meeting or in an action by written consent) to ensure that the Company Governing Documents or other applicable governing documents of each of its Subsidiaries are consistent with, and do not conflict with, any provision of this Agreement and that the boards of directors, general partners, managing members or other
applicable governing body or persons for each such Subsidiary shall act in accordance with the provisions of this Agreement.
SECTION 8.03. Notices .
(a) Except as otherwise expressly provided in this Agreement, all notices, requests and other communications to any Party hereunder shall be in writing (including a facsimile or similar writing) and shall be given to such Party at the address or facsimile number specified for such Party on Schedule A hereto, as applicable (or in the case of the Company, this Section 8.03(b) ) or as such Party shall hereafter specify for the purpose by notice to the other Parties. Each such notice, request or other communication shall be effective (i) if personally delivered, on the date of such delivery, (ii) if given by facsimile, at the time such facsimile is transmitted and the appropriate confirmation is received, (iii) if delivered by an internationally-recognized overnight courier, on the next Business Day after the date when sent, (iv) if delivered by registered or certified mail, three (3) Business Days (or, if to an address outside the United States, seven (7) days) after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (v) if given by any other means, when delivered at the address specified on Schedule A or in Section 8.03(b) , as applicable.
(b) All notices, requests or other communications to the Company hereunder shall be delivered to the Company at the following address and/or facsimile number in accordance with the provisions of Section 8.03(a) :
EP Energy Corporation
1001 Louisiana Street
Houston, TX 77002
Attention: Marguerite Woung-Chapman
Facsimile: (713) 997-4099
with copies to (which shall not constitute notice):
Apollo Management VII, L.P.
Apollo Commodities Management, L.P., with respect to Series I
9 West 57th Street
New York, NY 10019
Attention: Laurie Medley
Telecopier: (212) 515-3288
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: John M. Scott
Facsimile: (212) 757-3990
SECTION 8.04. No Third Party Beneficiaries . Notwithstanding anything herein or in any other agreement to the contrary, this Agreement is not intended to confer any rights or remedies upon, and shall not be enforceable by any Person other than (a) the actual Parties hereto (and not, for the avoidance of doubt, any Upper-Tier Investor), (b) their respective successors and permitted assigns, and (c) solely with respect to the provisions of Section 7.04 , each KNOC Stockholder Indemnified Party; provided , that the foregoing exclusion shall not limit the rights of such Upper-Tier Investor under its applicable Upper-Tier Agreement to cause the Legacy Stockholder in which it directly or indirectly invests to exercise the rights of such Legacy Stockholder under this Agreement with respect to such Upper-Tier Investor pursuant to the Section 2.01 Principle.
SECTION 8.05. Waiver; Cumulative Remedies . No failure by any Party to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach of such or any other covenant, agreement, term or condition shall operate as a waiver of such or any other covenant, agreement, term or condition of this Agreement. Any Legacy Stockholder by notice given in accordance with Section 8.03 may, but shall not be under any obligation to, waive any of its rights or conditions to its obligations hereunder, or any duty, obligation or covenant of any other Legacy Stockholder. No waiver shall affect or alter the remainder of this Agreement but each and every covenant, agreement, term and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach. The rights and remedies provided by this Agreement are cumulative and the exercise of any one right or remedy by any Party shall not preclude or waive its right to exercise any or all other rights or remedies.
SECTION 8.06. Governing Law; Consent to Jurisdiction . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws. The Parties hereby declare that it is their intention that this Agreement shall be regarded as made under the laws of the State of Delaware and that the laws of said State shall be applied in interpreting its provisions in all cases where legal interpretation shall be required. Each of the Parties: (a) agrees that this Agreement involves at least US $100,000.00; (b) agrees that this Agreement has been entered into by the Parties in express reliance upon 6 Del. C. § 2708(a); (c) irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware with respect to all actions and proceedings arising out of or relating to this Agreement and the transactions contemplated hereby; (d) agrees that all claims with respect to any such action or proceeding shall be heard and determined in such courts and agrees not to commence any action or proceeding relating to this Agreement, the Company Governing Documents or the transactions contemplated hereby except in such courts; (e) irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding arising out of this Agreement, the Company Governing Documents or the transactions contemplated hereby and irrevocably and unconditionally waives the defense of an inconvenient forum; (f) irrevocably acknowledges and agrees that it is a commercial business entity and is a separate entity distinct from its ultimate equity holder
and/or the executive organs of the government of any state and is capable of suing and being sued; (g) agrees that its entry into this constitutes, and the exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts performed for private and commercial purposes that shall not be deemed as being entered into in the exercise of any public function; (h) irrevocably appoints The Corporation Trust Company as its agent for the sole purpose of receiving service of process or other legal summons in connection with any such dispute, litigation, action or proceeding brought in such courts and agrees that it will maintain The Corporation Trust Company at all times as its duly appointed agent in the State of Delaware (and the Company shall reasonably assist each Legacy Stockholder, to the extent requested by such Legacy Stockholder, with such appointment, including by informing The Corporation Trust Company of such appointment and assisting such Legacy Stockholder with the delivery of any documentation required for such appointment to The Corporation Trust Company) for the service of any process or summons in connection with any such dispute, litigation, action or proceeding brought in such courts and, if it fails to maintain such an agent during any period, any such process or summons may be served on it by mailing a copy of such process or summons by an internationally-recognized courier service to the address set forth next to its name in Schedule A or with respect to the Company, the address set forth in Section 8.03(b) , with such service deemed effective on the fifth (5 th ) day after the date of such mailing; and (i) agrees that a final judgment in any such action or proceeding and from which no appeal can be made shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Parties agree that any violation of this Section 8.06 shall constitute a material breach of this Agreement and shall constitute irreparable harm.
SECTION 8.07. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.
SECTION 8.08. Entire Agreement . This Agreement together with the Registration Rights Agreement, the Restructuring Agreement, the Upper-Tier Agreements, the Letter Agreements, the Company Governing Documents, the MIP Agreement, the Management Agreements, the EEH Agreement, the EMI Agreement, the Management Fee Agreement and the Transaction Fee Agreement constitute the entire agreement among the Parties pertaining to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the Parties in connection herewith and therewith, and no covenant, representation or condition not expressed in this Agreement, the Registration Rights Agreement, the Restructuring Agreement, the Upper-Tier Agreements, the Letter Agreements, the Company Governing Documents, the MIP Agreement, the Management Agreements, the EEH Agreement, the EMI Agreement, the Management Fee Agreement and the Transaction Fee Agreement shall affect, or be effective to interpret, change or restrict, the express provisions of this Agreement.
SECTION 8.09. Headings . The titles of Articles and Sections of this Agreement are for convenience only and do not define or limit the provisions hereof.
SECTION 8.10. Termination of Agreement . Upon the earlier of the consummation of a Qualified Offering and the consummation of a Change of Control, all rights and obligations of the Legacy Stockholders under the terms and conditions of this Agreement shall terminate without any further liability or obligation to the Company, the Legacy Stockholders or otherwise, except for the rights and obligations set forth in or provided for under (a) Article V and Article VIII , which shall survive such termination in accordance with their terms, and (b) Section 6.01 , Section 6.02 and Section 6.04 which shall not terminate upon the consummation of a Qualified Offering and shall survive until the consummation of a Change of Control.
SECTION 8.11. Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party under this Agreement shall not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
SECTION 8.12. WAIVER OF JURY TRIAL . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM, ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.13. Amendment . Except as otherwise expressly provided herein, this Agreement and/or the Registration Rights Agreement may be amended, modified or supplemented, and any provision hereof and/or thereof may be waived, only by a written instrument duly approved by Special Board Approval and the Legacy Class A Stockholders that together hold, in the aggregate, at least a sixty-six and two-thirds (66 2/3) Legacy Class A Pro Rata Portion and duly executed by the Company; provided , however , that the Company may, without the consent of any Legacy Stockholder, amend or modify this Agreement (including Schedule A ) or waive any provision of this Agreement (other than this Section 8.13 ) and/or the Registration Rights Agreement pursuant to a written instrument to the extent necessary in connection with the issuance of new Shares or other Securities of the Company (including the issuance of Class B Shares
to EEH II pursuant to Section 4.02(b) ) in accordance with, and subject to the limitations set forth in the Certificate of Incorporation and in accordance with the terms of this Agreement and the Registration Rights Agreement; provided , further , that no amendment, modification or waiver which would disproportionately and materially adversely affect the interests of any Legacy Stockholder (in relation to any other Legacy Stockholder or class of Legacy Stockholders after taking into account or giving effect to the relative designations, preferences and/or special rights of the Shares held by such other Legacy Stockholder or class of Legacy Stockholders immediately prior to such amendment, modification or waiver) hereunder and/or thereunder (as applicable) shall be effective without the written approval of such Legacy Stockholder. In the event of the amendment or modification of this Agreement in accordance with its terms, the Board shall meet within thirty (30) days following such amendment or modification (or as soon thereafter as is practicable) for the purpose of adopting any amendment to the Company Governing Documents that may be advisable as a result of such amendment or modification to this Agreement, and, to the extent the Company is not permitted to effect such amendment to the Company Governing Documents without the approval of the Legacy Class A Stockholders, proposing such amendments to the Company Governing Documents to the Legacy Class A Stockholders entitled to vote thereon. The Legacy Class A Stockholders hereby agree to vote in favor of such amendments to the Company Governing Documents.
SECTION 8.14. Confidentiality .
(a) Each of the Legacy Stockholders shall, and shall direct those of its directors, officers, members, stockholders, partners, employees, attorneys, accountants, consultants, trustees, Affiliates and other Representatives (the Legacy Stockholder Parties ) who have access to Confidential Information to, keep confidential and not disclose any Confidential Information without the express consent, in the case of Confidential Information acquired from the Company, of the Board or, in the case of Confidential Information acquired from another Legacy Stockholder, such other Legacy Stockholder, unless:
(i) such disclosure shall be required by applicable law, governmental rule or regulation, court order, administrative or arbitral proceeding;
(ii) such disclosure is reasonably required in connection with any tax audit involving the Company or any Legacy Stockholder;
(iii) such disclosure is reasonably required in connection with any litigation against or involving the Company or any Legacy Stockholder; or
(iv) such disclosure is reasonably required in connection with any proposed Transfer of all or any part of such Legacy Stockholders Shares; provided , that with respect to any such use of any Confidential Information referred to in this clause (iv), advance notice must be given to the Board so that it may require any proposed Transferee that is not a Legacy Stockholder to enter into a confidentiality
agreement with terms substantially similar to the terms of this Section 8.14 (excluding this clause (iv)) prior to the disclosure of such Confidential Information.
(b) Confidential Information shall mean any information related to the activities of the Company, the Legacy Stockholders and their respective Affiliates that a Legacy Stockholder may acquire from the Company or the Legacy Stockholders, other than information that (i) is already available through publicly available sources of information (other than as a result of disclosure by such Legacy Stockholder), (ii) was available to a Legacy Stockholder on a non-confidential basis prior to its disclosure to such Legacy Stockholder by the Company or another Legacy Stockholder, or (iii) becomes available to a Legacy Stockholder on a non-confidential basis from a third party, provided such third party is not known by such Legacy Stockholder, after reasonable inquiry, to be bound by this Agreement or another confidentiality agreement with the Company. Such Confidential Information may include information that pertains or relates to the business and affairs of any other Legacy Stockholder or any other Company matters. Confidential Information may be used by a Legacy Stockholder and its Legacy Stockholder Parties only in connection with Company matters and in connection with the maintenance of its Shares.
(c) In the event that any Legacy Stockholder or any Legacy Stockholder Parties of such Legacy Stockholder is required to disclose any of the Confidential Information, such Legacy Stockholder shall use commercially reasonable efforts to provide the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement, and such Legacy Stockholder shall use commercially reasonable efforts to cooperate with the Company in any effort any such Person undertakes to obtain a protective order or other remedy. In the event that such protective order or other remedy is not obtained, or that the Company waives compliance with the provisions of this Section 8.14 , such Legacy Stockholder and its Legacy Stockholder Parties shall furnish only that portion of the Confidential Information that is legally required and shall exercise all reasonable efforts to obtain reasonably reliable assurance that the Confidential Information shall be accorded confidential treatment.
(d) Notwithstanding the provisions of Section 2.01 and the foregoing provisions of this Section 8.14 , this Section 8.14 shall not apply in respect of any Upper-Tier Management Investor of EMI or EEH who is or has been a party to any Management Agreement containing provisions as to confidentiality (which shall instead govern their obligations of confidentiality); provided , that each such Upper-Tier Management Investor shall nevertheless also be subject to this Section 8.14 with respect to Confidential Information consisting of: (i) the terms, provisions and existence of this Agreement and the other agreements referenced in Section 8.08 , to the extent such documents are not publicly available, (ii) any information relating to the Legacy Stockholders or their respective Upper-Tier Investors or other Affiliates (including, as applicable, the identities of such Persons, their Pro Rata Portion, the number of Shares held by such Persons and the corporate ownership structure of the Company and the Legacy Stockholders), and (iii) any information obtained by or provided to such Upper-Tier Management Investor under this Agreement (including pursuant to the Section 2.01
Principle) or through any Board Observer designated by EMI or the CEO, whether through such Board Observers or the CEOs attendance of any Board meetings or receipt of written materials distributed to each Board Observers or the CEO, in each case solely in its capacity as a representative on the Board, except that any such covered information shall not be deemed to include any information presented by management to the Board that relates to ordinary course financial or operational matters).
SECTION 8.15. Representation by Counsel . Each of the Parties has been represented by and has had an opportunity to consult with legal counsel in connection with the drafting, negotiation and execution of this Agreement. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any Party by any court or arbitrator or any Governmental Authority by reason of such Party having drafted or being deemed to have drafted such provision.
SECTION 8.16. Exhibits and Schedules . All Exhibits and Schedules attached to this Agreement are incorporated and shall be treated as if set forth herein.
SECTION 8.17. Specific Performance . The Parties acknowledge that money damages may not be an adequate remedy for breaches or violations of this Agreement and that any Party, in addition to any other rights and remedies which the Parties may have hereunder or at law or in equity, may, in its sole discretion, apply to a court of competent jurisdiction in accordance with Section 8.06 for specific performance or injunction or such other equitable relief as such court may deem just and proper in order to enforce this Agreement in the event of any breach of the provisions of this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each Party hereby waives (a) any objection to the imposition of such relief, and (b) any requirement for the posting of any bond or similar collateral in connection therewith.
SECTION 8.18. Reliance on Authority of Person Signing Agreement . If a Legacy Stockholder is not a natural person, neither the Company nor any other Legacy Stockholder will (a) be required to determine the authority of the individual signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such individual, or (b) be responsible for the application or distribution of proceeds paid or credited to individuals signing this Agreement on behalf of such entity.
SECTION 8.19. Restriction on Voting . If, pursuant to this Agreement, any Legacy Stockholder is not entitled to cast a vote, give a consent or provide or withhold any approval under this Agreement or otherwise, the determination as to whether the matter under consideration has been approved or consented to shall be made without regard to the voting or approval rights of such Legacy Stockholder in counting the necessary votes, consents or approvals.
SECTION 8.20. Survival of Certain LLC Agreement Tax Provisions .
(a) Tax Returns .
(i) The Company shall timely cause to be prepared by an Accounting Firm all federal, state, local and foreign tax returns (including information returns) of the LLC and its Subsidiaries, for taxable periods ending on or before the termination date of the LLC ( LLC Taxable Periods ), which may be required by a jurisdiction in which the LLC and its Subsidiaries operate or conduct business for each LLC Taxable Period for which such returns are required to be filed and shall cause such returns to be timely filed.
(ii) Within ninety (90) days after the end of each LLC Taxable Period, the Company shall furnish to each Person that was a member of the LLC during such LLC Taxable Period all information required to be reported in the tax returns of such Person for tax jurisdictions in which the LLC is doing business, including a report (including Schedule K-1, if applicable) indicating each such Persons share in the LLCs taxable income, gain, credits, losses and deductions for such year, in sufficient detail to enable such Person to prepare its federal, state and other tax returns. The Company shall provide each such Person with an estimate of such information within sixty (60) days after the end of the applicable LLC Taxable Period. The Company shall provide each such Person with sufficient information for such Person and its direct or indirect owners to pay estimated taxes with respect to the LLC at least fifteen (15) days before such estimated taxes are due. The Company will provide each current or former member of the LLC with any information reasonably requested by such Person in connection with the filing of any tax return by such Person or an Affiliate of such Person, any tax audit or proceeding relating to such Person or an Affiliate of such Person or any tax planning of such Person or an Affiliate of such Person.
(b) Inconsistent Positions . No Legacy Stockholder or its predecessor in interest shall take a position on its income tax return with respect to any item of LLC income, gain, deduction, loss or credit that is different from the position taken on the LLCs income tax return with respect to such item.
(c) Audits . If any current or former member of the LLC or any Affiliate of a current or former member of the LLC would be materially adversely affected by any audit or administrative or judicial proceeding with respect to the LLC and its Subsidiaries, the Company and its Subsidiaries shall (to the extent practicable under the circumstances) consult with such Person in good faith in connection with the negotiation, settlement or the making of any material decision with respect to such audit or proceeding. The Company shall provide to such Person any information reasonably requested by such Person in connection with any such audit or proceeding.
(d) Tax Matters Partner . The Tax Matters Partner (as such term is defined in Section 6231(a)(7) of the Code) of the LLC shall continue to be AIF VII (AIV), L.P., a Delaware limited partnership, for all periods (or portions thereof) ending on or before the Effective Date. The Tax Matters Partner shall use its reasonable efforts to comply with the responsibilities outlined in Sections 6221 through 6233 of the Code (including the Treasury Regulations promulgated thereunder) and shall have any powers necessary to perform fully in such capacity. The Tax Matters Partner is authorized to represent the LLC before taxing authorities and courts in tax matters
affecting the LLC and the Legacy Stockholders or their predecessors in interest, in their capacity as members of the LLC, and shall keep the Legacy Stockholders promptly informed of any such administrative and judicial proceedings. The Tax Matters Partner shall be entitled to be reimbursed by the Company for all reasonable third-party costs and expenses incurred by it in connection with any administrative or judicial proceeding affecting tax matters of the LLC and the Legacy Stockholders or their predecessors in interest, in their capacity as members of the LLC. The Tax Matters Partner shall not bind any Legacy Stockholder to any settlement agreement or closing agreement without such Legacy Stockholders prior written consent. Any Legacy Stockholder who enters into a settlement agreement with any tax authority with respect to any LLC item shall notify the Tax Matters Partner of such settlement agreement and its terms within thirty (30) days after the date of settlement. This provision shall survive any termination of this Agreement.
[ Signature pages follow. ]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first written above.
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THE COMPANY: |
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EP ENERGY CORPORATION |
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By: |
/s/ Brent J. Smolik |
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Name: Brent J. Smolik |
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Title: President and Chief Executive Officer |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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AIF VII (AIV), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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AIF PB VII (LS AIV), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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ANRP (EPE AIV), L.P. |
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By: |
Apollo ANRP Advisors (APO DC), L.P., its general partner |
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By: |
Apollo ANRP Advisors (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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AOP VII (EPE INTERMEDIATE), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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ANRP (EPE INTERMEDIATE), L.P. |
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By: |
Apollo ANRP Advisors (APO DC), L.P., its general partner |
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By: |
Apollo ANRP Advisors (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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ANRP 892/TE (EPE AIV), L.P. |
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By: |
Apollo ANRP Advisors (APO DC), L.P., its general partner |
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By: |
Apollo ANRP Advisors (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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AP VII 892/TE (EPE AIV I), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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AP VII 892/TE (EPE AIV II), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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AP VII 892/TE (EPE AIV III), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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AP VII 892/TE (EPE AIV IV), L.P. |
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By: |
Apollo Advisors VII (APO DC), L.P., its general partner |
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By: |
Apollo Advisors VII (APO DC-GP), LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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APOLLO INVESTMENT FUND (PB) VII, L.P. |
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By: |
Apollo Advisors VII, L.P., its general partner |
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By: |
Apollo Capital Management VII, LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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EPE OVERSEAS CO-INVESTORS (FC), L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general partner |
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By: |
/s/ Laurie Medley |
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Name: Laurie Medley |
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Title: Vice President |
Signature Page to Stockholders Agreement
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LEGACY CLASS A STOCKHOLDER: |
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EPE 892 CO-INVESTORS I, L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general partner |
|
|
|
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|
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By: |
/s/ Laurie Medley |
|
|
Name: Laurie Medley |
|
|
Title: Vice President |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
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EPE 892 CO-INVESTORS II, L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general partner |
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By: |
/s/ Laurie Medley |
|
|
Name: Laurie Medley |
|
|
Title: Vice President |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
|
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|
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EPE 892 CO-INVESTORS III, L.P. |
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By: |
EPE Acquisition Holdings, LLC, its general partner |
|
|
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|
|
|
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By: |
/s/ Laurie Medley |
|
|
Name: Laurie Medley |
|
|
Title: Vice President |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
|
|
|
|
|
|
|
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EPE DOMESTIC CO-INVESTORS, L.P. |
|
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By: |
EPE Acquisition Holdings, LLC, its general partner |
|
|
|
|
|
|
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By: |
/s/ Laurie Medley |
|
|
Name: Laurie Medley |
|
|
Title: Vice President |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
|
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KOREA NATIONAL OIL CORPORATION |
|
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By: |
/s/ Chang-Seok Jeong |
|
|
Name: Chang-Seok Jeong |
|
|
Title: Executive Vice President for Production Group |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
||
|
|
||
|
|
||
|
RIVERSTONE V EVEREST HOLDINGS, L.P. |
||
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||
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By: |
RIVERSTONE ENERGY PARTNERS V, L.P., its general partner |
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By: |
RIVERSTONE ENERGY GP V, LLC, its general partner |
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By: |
/s/ Thomas J. Walker |
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Name: Thomas J. Walker |
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Title: Managing Director |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
||
|
|
||
|
|
||
|
RIVERSTONE V FT CORP HOLDINGS, L.P. |
||
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By: |
RIVERSTONE ENERGY PARTNERS V, L.P., its general partner |
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By: |
RIVERSTONE ENERGY GP V, LLC, its general partner |
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By: |
/s/ Thomas J. Walker |
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|
|
Name: Thomas J. Walker |
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|
|
Title: Managing Director |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
|
|
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|
|
|
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TEXAS OIL & GAS HOLDINGS LLC |
|
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By: |
ACCESS INDUSTRIES MANAGEMENT, LLC, its manager |
|
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By: |
/s/ Alejandro Moreno |
|
|
Name: Alejandro Moreno |
|
|
Title: Senior Vice President |
|
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|
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|
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By: |
/s/ Peter L. Thoren |
|
|
Name: Peter L. Thoren |
|
|
Title: Executive Vice President |
Signature Page to Stockholders Agreement
|
LEGACY CLASS A STOCKHOLDER: |
|
|
|
|
|
|
|
|
EPE MANAGEMENT INVESTORS, LLC |
|
|
|
|
|
|
|
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By: |
/s/ Brent J. Smolik |
|
|
Name: Brent J. Smolik |
|
|
Title: President and Chief Executive Officer |
Signature Page to Stockholders Agreement
|
LEGACY CLASS B STOCKHOLDER: |
|
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|
|
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EPE EMPLOYEE HOLDINGS, LLC |
|
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By: |
/s/ Brent J. Smolik |
|
|
Name: Brent J. Smolik |
|
|
Title: President and Chief Executive Officer |
Signature Page to Stockholders Agreement
Schedule B
Directors
Brent J. Smolik, CEO of EP Energy LLC and Chairman of the Board
Gregory Beard, designated by the Apollo Stockholder
Joshua J. Harris, designated by the Apollo Stockholder
Sam Oh, designated by the Apollo Stockholder
Rakesh Wilson, designated by the Apollo Stockholder
Ilrae Park, designated by the KNOC Stockholder
Pierre F. Lapeyre, Jr., designated by the Riverstone Stockholder
David Leuschen, designated by the Riverstone Stockholder
Donald A. Wagner, designated by the Access Stockholder
Exhibit A
Second Amended and Restated Certificate of Incorporation
Exhibit B
Amended and Restated Bylaws
Exhibit C
Form of Addendum Agreement
This Addendum Agreement (this Addendum Agreement ) is made this [ ] day of [ ], 20[ ], by and between [ ] (the Transferee ), [ ] (the Transferor ) and EP Energy Corporation, a Delaware corporation (the Company ), pursuant to the terms of that certain Stockholders Agreement, dated as of August [ ], 2013, by and among the Company and those stockholders of the Company that are signatories thereto (including all exhibits and schedules thereto, the Agreement ). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
WITNESSETH :
WHEREAS, the Company and the Legacy Stockholders entered into the Agreement to impose certain restrictions and obligations upon themselves, and to provide certain rights, with respect to the Company, the Legacy Stockholders and the Shares;
WHEREAS, the Transferee is acquiring Shares pursuant to a Transfer, in accordance with the Agreement and in such amount as set forth in Section 4 below (the Acquired Shares ); and
WHEREAS, the Agreement requires that any Person to whom Shares are Transferred must enter into an Addendum Agreement binding the Transferee to the Agreement to the same extent as if it were an original party thereto and imposing the same restrictions and obligations upon the Transferee and the Acquired Shares as are imposed upon the Legacy Stockholders and the Shares under the Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and as a condition of the purchase or receipt by the Transferee of the Acquired Shares, the Transferee acknowledges and agrees as follows:
1. The Transferee has received and read the Agreement and acknowledges that the Transferee is acquiring the Acquired Shares in accordance with and subject to the terms and conditions of the Agreement.
2. By the execution and delivery of this Addendum Agreement, the Transferee represents and warrants to, and agrees with the Company and the Transferor that the following statements are true and correct as of the date hereof:
(a) The Transferee is holding the Acquired Shares for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and the Agreement.
(b) If the Transferee is an entity, the Transferee is duly organized and validly existing under the laws of its jurisdiction of organization. If the Transferee is a natural person, such Transferee has full legal capacity.
(c) Except as expressly disclosed in writing to the Company and the other Parties, the execution, delivery and performance by the Transferee of this Addendum Agreement are within the Transferees corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if the Transferee is an individual, are within such Transferees legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority on the part of the Transferee (except as expressly disclosed in writing to the Board prior to the date hereof), and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which the Transferee is a party or by which the Transferee or any of the Transferees properties is bound. This Addendum Agreement has been duly executed and delivered by the Transferee and constitutes a valid and binding agreement of the Transferee, enforceable against the Transferee in accordance with its terms, subject to the Enforceability Exceptions.
(d) The Transferee acknowledges that the Transfer of the Acquired Shares and any related offering have not been and will not be registered under the Securities Act, and, to the extent an offer or sale is involved, are being made in reliance upon federal and state exemptions for transactions not involving a public offering. In furtherance thereof, the Transferee represents and warrants that it is an accredited investor (as defined in Regulation D promulgated under the Securities Act) and the Transferee has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the risks of its investment in the Acquired Shares. The Transferee agrees that it will not take any action that could have an adverse effect on the availability of the exemption from registration provided by Regulation D promulgated under the Securities Act with respect to the offer and sale of the interests in the Company. In connection with its acquisition of the Acquired Shares, the Transferee meets all the applicable suitability standards imposed on it by applicable law.
(e) The Transferee has been given the opportunity to (i) ask questions of, and receive answers from, the Company concerning the terms and conditions of the Acquired Shares and other matters pertaining to an investment in the Company and (ii) obtain any additional information necessary to evaluate the merits and risks of an investment in the Company that the Company can acquire without unreasonable effort or expense. In considering its investment in the Acquired Shares, the Transferee has evaluated for itself the risks and merits of such investment, and is able to bear the economic risk of such investment, including a complete loss of capital, and in addition has not relied upon any representations made by, or other information (whether oral or written) furnished
by or on behalf of, the Company or its Subsidiaries or any director, officer, employee, agent or Affiliate of such Persons, other than as set forth in the Agreement and the Interim Investors Agreement. The Transferee has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company in light of its particular tax and financial situation, and has determined that the Acquired Shares are a suitable investment for such Transferee.
(f) The Transferee does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the execution, delivery or performance of this Addendum Agreement by the Transferee.
3. The Transferee agrees that the Acquired Shares are bound by and subject to all of the terms and conditions of the Agreement, and hereby joins in, and agrees to be bound by, and shall have the benefit of, all of the terms and conditions of the Agreement to the same extent as if the Transferee were an original party to the Agreement; provided , however , that the Transferees joinder in the Agreement shall not constitute a joinder of the Transferee as a party to the Agreement unless and until the Company executes this Addendum Agreement confirming the due joining of the Transferee as a party to the Agreement. This Addendum Agreement shall be attached to and become a part of the Agreement.
4. For good and valuable consideration, the sufficiency of which is hereby acknowledged by the Transferor and the Transferee, the Transferor hereby Transfers absolutely to the Transferee the Acquired Shares, including, for the avoidance of doubt, all rights, title and interest in and to the Acquired Shares, with effect from the date hereof. It is hereby confirmed by the Transferor that the Transferor has complied in all respects with the provisions of the Agreement with respect to the Transfer of the Acquired Shares. The number of Shares currently held by the Transferor, and the number of Acquired Shares to be transferred and assigned pursuant to this Addendum Agreement, are as follows:
Number of Shares
|
|
Number of Acquired
|
|
|
|
[ ] |
|
[ ] |
5. The Transferee hereby agrees to accept the Acquired Shares and hereby agrees and consents to become a Party and hereby is admitted as a Party.
6. Any notice, request or other communication required or permitted to be delivered to the Transferee pursuant to the Agreement shall be given to the Transferee at the address and/or facsimile number listed beneath the Transferees signature below.
7. This Addendum Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.
THE COMPANY: |
EP ENERGY CORPORATION |
|
|
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By: |
|
|
|
Name: |
|
|
Title: |
|
|
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TRANSFEROR: |
[INSERT NAME] |
|
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By: |
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Name: |
|
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Title: |
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TRANSFEREE: |
[INSERT NAME] |
|
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By: |
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Name: |
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Title: |
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[INSERT TRANSFEREES ADDRESS] |
Exhibit 21.1
Subsidiaries of EP Energy Corporation
As of September 4, 2013
Subsidiary |
|
Jurisdiction |
|
% Owned |
|
Apollo (EPE Intermediate DC I), LLC |
|
Delaware |
|
100 |
% |
Apollo (EPE Intermediate DC II), LLC |
|
Delaware |
|
100 |
% |
EPE Acquisition, LLC(1) |
|
Delaware |
|
43.69 |
% |
EPE Intermediate LLC |
|
Delaware |
|
100 |
% |
EPE Holdings LLC |
|
Delaware |
|
100 |
% |
EP Energy BondCo Inc. |
|
Delaware |
|
100 |
% |
EP Energy LLC |
|
Delaware |
|
100 |
% |
EP Energy Global LLC |
|
Delaware |
|
100 |
% |
EP Energy Brazil, L.L.C. |
|
Delaware |
|
100 |
% |
EP Energy Pescada Ltda.(2) |
|
Brazil |
|
99.9999 |
% |
EP Energy Brazil Holdings Company |
|
Cayman Islands |
|
100 |
% |
EP Energy do Brasil Ltda.(3) |
|
Brazil |
|
99.8002 |
% |
EP Energy Preferred Holdings Company, L.L.C. |
|
Delaware |
|
100 |
% |
EP Energy Management, L.L.C. |
|
Delaware |
|
100 |
% |
EP Energy Resale Company, L.L.C. |
|
Delaware |
|
100 |
% |
EP Energy Gathering Company, L.L.C. |
|
Delaware |
|
100 |
% |
EP Energy E&P Company, L.P.(4) |
|
Delaware |
|
99 |
% |
Crystal E&P Company, L.L.C. |
|
Delaware |
|
100 |
% |
EnerVest Energy, L.P.(5) |
|
Delaware |
|
23 |
% |
EPE Nominee Corp. |
|
Delaware |
|
100 |
% |
MBOW Four Star, L.L.C. |
|
Delaware |
|
100 |
% |
Four Star Oil & Gas Company(5) |
|
Delaware |
|
48.8 |
% |
Everest Acquisition Finance Inc. |
|
Delaware |
|
100 |
% |
EPE Employee Holdings II, LLC |
|
Delaware |
|
100 |
% |
EPE Overseas Co-Investors (DC), LLC |
|
Delaware |
|
100 |
% |
EPE 892 and TE Co-Investors (DC), LLC |
|
Delaware |
|
100 |
% |
KNOC EPE Corporation |
|
Delaware |
|
100 |
% |
Riverstone V Non-U.S. Everest Corp. |
|
Delaware |
|
100 |
% |
(1) EPE 892 and TE Co-Investors (DC), LLC owns 20.98%, KNOC EPE Corporation owns 14.75%, Apollo (EPE Intermediate DC I), LLC owns 7.68%, Apollo (EPE Intermediate DC II), LLC owns 6.43%, Riverstone V Non-U.S. Everest Corp. owns 5.34%, and EPE Overseas Co-Investors (DC), LLC owns 1.12%.
(2) 0.0001% held by EP Energy Brazil Holdings Company
(3) 0.1998% held by EP Energy Brazil Holdings Company
(4) 1% held by EP Energy Management, L.L.C., as general partner
(5) Remaining percentage owned by unaffiliated parties
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated June 28, 2013 (except Notes 1 and 2, as to which the date is August 14, 2013), with respect to the consolidated financial statements of EPE Acquisition, LLC included in the Registration Statement (Form S-1) and the related Preliminary Prospectus of EP Energy Corporation for the registration of its Class A common stock.
|
/s/ Ernst & Young LLP |
|
|
|
|
Houston, Texas |
|
|
|
September 3, 2013 |
|
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of EP Energy Corporation of our report (which contains an emphasis of matter paragraph regarding the Companys significant transactions with affiliated companies) dated February 24, 2012 relating to the consolidated financial statements of Four Star Oil & Gas Company, which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP |
Houston, Texas |
September 3, 2013 |
Exhibit 23.3
|
|
|
|
|
TBPE REGISTERED ENGINEERING FIRM F-1580 |
FAX (713) 651-0849 |
|||
1100 LOUISIANA |
SUITE 4600 |
HOUSTON, TEXAS 77002-5294 |
TELEPHONE (713) 651-9191 |
|
CONSENT OF RYDER SCOTT COMPANY, L.P.
As independent petroleum engineers, Ryder Scott Company, L.P. hereby consents to the incorporation by reference in this Registration Statement on Form S-1 of EP Energy Corporation (the Registration Statement) of the reference to us under the heading Experts and our report under the captions Summary, Business, and Supplemental Oil and Natural Gas Operations (Unaudited) and our reserve reports as of June 30, 2013 and December 31, 2012 listed as Exhibits 99.1 and 99.2 to this Registration Statement.
|
/s/ RYDER SCOTT COMPANY, L.P. |
|
|
|
|
|
RYDER SCOTT COMPANY, L.P. |
|
TBPE Firm Registration No. F-1580 |
|
|
|
|
Houston, Texas |
|
September 4, 2013 |
|
SUITE 600, 1015 4TH STREET, S.W. |
CALGARY, ALBERTA T2R 1J4 |
TEL (403) 262-2799 |
FAX (403) 262-2790 |
621 17TH STREET, SUITE 1550 |
DENVER, COLORADO 80293-1501 |
TEL (303) 623-9147 |
FAX (303) 623-4258 |
Exhibit 99.2
EP ENERGY LLC
Estimated
Future Reserves
Attributable to Certain
Leasehold and Royalty Interests
SEC Parameters
As of
June 30, 2013
|
\s\ Val Rick Robinson |
|
|
Val Rick Robinson, P.E. |
|
|
TBPE License No. 105137 |
|
|
Senior Vice President |
|
|
|
[SEAL] |
RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
|
|
|
||
TBPE REGISTERED ENGINEERING FIRM F-1580 |
FAX (713) 651-0849 |
|||
1100 LOUISIANA |
SUITE 4600 |
HOUSTON, TEXAS 77002-5294 |
TELEPHONE (713) 651-9191 |
|
August 8, 2013
EP Energy LLC
1001 Louisiana
Houston, Texas 77002
Gentlemen:
At the request of EP Energy LLC (EP Energy), Ryder Scott Company, L.P. (Ryder Scott) has conducted a reserves audit of the estimates of the proved reserves as of June 30, 2013, prepared by EP Energys engineering and geological staff based on the definitions and disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009, in the Federal Register (SEC regulations). Our third party reserves audit, completed on August 7, 2013 and presented herein, was prepared for public disclosure by EP Energy in filings made with the SEC in accordance with the disclosure requirements set forth in the SEC regulations. The estimated reserves shown herein represent EP Energys estimated net reserves attributable to the leasehold and royalty interests in certain properties owned by EP Energy and the portion of those reserves reviewed by Ryder Scott, as of June 30, 2013. The properties reviewed by Ryder Scott incorporate EP Energy reserve determinations and are located in the Eagle Ford shale and Wolfcamp shale in the state of Texas, the Haynesville shale and other tight gas sands in the state of Louisiana, and the Uinta basin in the state of Utah.
The working and royalty interest properties reviewed by Ryder Scott account for a portion of EP Energys total net proved reserves as of June 30, 2013. The portions reviewed by Ryder Scott as determined by various metrics are as follows:
Portions Reviewed
EP Energy Leasehold and Royalty Interests
|
|
Developed |
|
Undeveloped |
|
Total |
|
Net Liquid Reserves |
|
88 |
% |
99 |
% |
96 |
% |
Net Gas Reserves |
|
32 |
% |
72 |
% |
44 |
% |
Net Equivalent Reserves |
|
48 |
% |
91 |
% |
70 |
% |
Discount Future Net Income |
|
74 |
% |
98 |
% |
86 |
% |
As prescribed by the Society of Petroleum Engineers in Paragraph 2.2(f) of the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information (SPE auditing standards), a reserves audit is defined as the process of reviewing certain of the pertinent facts interpreted and assumptions made that have resulted in an estimate of reserves prepared by others and the rendering of an opinion about (1) the appropriateness of the methodologies employed; (2) the adequacy and quality of the data relied upon; (3) the depth and thoroughness of the reserves estimation process; (4) the classification of reserves appropriate to the relevant definitions used; and (5) the reasonableness of the estimated reserve quantities.
SUITE 600, 1015 4TH STREET, S.W. |
CALGARY, ALBERTA T2R 1J4 |
TEL (403) 262-2799 |
FAX (403) 262-2790 |
621 17TH STREET, SUITE 1550 |
DENVER, COLORADO 80293-1501 |
TEL (303) 623-9147 |
FAX (303) 623-4258 |
EP Energy LLC
August 8, 2013
Based on our review, including the data, technical processes and interpretations presented by EP Energy, it is our opinion that the overall procedures and methodologies utilized by EP Energy in preparing their estimates of the proved reserves as of June 30, 2013, comply with the current SEC regulations and that the overall proved reserves for the reviewed properties as estimated by EP Energy are, in the aggregate, reasonable within the established audit tolerance guidelines of 10 percent as set forth in the SPE auditing standards.
The estimated reserves presented in this report are related to hydrocarbon prices. EP Energy has informed us that in the preparation of their reserve and income projections, as of June 30, 2013, they used average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The net reserves as estimated by EP Energy attributable to EP Energys Leasehold and Royalty interest in properties that we reviewed and the reserves of properties that we did not review are summarized as follows:
SEC PARAMETERS
Estimated Net Reserves
Attributable to Certain Leasehold and Royalty Interests of
EP Energy LLC
As of June 30, 2013
|
|
Proved |
|
||||||
|
|
Developed |
|
|
|
Total |
|
||
|
|
Producing |
|
Non-Producing |
|
Undeveloped |
|
Proved |
|
Net Reserves of Properties |
|
|
|
|
|
|
|
|
|
Audited by Ryder Scott |
|
|
|
|
|
|
|
|
|
Oil/Condensate - MBarrels |
|
56,818 |
|
11,901 |
|
212,489 |
|
281,208 |
|
Plant Products - MBarrels |
|
8,456 |
|
395 |
|
26,860 |
|
35,711 |
|
Gas MMCF |
|
390,375 |
|
31,608 |
|
415,777 |
|
837,760 |
|
Total Oil Equivalents MBOE* |
|
130,336 |
|
17,564 |
|
308,645 |
|
456,545 |
|
|
|
|
|
|
|
|
|
|
|
Net Reserves of Properties |
|
|
|
|
|
|
|
|
|
Not Audited by Ryder Scott |
|
|
|
|
|
|
|
|
|
Oil/Condensate MBarrels |
|
3,945 |
|
1,398 |
|
2,155 |
|
7,498 |
|
Plant Products MBarrels |
|
3,210 |
|
1,654 |
|
1,326 |
|
6,190 |
|
Gas MMCF |
|
713,429 |
|
194,960 |
|
159,819 |
|
1,068,208 |
|
Total Oil Equivalents MBOE* |
|
126,060 |
|
35,545 |
|
30,118 |
|
191,723 |
|
|
|
|
|
|
|
|
|
|
|
Total Net Reserves |
|
|
|
|
|
|
|
|
|
Oil/Condensate MBarrels |
|
60,763 |
|
13,299 |
|
214,644 |
|
288,706 |
|
Plant Products MBarrels |
|
11,666 |
|
2,049 |
|
28,186 |
|
41,901 |
|
Gas MMCF |
|
1,103,804 |
|
226,568 |
|
575,596 |
|
1,905,968 |
|
Total Oil Equivalents MBOE* |
|
256,396 |
|
53,109 |
|
338,763 |
|
648,268 |
|
* 1 bbl liquid = 6 MCF gas equivalents
Liquid hydrocarbons are expressed in thousands of standard 42 gallon barrels. All gas volumes are reported on an as sold basis expressed in millions of cubic feet (MMCF) at the official temperature
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
and pressure bases of the areas in which the gas reserves are located. The net remaining reserves are also shown herein on an equivalent unit basis wherein natural gas is converted to oil equivalent using a factor of 6,000 cubic feet of natural gas per one barrel of oil equivalent. MBOE means thousands barrels of oil equivalent.
Reserves Included in This Report
In our opinion, the proved reserves presented in this report conform to the definition as set forth in the Securities and Exchange Commissions Regulations Part 210.4-10(a). An abridged version of the SEC reserves definitions from 210.4-10(a) entitled Petroleum Reserves Definitions is included as an attachment to this report.
The various proved reserve status categories are defined under the attachment entitled Petroleum Reserves Status Definitions and Guidelines in this report. The proved developed non-producing reserves included herein consist only of the behind pipe category.
Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. At EP Energys request, this report addresses only the proved reserves attributable to the properties reviewed herein.
Proved oil and gas reserves are those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward. The proved reserves included herein were estimated using deterministic methods. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a high degree of confidence that the quantities will be recovered.
Proved reserve estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change. For proved reserves, the SEC states that as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to the estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease. Moreover, estimates of proved reserves may be revised as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks. Therefore, the proved reserves included in this report are estimates only and should not be construed as being exact quantities, and if recovered, could be more or less than the estimated amounts.
Audit Data, Methodology, Procedure and Assumptions
The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions set forth by the Securities and Exchange Commissions Regulations Part 210.4-10(a). The process of estimating the quantities of recoverable oil and gas reserves relies on the use of certain
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods: (1) performance-based methods; (2) volumetric-based methods; and (3) analogy. These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. Reserve evaluators must select the method or combination of methods which in their professional judgment is most appropriate given the nature and amount of reliable geoscience and engineering data available at the time of the estimate, the established or anticipated performance characteristics of the reservoir being evaluated and the stage of development or producing maturity of the property.
In many cases, the analysis of the available geoscience and engineering data and the subsequent interpretation of this data may indicate a range of possible outcomes in an estimate, irrespective of the method selected by the evaluator. When a range in the quantity of reserves is identified, the evaluator must determine the uncertainty associated with the incremental quantities of the reserves. If the reserve quantities are estimated using the deterministic incremental approach, the uncertainty for each discrete incremental quantity of the reserves is addressed by the reserve category assigned by the evaluator. Therefore, it is the categorization of reserve quantities as proved, probable and/or possible that addresses the inherent uncertainty in the estimated quantities reported. For proved reserves, uncertainty is defined by the SEC as reasonable certainty wherein the quantities actually recovered are much more likely than not to be achieved. The SEC states that probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. The SEC states that possible reserves are those additional reserves that are less certain to be recovered than probable reserves and the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. All quantities of reserves within the same reserve category must meet the SEC definitions as noted above.
Estimates of reserves quantities and their associated reserve categories may be revised in the future as additional geoscience or engineering data become available. Furthermore, estimates of reserves quantities and their associated reserve categories may also be revised due to other factors such as changes in economic conditions, results of future operations, effects of regulation by governmental agencies or geopolitical or economic risks as previously noted herein.
The proved reserves for the working interest and royalty properties that we reviewed were estimated by performance methods, the volumetric method, analogy, or a combination of methods. Performance estimates utilized extrapolations of historical production and pressure data available through June 2013 in those cases where such data were considered to be definitive. The data utilized in this analysis were furnished to Ryder Scott by EP Energy or obtained from public data sources and were considered sufficient for the purpose thereof.
The proved producing reserves were estimated by performance methods alone or a combination of methods where there were inadequate historical performance data to establish a definitive trend and where the use of production performance data as the sole basis for the reserve estimates was considered to be inappropriate. Decline curve analysis was used as the primary methodology for all of the proved producing reserves.
The proved developed non-producing and undeveloped reserves that we reviewed were estimated by the volumetric method, analogy, or a combination of methods. The volumetric analysis utilized pertinent well and seismic data furnished to Ryder Scott by EP Energy for our review or which we have obtained from public data sources that were available through June 2013. The data utilized from the analogues in conjunction with well data incorporated into the volumetric analysis were considered sufficient for the purpose thereof. Analogy was used as the primary methodology in
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
approximately 94 percent of the proved non-producing and undeveloped reserves and volumetrics was used in approximately 6 percent of the proved non-producing and undeveloped reserves.
Horizontal wells account for approximately 77 percent of the proved reserves reviewed, and shale wells account for approximately 63 percent of the proved reserves reviewed.
To estimate economically recoverable proved oil and gas reserves, we consider many factors and assumptions including, but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be anticipated to be economically producible from a given date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined. While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may increase or decrease from those under existing economic conditions, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in conducting this review.
As stated previously, proved reserves must be anticipated to be economically producible from a given date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined. To confirm that the proved reserves reviewed by us meet the SEC requirements to be economically producible, we have reviewed certain primary economic data utilized by EP Energy relating to hydrocarbon prices and costs as noted herein.
The hydrocarbon prices furnished by EP Energy for the properties reviewed by us are based on SEC price parameters using the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements.
The initial SEC hydrocarbon prices in effect on June 30, 2013, for the properties reviewed by us were determined using the 12-month average first-day-of-the-month benchmark prices appropriate to the geographic area where the hydrocarbons are sold. These benchmark prices are prior to the adjustments for differentials as described herein. The table below summarizes the benchmark prices and price reference used by EP Energy for the geographic areas reviewed by us. In certain geographic areas, the price reference and benchmark prices may be defined by contractual arrangements. In cases where there are multiple contracts or price references within the same geographic area, the benchmark price is represented by the unweighted arithmetic average of the initial 12-month average first-day-of-the-month benchmark prices used.
The product prices which were actually used by EP Energy to determine the future gross revenue for each property reviewed by us reflect adjustments to the benchmark prices for gravity, quality, local conditions, gathering and transportation fees and/or distance from market, referred to herein as differentials. The differentials used by EP Energy were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the data used by EP Energy.
The table below summarizes EP Energys net volume weighted benchmark prices adjusted for differentials for the working and royalty interest properties reviewed by us and referred to herein as EP Energys average realized prices. The average realized prices shown in the table below were determined from EP Energys estimate of the total future gross revenue before production taxes for the
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
properties reviewed by us and EP Energys estimate of the total net reserves for the properties reviewed by us for the geographic area. The data shown in the table below is presented in accordance with SEC disclosure requirements for each of the geographic areas reviewed by us.
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Product |
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Price
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Average
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Average
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North America |
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United States |
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Oil/Condensate |
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WTI Cushing |
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$91.60/Bbl |
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$90.21/Bbl |
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NGLs |
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WTI Cushing |
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$91.60/Bbl |
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$33.75/Bbl |
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Gas |
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Various (1) |
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$2.68/MMBTU |
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$2.67/Mcf |
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(1) Gas Reference Price Hubs are: CenterPoint Energy Gas Transmission East, Colorado Interstate Gas Rocky Mntns, Columbia Gulf Transmission Mainline, Henry Hub Cash Price, Natural Gas Pipeline (South Texas zone), Natural Gas Pipeline (TX/OK Zone), Tennessee Gas Pipeline Texas (Zone 0), Texas Gas Transmission Corp. (Zone 1), Transcontinental Gas Pipeline (Zone 1), and West Texas Waha
The effects of derivative instruments designated as price hedges of oil and gas quantities are not reflected in EP Energys individual property evaluations.
Accumulated gas production imbalances, if any, were not taken into account in the proved gas reserve estimates reviewed. The proved gas volumes included herein do not attribute gas consumed in operations as reserves.
Operating costs furnished by EP Energy are based on the operating expense reports of EP Energy and include only those costs directly applicable to the leases or wells for the properties reviewed by us. The operating costs include a portion of general and administrative costs allocated directly to the leases and wells. For operated properties, the operating costs include an appropriate level of corporate general administrative and overhead costs. The operating costs furnished by EP Energy were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the data used by EP Energy. No deduction was made for loan repayments, interest expenses, or exploration and development prepayments that were not charged directly to the leases or wells.
Development costs furnished by EP Energy are based on authorizations for expenditure for the proposed work or actual costs for similar projects. The development costs furnished by EP Energy were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the data used by EP Energy. The estimated net cost of abandonment after salvage was included by EP Energy for properties where abandonment costs net of salvage were significant. EP Energys estimates of the net abandonment costs were accepted without independent verification.
The proved developed non-producing and undeveloped reserves for the properties reviewed by us have been incorporated herein in accordance with EP Energys plans to develop these reserves as of June 30, 2013. The implementation of EP Energys development plans as presented to us is subject to the approval process adopted by EP Energys management. As the result of our inquiries during the course of our review, EP Energy has informed us that the development activities for the properties reviewed by us have been subjected to and received the internal approvals required by EP Energys
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
management at the appropriate local, regional and/or corporate level. In addition to the internal approvals as noted, certain development activities may still be subject to specific partner AFE processes, Joint Operating Agreement (JOA) requirements or other administrative approvals external to EP Energy. Where appropriate, EP Energy has provided written documentation supporting their commitment to proceed with the development activities as presented to us . Additionally, EP Energy has informed us that they are not aware of any legal, regulatory, political or economic obstacles that would significantly alter their plans.
Current costs used by EP Energy were held constant throughout the life of the properties.
EP Energys forecasts of future production rates are based on historical performance from wells currently on production. If no production decline trend has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate, until a decline in ability to produce was anticipated. An estimated rate of decline was then applied to depletion of the reserves. If a decline trend has been established, this trend was used as the basis for estimating future production rates.
Test data and other related information were used by EP Energy to estimate the anticipated initial production rates for those wells or locations that are not currently producing. For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by EP Energy. Wells or locations that are not currently producing may start producing earlier or later than anticipated in EP Energys estimates due to unforeseen factors causing a change in the timing to initiate production. Such factors may include delays due to weather, the availability of rigs, the sequence of drilling, completing and/or recompleting wells and/or constraints set by regulatory bodies.
The future production rates from wells currently on production or wells or locations that are not currently producing may be more or less than estimated because of changes including, but not limited to, reservoir performance, operating conditions related to surface facilities, compression and artificial lift, pipeline capacity and/or operating conditions, producing market demand and/or allowables or other constraints set by regulatory bodies.
EP Energys operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include, but may not be limited to, matters relating to land tenure and leasing, the legal rights to produce hydrocarbons, drilling and production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax, and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of proved reserves actually recovered and amounts of proved income actually received to differ significantly from the estimated quantities.
The estimates of proved reserves presented herein were based upon a detailed study of the properties in which EP Energy owns an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities that may exist nor were any costs included by EP Energy for potential liabilities to restore and clean up damages, if any, caused by past operating practices.
Certain technical personnel of EP Energy are responsible for the preparation of reserve estimates on new properties and for the preparation of revised estimates, when necessary, on old properties. These personnel assembled the necessary data and maintained the data and workpapers
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
in an orderly manner. We consulted with these technical personnel and had access to their workpapers and supporting data in the course of our audit.
EP Energy has informed us that they have furnished us all of the material accounts, records, geological and engineering data, and reports and other data required for this investigation. In performing our audit of EP Energys forecast of future proved production, we have relied upon data furnished by EP Energy with respect to property interests owned, production and well tests from examined wells, normal direct costs of operating the wells or leases, other costs such as transportation and/or processing fees, ad valorem and production taxes, recompletion and development costs, abandonment costs after salvage, product prices based on the SEC regulations, adjustments or differentials to product prices, geological structural and isochore maps, well logs, core analyses, and pressure measurements. Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the data furnished by EP Energy. The data described herein were accepted as authentic and sufficient for determining the reserves unless, during the course of our examination, a matter of question came to our attention in which case the data were not accepted until all questions were satisfactorily resolved. We consider the factual data furnished to us by EP Energy to be appropriate and sufficient for the purpose of our review of EP Energys estimates of reserves. In summary, we consider the assumptions, data, methods and analytical procedures used by EP Energy and as reviewed by us appropriate for the purpose hereof, and we have used all such methods and procedures that we consider necessary and appropriate under the circumstances to render the conclusions set forth herein.
Audit Opinion
Based on our review, including the data, technical processes and interpretations presented by EP Energy, it is our opinion that the overall procedures and methodologies utilized by EP Energy in preparing their estimates of the proved reserves as of June 30, 2013, comply with the current SEC regulations and that the overall proved reserves for the reviewed properties as estimated by EP Energy are, in the aggregate, reasonable within the established audit tolerance guidelines of 10 percent as set forth in the SPE auditing standards.
We were in reasonable agreement with EP Energys estimates of proved reserves for the properties which we reviewed. As a consequence, it is our opinion that on an aggregate basis the data presented herein for the properties that we reviewed fairly reflects the estimated net reserves owned by EP Energy.
Other Properties
Other properties, as used herein, are those properties of EP Energy which we did not review. The proved net reserves attributable to the other working and royalty interest properties account for 4 percent of the total proved net liquid hydrocarbon reserves and 56 percent of the total proved net gas reserves or 30 percent of the total proved net reserves on a standard barrel of oil equivalent, MBOE basis based on estimates prepared by EP Energy as of June 30, 2013. Based on reserve and income projections prepared by EP Energy, the other properties represent 14 percent of the total proved discounted future net income based on the unescalated pricing policy of the SEC.
The same technical personnel of EP Energy were responsible for the preparation of the reserve estimates for the properties reviewed by Ryder Scott as well as for the properties not reviewed by Ryder Scott.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
Standards of Independence and Professional Qualification
Ryder Scott is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world for over seventy-five years. Ryder Scott is employee-owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have over eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for which we provide services, no single client or job represents a material portion of our annual revenue. We do not serve as officers or directors of any privately-owned or publicly-traded oil and gas company and are separate and independent from the operating and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity to each engagement for our services.
Ryder Scott actively participates in industry-related professional societies and organizes an annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing education.
Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in the form of a registered or certified professional engineers license or a registered or certified professional geoscientists license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization.
We are independent petroleum engineers with respect to EP Energy. Neither we nor any of our employees have any interest in the subject properties, and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed.
The results of this audit, presented herein, are based on technical analysis conducted by teams of geoscientists and engineers from Ryder Scott. The professional qualifications of the undersigned, the technical person primarily responsible for overseeing the review of the reserves information discussed in this report, are included as an attachment to this letter.
Terms of Usage
The results of our third party audit, presented in report form herein, were prepared in accordance with the disclosure requirements set forth in the SEC regulations and intended for public disclosure as an exhibit in filings made with the SEC by EP Energy.
EP Energy makes periodic filings on Form 10-K with the SEC under the 1934 Exchange Act. Furthermore, EP Energy has certain registration statements filed with the SEC under the 1933 Securities Act into which any subsequently filed Form 10-K is incorporated by reference. We have consented to the incorporation by reference in the registration statements on Form S-3 and S-8 of EP Energy of the references to our name as well as to the references to our third party report for EP Energy. Our written consent for such use is included as a separate exhibit to the filings made with the SEC by EP Energy.
We have provided EP Energy with a digital version of the original signed copy of this report letter. In the event there are any differences between the digital version included in filings made by EP Energy and the original signed report letter, the original signed report letter shall control and supersede the digital version.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy LLC
August 8, 2013
The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.
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Very truly yours, |
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RYDER SCOTT COMPANY, L.P. |
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TBPE Firm Registration No. F-1580 |
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\s\ Val Rick Robinson |
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Val Rick Robinson, P.E. |
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TBPE License No. 105137 |
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Senior Vice President |
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[SEAL] |
VRR (DPR)/pl
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Professional Qualifications of Primary Technical Engineer
The conclusions presented in this report are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Mr. Val Rick Robinson was the primary technical person responsible for the estimate of the reserves, future production and income presented herein.
Mr. Robinson, an employee of Ryder Scott Company, L.P. (Ryder Scott) since 2006, is a Vice President responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Robinson served in a number of engineering positions with ExxonMobil Corporation. For more information regarding Mr. Robinsons geographic and job specific experience, please refer to the Ryder Scott Company website at www.ryderscott.com/Experience/Employees.
Mr. Robinson earned a Bachelor of Science degree in Chemical Engineering from Brigham Young University in 2003 and is a licensed Professional Engineer in the State of Texas. He is also a member of the Society of Petroleum Engineers.
In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Robinson fulfills. As part of his 2012 continuing education hours, Mr. Robinson attended 20 hours of formalized training including the 2012 RSC Reserves Conference and various professional society presentations covering such topics as the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register, the SPE/WPC/AAPG/SPEE Petroleum Resources Management System, reservoir engineering, overviews of the various productive basins of North America, computer software, and professional ethics.
Based on his educational background, professional training and more than 9 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Robinson has attained the professional qualifications as a Reserves Estimator set forth in Article III of the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers as of February 19, 2007.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
PREAMBLE
On January 14, 2009, the United States Securities and Exchange Commission (SEC) published the Modernization of Oil and Gas Reporting; Final Rule in the Federal Register of National Archives and Records Administration (NARA). The Modernization of Oil and Gas Reporting; Final Rule includes revisions and additions to the definition section in Rule 4-10 of Regulation S-X, revisions and additions to the oil and gas reporting requirements in Regulation S-K, and amends and codifies Industry Guide 2 in Regulation S-K. The Modernization of Oil and Gas Reporting; Final Rule, including all references to Regulation S-X and Regulation S-K, shall be referred to herein collectively as the SEC regulations. The SEC regulations take effect for all filings made with the United States Securities and Exchange Commission as of December 31, 2009, or after January 1, 2010. Reference should be made to the full text under Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) for the complete definitions (direct passages excerpted in part or wholly from the aforementioned SEC document are denoted in italics herein).
Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. Under the SEC regulations as of December 31, 2009, or after January 1, 2010, a company may optionally disclose estimated quantities of probable or possible oil and gas reserves in documents publicly filed with the SEC. The SEC regulations continue to prohibit disclosure of estimates of oil and gas resources other than reserves and any estimated values of such resources in any document publicly filed with the SEC unless such information is required to be disclosed in the document by foreign or state law as noted in §229.1202 Instruction to Item 1202.
Reserves estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change.
Reserves may be attributed to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance, natural gas cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids. Other improved recovery methods may be developed in the future as petroleum technology continues to evolve.
Reserves may be attributed to either conventional or unconventional petroleum accumulations. Petroleum accumulations are considered as either conventional or unconventional based on the nature of their in-place characteristics, extraction method applied, or degree of processing prior to sale. Examples of unconventional petroleum accumulations include coalbed or coalseam methane
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
(CBM/CSM), basin-centered gas, shale gas, gas hydrates, natural bitumen and oil shale deposits. These unconventional accumulations may require specialized extraction technology and/or significant processing prior to sale.
Reserves do not include quantities of petroleum being held in inventory.
Because of the differences in uncertainty, caution should be exercised when aggregating quantities of petroleum from different reserves categories.
RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(26) defines reserves as follows:
Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.
Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir ( i.e. , absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources ( i.e. , potentially recoverable resources from undiscovered accumulations).
PROVED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(22) defines proved oil and gas reserves as follows:
Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically produciblefrom a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulationsprior to the time at which 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.
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and
(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
PROVED RESERVES (SEC DEFINITIONS) CONTINUED
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and
(B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
and
PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)
Sponsored and Approved by:
SOCIETY OF PETROLEUM ENGINEERS (SPE)
WORLD PETROLEUM COUNCIL (WPC)
AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)
SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)
Reserves status categories define the development and producing status of wells and reservoirs. Reference should be made to Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) and the SPE-PRMS as the following reserves status definitions are based on excerpts from the original documents (direct passages excerpted from the aforementioned SEC and SPE-PRMS documents are denoted in italics herein).
DEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(6) defines developed oil and gas reserves as follows:
Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Developed Producing (SPE-PRMS Definitions)
While not a requirement for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance contained in the SPE-PRMS as Producing or Non-Producing.
Developed Producing Reserves
Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.
Improved recovery reserves are considered producing only after the improved recovery project is in operation.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES
Developed Non-Producing
Developed Non-Producing Reserves include shut-in and behind-pipe reserves.
Shut-In
Shut-in Reserves are expected to be recovered from:
(1) completion intervals which are open at the time of the estimate, but which have not started producing;
(2) wells which were shut-in for market conditions or pipeline connections; or
(3) wells not capable of production for mechanical reasons.
Behind-Pipe
Behind-pipe Reserves are expected to be recovered from zones in existing wells, which will require additional completion work or future re-completion prior to start of production.
In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.
UNDEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(31) defines undeveloped oil and gas reserves as follows:
Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS